AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 30, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
DIAMOND BRANDS OPERATING CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3999 411905675
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
1800 CLOQUET AVENUE
CLOQUET, MINNESOTA 55720-2141
(218) 879-6700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
EMPIRE CANDLE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
KANSAS 3999 742812720
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
1800 CLOQUET AVENUE
CLOQUET, MINNESOTA 55720-2141
(218) 879-6700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
FORSTER INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MAINE 3089 010473635
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
1800 CLOQUET AVENUE
CLOQUET, MINNESOTA 55720-2141
(218) 879-6700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
THOMAS W. KNUESEL
VICE PRESIDENT OF FINANCE AND CHIEF FINANCIAL OFFICER
DIAMOND BRANDS OPERATING CORP.
1800 CLOQUET AVENUE
CLOQUET, MINNESOTA 55720-2141
(218) 879-6700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES OF CORRESPONDENCE TO:
PAUL J. SHIM, ESQ.
CLEARY, GOTTLIEB, STEEN & HAMILTON
ONE LIBERTY PLAZA
NEW YORK, NEW YORK 10006
----------------
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: [_]
CALCULATION OF REGISTRATION FEE
=============================================================================
Proposed Proposed
Title of each maximum maximum
class of secur- Amount offering aggregate Amount of
ities to be to be price offering registration
registered registered per unit price (1) fee
- -----------------------------------------------------------------------------
10 1/8% Senior
Subordinated
Notes
due 2008 $100,000,000 100% $100,000,000 $29,500
- -----------------------------------------------------------------------------
(1) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended.
=============================================================================
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
DIAMOND BRANDS OPERATING CORP.
REGISTRATION STATEMENT ON FORM S-4
(CROSS REFERENCE SHEET FURNISHED PURSUANT TO ITEM 501(B) OF REGULATION S-K)
ITEM LOCATION IN PROSPECTUS
- ---- ----------------------
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus............................... Facing Page of the Registration
Statement; Cross Reference
Sheet; Outside Front Cover Page
of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus...................... Available Information;
Incorporation of Certain
Documents by Reference; Outside
Back Cover Page of Prospectus
3. Risk Factors, Ratio of Earnings to
Fixed Charges and Other Information...... Prospectus Summary; Risk
Factors; Selected Historical and
Pro Forma Consolidated Financial
Data
4. Terms of the Transaction................ Prospectus Summary; Risk
Factors; The Exchange Offer;
Description of the New Notes;
Plan of Distribution; Certain
United States Federal Income Tax
Considerations
5. Pro Forma Financial Information......... Capitalization; Unaudited Pro
Forma Consolidated Financial
Data
6. Material Contracts With the Company
Being Acquired........................... Not Applicable
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters....................... Not Applicable
8. Interests of Named Experts and
Counsel.................................. Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Not Applicable
10. Information with Respect to S-3
Registrants.............................. Not Applicable
11. Incorporation of Certain Information by
Reference................................ Not Applicable
12. Information with Respect to S-2 or S-3
Registrants.............................. Not Applicable
13. Incorporation of Certain Information by
Reference................................ Not Applicable
14. Information with Respect to Registrants
Other Than S-3 or S-2 Registrants........ Outside Front Cover of
Prospectus; Prospectus Summary;
Selected Historical and Pro
Forma Consolidated Financial
Data; Management's Discussion
and Analysis of Financial
Condition and Results of
Operations; Business;
Consolidated Financial
Statements
15. Information with Respect to S-3
Companies................................ Not Applicable
16. Information with Respect to S-2 or S-3
Companies................................ Not Applicable
17. Information with Respect to Companies
Other Than S-3 or S-2 Companies.......... Not Applicable
18. Information if Proxies, Consents or
Authorizations Are to be Solicited....... Not Applicable
19. Information if Proxies, Consents or
Authorizations Are Not to be Solicited
or in an Exchange Offer.................. Prospectus Summary; Management;
Capital Stock of Holdings and
the Issuer; Certain
Relationships and Related
Transactions
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 30, 1998
PROSPECTUS
DIAMOND BRANDS OPERATING CORP.
OFFER TO EXCHANGE SERIES B 10 1/8% SENIOR SUBORDINATED NOTES DUE 2008,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OUTSTANDING SERIES A 10 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.
Diamond Brands Operating Corp., a Delaware corporation (the "Issuer"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal" and such offer being the "Exchange Offer"), to exchange Series B
10 1/8% Senior Subordinated Notes due 2008 of the Issuer (the "New Notes"),
which are guaranteed by the Issuer's subsidiaries (the "Guarantors") and which
have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which this
Prospectus is a part, for an equal principal amount of outstanding Series A 10
1/8% Senior Subordinated Notes due 2008 of the Issuer (the "Old Notes"), which
are guaranteed by the Guarantors and of which $100,000,000 aggregate principal
amount is outstanding as of the date hereof. The New Notes and the Old Notes
are collectively referred to herein as the "Notes."
Any and all Old Notes that are validly tendered and not withdrawn on or prior
to 5:00 P.M., New York City time, on the date the Exchange Offer expires, which
will be , 1998 (20 business days following the commencement of
the Exchange Offer) unless the Exchange Offer is extended (such date, including
as extended, the "Expiration Date"), will be accepted for exchange. Tenders of
Old 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 Old Notes being tendered for exchange. However, the
Exchange Offer is subject to certain customary conditions, which may be waived
by the Issuer, and to the terms of the Registration Rights Agreement, dated as
of April 21, 1998, by and among the Issuer, the Guarantors and Donaldson,
Lufkin & Jenrette Securities Corporation and Morgan Stanley & Co. Incorporated
(the "Initial Purchasers") (the "Registration Rights Agreement"). Old Notes may
only be tendered in integral multiples of $1,000. See "The Exchange Offer."
The New Notes will be entitled to the benefits of the same Indenture (as
defined herein) that governs the Old Notes and that will govern the New Notes.
The form and terms of the New Notes are the same in all material respects as
the form and terms of the Old Notes, except that the New Notes have been
registered under the Securities Act and therefore will not bear legends
restricting the transfer thereof. See "The Exchange Offer" and "Description of
the New Notes."
The New Notes will be represented by permanent global notes in fully
registered form and will be deposited with, or on behalf of, The Depository
Trust Company ("DTC") and registered in the name of a nominee of DTC.
Beneficial interests in the permanent global notes will be shown on, and
transfers thereof will be effected through, records maintained by DTC and its
participants.
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission"), as set forth in no-action letters issued to
third parties, including Exxon Capital Holdings Corporation, SEC No-Action
Letter (available May 13, 1988), Morgan Stanley & Co. Incorporated, SEC No-
Action Letter (available June 5, 1991), and Shearman & Sterling, SEC No-Action
Letter (available July 2, 1993) (collectively, the "Exchange Offer No-Action
Letters"), the Issuer and the Guarantors believe that the New Notes issued
pursuant to the Exchange Offer may be offered for resale, resold or otherwise
transferred by each holder (other than a broker-dealer who acquires such New
Notes directly from the Issuer for resale pursuant to Rule 144A under the
Securities Act or any other available exemption under the Securities Act and
other than any holder that is an "affiliate" (as defined in Rule 405 under the
Securities Act) of the Issuer) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business and such
holder is not engaged in, and does not intend to engage in, a distribution of
such New Notes and has no arrangement with any person to participate in a
distribution of such New Notes. By tendering Old Notes in exchange for New
Notes, each holder, other than a broker-dealer, will represent to the Issuer
and the Guarantors that: (i) it is not an affiliate (as defined in Rule 405
under the Securities Act) of the Issuer; (ii) it is not a broker-dealer
tendering Old Notes acquired for its own account directly from the Issuer;
(iii) any New Notes to be received by it will be acquired in the ordinary
course of its business; and (iv) it is not engaged in, and does not intend to
engage in, a distribution of such New Notes and has no arrangement or
understanding to participate in a distribution of New Notes. If a holder of Old
Notes is engaged in or intends to engage in a distribution of New Notes or has
any arrangement or understanding with respect to the distribution of New Notes
to be acquired pursuant to the Exchange Offer, such holder may not rely on the
applicable interpretations of the staff of the Commission and must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer (a "Participating Broker-Dealer") must acknowledge that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a Participating
Broker-Dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. This Prospectus, as
(continued on next page)
----------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PARTICIPANTS
IN THE EXCHANGE OFFER, SEE "RISK FACTORS" BEGINNING ON PAGE 16 OF THIS
PROSPECTUS.
----------
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>
(continued from cover page)
it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of New Notes received
in exchange for Old Notes where such Old Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities. Pursuant to the Registration Rights Agreement, the Issuer
and the Guarantors have agreed that they will make this Prospectus available
to any Participating Broker-Dealer for a period of time not to exceed one year
after the date on which the Exchange Offer is consummated for use in
connection with any such resale. See "Plan of Distribution."
Neither the Issuer nor the Guarantors will receive any proceeds from this
offering. The Issuer has agreed to pay the expenses of the Exchange Offer. No
underwriter is being utilized in connection with the Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE ISSUER ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES AND BLUE SKY LAWS OF SUCH JURISDICTION.
The Old Notes have been designated as eligible for trading in the Private
Offerings, Resale and Trading through Automated Linkages ("PORTAL") market.
Prior to this Exchange Offer, there has been no public market for the New
Notes. If such a market were to develop, the New Notes could trade at prices
that may be higher or lower than their principal amount. Neither the Issuer
nor any of the Guarantors intends to apply for listing of the New Notes on any
securities exchange or for quotation of the New Notes on The Nasdaq Stock
Market's National Market or otherwise. The Initial Purchasers have previously
made a market in the Old Notes, and the Issuer and the Guarantors have been
advised that the Initial Purchasers currently intend to make a market in the
New Notes, as permitted by applicable laws and regulations, after consummation
of the Exchange Offer. The Initial Purchasers are not obligated, however, to
make a market in the Old Notes or the New Notes and any such market-making
activity may be discontinued at any time without notice at the sole discretion
of the Initial Purchasers. There can be no assurance as to the liquidity of
the public market for the New Notes or that any active public market for the
New Notes will develop or continue. If an active public market does not
develop or continue, the market price and liquidity of the New Notes may be
adversely affected. See "Risk Factors--Risk Factors Relating to the Notes--
Absence of Public Market."
<PAGE>
---------------
AVAILABLE INFORMATION
Neither the Issuer nor any of the Guarantors is currently subject to the
periodic reporting and other informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Issuer will become
subject to such requirements upon the effectiveness of the Registration
Statement (as defined herein). Pursuant to the indenture by and among the
Issuer, the Guarantors and State Street Bank and Trust Company (as trustee),
dated as of April 21, 1998 (the "Indenture"), the Issuer has agreed to file
with the Commission and provide to the holders of the Old Notes annual reports
and the information, documents and other reports which are required to be
delivered pursuant to Sections 13 and 15(d) of the Exchange Act.
This Prospectus constitutes a part of a registration statement on Form S-4
(together with all amendments and exhibits, the "Registration Statement")
filed by the Issuer and the Guarantors with the Commission, through the
Electronic Data Gathering, Analysis and Retrieval System ("EDGAR"), under the
Securities Act, with respect to the New Notes offered hereby. This Prospectus
omits certain of the information contained in the Registration Statement, and
reference is hereby made to the Registration Statement for further information
with respect to the Issuer and the securities offered hereby. Although
statements concerning and summaries of certain documents are included herein,
reference is made to the copies of such documents filed as exhibits to the
Registration Statement or otherwise filed with the Commission. These documents
may be inspected without charge at the office of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies may be
obtained at fees and charges prescribed by the Commission. Copies of such
materials may also be obtained from the Web site that the Commission maintains
at http://www.sec.gov.
---------------
The Guarantors are the subsidiaries guaranteeing the Issuer's obligations
under the Notes and are each wholly-owned subsidiaries of the Issuer. The
guarantee of each Guarantor is full and unconditional. Separate financial
statements of the Guarantors are not set forth in this Prospectus as the
Issuer has determined that they would not be material to investors.
1
<PAGE>
PROSPECTUS SUMMARY
Prior to the Recapitalization (as defined herein), Diamond Brands
Incorporated ("Holdings") and its direct subsidiaries carried on the business
described herein. In connection with the Recapitalization, Holdings organized
the Issuer and immediately prior to the consummation of the Recapitalization,
Holdings transferred substantially all of its assets and liabilities to the
Issuer. Holdings' current operations are, and future operations are expected to
be, limited to owning the stock of the Issuer. Unless the context otherwise
requires, the "Company" or "Diamond Brands" refers to Holdings, the Issuer, and
its direct and indirect subsidiaries. The financial statements and other
financial data herein are, for the periods prior to the consummation of the
Recapitalization, those of Holdings. The following summary does not purport to
be complete and is qualified in its entirety by the more detailed information
and the audited and unaudited consolidated financial statements of the Company
and the Unaudited Pro Forma Consolidated Financial Data (as defined herein) of
the Company included elsewhere in this Prospectus. Market data used throughout
this Prospectus were obtained from Information Resources, Inc. ("IRI") as of
March 1, 1998 (which data include only sales reported by grocery stores, drug
stores and mass merchandisers), internal company surveys or industry
publications. Although the Company believes that such sources are reliable, the
accuracy and completeness of such information is not guaranteed and has not
been independently verified. Except as otherwise set forth herein, references
to "pro forma" statement of operations data of the Company and the Issuer for
the year ended December 31, 1997 are to such data that give effect to the
Recapitalization, including the issuance of the Notes and the incurrence of
indebtedness under the Bank Facilities (as defined herein), and the Empire
Acquisition (as defined herein) as if they had occurred on January 1, 1997;
references to "pro forma" statement of operations data of the Company and the
Issuer for the three months ended March 31, 1998 are to such data that give
effect to the Recapitalization as if it had occurred on January 1, 1998.
THE COMPANY
OVERVIEW
Diamond Brands is a leading manufacturer and marketer of a broad range of
branded consumer products, including wooden matches and fire starters ("Wooden
Lights"), plastic cutlery and straws ("Cutlery"), scented, citronella and
holiday candles ("Candles"), and toothpicks, clothespins and wooden crafts
("Woodenware"). The Company's products are marketed primarily under the
Diamond, Forster and Empire brand names, which have been in existence since
1881, 1887 and 1950, respectively. The Company believes it has the leading
domestic retail market share in the wooden match, plastic cutlery, toothpick,
clothespin and wooden craft product categories. In each of these product
categories, which in the aggregate represented approximately 63% of 1997 pro
forma gross sales, the Company believes it has achieved a domestic retail
market share of more than double that of its nearest branded competitor. For
the year ended December 31, 1997, the Company generated pro forma net sales of
$120.7 million and pro forma EBITDA (as defined herein) of $31.6 million, which
represented a pro forma EBITDA margin (as defined herein) of 26.2%. For the
three months ended March 31, 1998, the Company generated net sales of $26.5
million and EBITDA of $5.8 million, which represented an EBITDA margin of
22.1%.
The Company believes it has achieved its leading market shares and strong
profitability by: (i) capitalizing on the Company's strong brand name
recognition, high quality products and category management strategy to secure
and maintain retail shelf space; (ii) expanding its product offerings through
strategic acquisitions, including the Forster Acquisition (as defined herein)
in 1995 and the Empire Acquisition in 1997; (iii) achieving significant cost
savings through the integration of the Forster and Empire businesses, including
headcount reductions and facilities consolidations; and (iv) focusing on
reducing manufacturing and administrative costs.
The Company's products are sold in substantially all major grocery stores,
drug stores, mass merchandisers and warehouse clubs in the United States.
Diamond Brands also sells certain of its products to institutional and other
customers such as food service and food processing companies and redistributors
("Institutional/Other"). The Company sells its products through a nationwide
sales network consisting primarily of independent broker organizations and also
sells products directly to selected mass merchandisers and warehouse clubs,
including
2
<PAGE>
Wal-Mart and Price Costco. In order to strengthen relationships with its
customers, the Company employs a category management strategy, which includes a
corporate rebate program that provides incentives to grocery retailers to buy
multiple products from the Company.
Diamond Brands produces its products at four automated manufacturing
facilities located in Cloquet, Minnesota, East Wilton, Maine, Strong, Maine,
and Kansas City, Kansas. The Company believes it is a low-cost manufacturer in
most of its product categories. In the United States, Diamond Brands believes
it is the sole manufacturer of wooden matches and the largest manufacturer of
toothpicks and clothespins.
COMPETITIVE STRENGTHS
The Company believes that its stable and diverse product portfolio, strong
brand names, national distribution and cost-efficient manufacturing have
resulted in strong financial performance and provide an attractive platform for
growth. In particular, the Company believes it is distinguished by the
following competitive strengths:
. DIVERSE PRODUCT PORTFOLIO WITH ATTRACTIVE SALES MIX. The Company has a
diverse product portfolio with its 1997 pro forma gross sales consisting
of Wooden Lights (15.9%), Cutlery (26.9%), Candles (21.5%), Woodenware
(23.0%) and Institutional/Other (12.7%). This product portfolio allows the
Company to offer retailers a broad product offering without relying on any
one product category for profitability. Diamond Brands' product mix
includes stable and well-established categories (such as Wooden Lights and
Woodenware), as well as higher-growth categories (such as Cutlery and
Candles). In addition, the Company believes its product mix is attractive
because its product categories tend to be less reliant on new product
introductions than are other consumer product categories. Approximately
98% of the Company's 1997 pro forma gross sales consisted of products
introduced prior to 1994. The Company also believes that its products are
not significantly impacted by changes in overall economic conditions.
. STRONG BRAND NAMES WITH LEADING MARKET SHARES. The Company's three
primary brand names--Diamond, Forster and Empire--have been in existence
since 1881, 1887 and 1950, respectively. The Company believes that strong
brand name recognition and high quality products have contributed to its
leading domestic retail market shares in the wooden match, plastic
cutlery, toothpick, clothespin and wooden craft product categories. In
each of these product categories, which in the aggregate represented
approximately 63% of 1997 pro forma gross sales, the Company believes it
has achieved a domestic retail market share of more than double that of
its nearest branded competitor. The Company believes its strong brand
names and leading market shares provide a competitive advantage in selling
its products to retailers.
. WELL-ESTABLISHED NATIONAL RETAIL DISTRIBUTION. Diamond Brands' products
are sold in substantially all major grocery stores, drug stores, mass
merchandisers and warehouse clubs in the United States. The Company has
established relationships with many of the largest retailers in the United
States such as Wal-Mart, Price Costco, Target, Publix and Kroger. The
Company sells its products through a nationwide sales network consisting
primarily of independent broker organizations and also sells products
directly to selected mass merchandisers and warehouse clubs. The Company
employs a category management strategy which includes a corporate rebate
program that provides incentives to grocery retailers to buy multiple
products from the Company.
. COST-EFFICIENT MANUFACTURING. The Company believes that its four
automated manufacturing facilities position it as a low-cost manufacturer
in most of its product categories. The Company continues to invest in
automation equipment in order to reduce headcount and increase efficiency.
. STRONG CASH FLOW WITH LIMITED MAINTENANCE CAPITAL EXPENDITURES. The
Company's strong EBITDA and EBITDA margin, together with limited
maintenance capital expenditure requirements, provide the Company with
significant cash flow to reduce indebtedness and implement its business
strategy. Over 90% of the Company's capital expenditures in the five years
ended December 31, 1997 have related to productivity improvements and
capacity expansions. The Company currently expects its capital
expenditures for 1998 to be approximately $2.5 million, of which
approximately $0.5 million had been expended in the three months ended
March 31, 1998.
3
<PAGE>
. EXPERIENCED MANAGEMENT TEAM. The Company's existing senior management
team possesses extensive industry and product knowledge and has an average
tenure of seven years with the Company. In addition, in connection with
the Recapitalization, Naresh K. Nakra became President, Chief Executive
Officer ("CEO") and a director of Diamond Brands. Dr. Nakra has more than
25 years of experience in the branded consumer products and food
industries, including five years as President and CEO of Gruma
Corporation, whose subsidiaries include Mission Foods Corporation, a
leading manufacturer and marketer of tortilla products, and Azteca
Milling, a leading manufacturer and marketer of corn flour. Based on IRI
data, Gruma Corporation achieved significant increases in sales and market
share during Dr. Nakra's tenure. Dr. Nakra and the Company's existing
senior management team have experience in identifying, consummating and
integrating strategic acquisitions. See "New Chief Executive Officer."
BUSINESS STRATEGY
The Company's business strategy, which is designed to enhance its strong
market positions and increase sales and EBITDA, includes the following
elements:
. CONTINUE TO PRODUCE HIGH QUALITY PRODUCTS. The Company believes that
product quality has been a key factor in its success and intends to
continue manufacturing high quality products in a cost-efficient manner in
each of its product categories. The Company believes that its products are
of superior or equivalent quality compared to those of its competitors,
and that its brand names and "Made in the USA" label distinguish the
Company's products from those of its competitors.
. EXPAND CATEGORY MANAGEMENT STRATEGY TO INCREASE RETAIL SHELF
SPACE. Diamond Brands utilizes a category management strategy to maintain
and increase shelf space for its products at retail outlets. A central
element of this strategy is the Company's corporate rebate program, which
provides incentives to grocery retailers to buy multiple products from the
Company. The Company intends to expand its corporate rebate program to
include additional grocery retailers. The category management strategy
also includes consolidated invoicing and shipping across the Company's
product lines, which allows retailers to lower buying costs and reduce
their number of suppliers.
. ENTER NEW DISTRIBUTION CHANNELS. The Company's products are sold
primarily through grocery stores, drug stores, mass merchandisers and
warehouse clubs in the United States. While the Company has been
successful in these distribution channels, management believes there is
potential to increase sales and EBITDA by: (i) penetrating additional
retail outlets including gift stores and party supply stores;
(ii) increasing sales efforts in the food service industry; and (iii)
entering international markets. The Company intends to utilize its strong
brand names, diverse product portfolio and cost-efficient manufacturing to
facilitate its entry into new distribution channels.
. CAPITALIZE ON STRONG BRAND NAMES AND NATIONAL DISTRIBUTION TO INTRODUCE
NEW PRODUCTS. The Company intends to continue developing new products and
product line extensions designed to capitalize on the Company's strong
brand names and existing distribution and manufacturing capabilities. The
Company intends to use its category management strategy and existing
relationships with retailers to secure retail shelf space for these new
products.
. PURSUE ATTRACTIVE ACQUISITION OPPORTUNITIES. The Company has successfully
completed and integrated three strategic acquisitions in the last seven
years. In 1991, the Company purchased certain assets of Universal Match.
In 1995, the Company strengthened its position in the Woodenware and
Cutlery product categories through the Forster Acquisition and in February
1997, the Company added candles to its product portfolio through the
Empire Acquisition. The Company believes there are additional
opportunities to generate incremental sales and EBITDA through strategic
acquisitions. The Company intends to continue to pursue strategic
acquisitions that: (i) add to or complement its product portfolio; (ii)
leverage its existing distribution and manufacturing capabilities; or
(iii) provide access to new distribution channels for its products.
4
<PAGE>
THE RECAPITALIZATION
Holdings, its then existing stockholders (the "Stockholders"), Seaver Kent-
TPG Partners, L.P., an investment partnership jointly formed by Seaver Kent &
Company, LLC ("Seaver Kent") and Texas Pacific Group ("TPG"), and Seaver Kent I
Parallel, L.P. (collectively, the "Sponsors") entered into a Recapitalization
Agreement dated as of March 3, 1998 (the "Recapitalization Agreement"), which
provided for the recapitalization of Holdings (the "Recapitalization").
Pursuant to the Recapitalization Agreement, the Sponsors and other investors
purchased from Holdings, for an aggregate purchase price of $47.0 million,
shares of pay-in-kind preferred stock of Holdings ("Holdings Preferred Stock"),
together with warrants (the "Warrants") to purchase shares of common stock of
Holdings ("Holdings Common Stock"). The shares of Holdings Common Stock
issuable upon the full exercise of the Warrants would represent 77.5% of the
outstanding shares of Holdings Common Stock after giving effect to such
issuance. In addition, Holdings purchased (the "Equity Repurchase") for $213.5
million, subject to certain working capital and debt adjustments, from the
Stockholders, all outstanding shares of Holdings' capital stock other than
shares (the "Retained Shares") of Holdings Common Stock having an implied value
(based solely on the per share price to be paid in the Equity Repurchase) of
$15.0 million (the "Implied Value"), which continue to be held by certain of
the Stockholders. The Retained Shares would represent 22.5% of the outstanding
shares of Holdings Common Stock after giving effect to the full exercise of the
Warrants. Holdings, the Sponsors and the holders of the Retained Shares also
entered into a Stockholders Agreement pursuant to which, among other things,
the Sponsors have the ability to direct the voting of outstanding shares of
Holdings Common Stock in proportion to their ownership of such shares as if the
Warrants were exercised in full. Accordingly, the Sponsors have voting control
of Holdings.
In connection with the Recapitalization, Holdings organized the Issuer and,
immediately prior to the consummation of the Recapitalization, Holdings
transferred substantially all of its assets and liabilities to the Issuer.
Holdings' current operations are, and future operations are expected to be,
limited to owning the stock of the Issuer. The Issuer has repaid substantially
all of the Company's funded debt obligations existing immediately before the
consummation of the Recapitalization (the "Debt Retirement"). At March 31,
1998, the aggregate principal amount of the Company's funded indebtedness was
$50.2 million.
Funding requirements for the Recapitalization (which was consummated on April
21, 1998) were $292.3 million (including the Implied Value of the Retained
Shares) and were satisfied through the Retained Shares and the following: (i)
the purchase by the Sponsors and other investors of Holdings Preferred Stock
and the Warrants for $47.0 million ($45.8 million in cash and $1.2 million in
officer notes receivables); (ii) $100.0 million of gross proceeds from the
offering of the Old Notes (the "Offering"); (iii) $80.0 million of borrowings
under senior secured term loan facilities (the "Term Loan Facilities") provided
by a syndicate of lenders (collectively, the "Banks") led by DLJ Capital
Funding, Inc. ("DLJ Capital Funding"), as Syndication Agent, Wells Fargo Bank,
N.A. ("Wells Fargo"), as Administrative Agent, and Morgan Stanley Senior
Funding, Inc. ("Morgan Stanley Senior Funding"), as Documentation Agent; (iv)
$6.4 million of borrowings under a senior secured revolving credit facility
(the "Revolving Credit Facility" and, together with the Term Loan Facilities,
the "Bank Facilities") having availability of up to $25.0 million to be
provided by the Banks, DLJ Capital Funding, Wells Fargo and Morgan Stanley
Senior Funding; and (v) $45.1 million of gross proceeds from the sale by
Holdings of 12 7/8% senior discount debentures due 2009 (the "Holdings Senior
Discount Debentures") in a separate offering.
The Equity Repurchase, the Offering, the Debt Retirement, the issuance and
sale by Holdings of Holdings Preferred Stock, the Warrants and the Holdings
Senior Discount Debentures, and the borrowing by the Issuer of funds under the
Bank Facilities were effected in connection with the Recapitalization. The
Recapitalization was accounted for as a recapitalization transaction for
accounting purposes.
5
<PAGE>
The following table sets forth the sources and uses of funds in connection
with the Recapitalization as it occurred on April 21, 1998:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
SOURCES:
Bank Facilities (1)........................................ $ 86,445
Notes offered in the Offering.............................. 100,000
Holdings Senior Discount Debentures........................ 45,105
Holdings Preferred Stock (2)............................... 45,783
Implied Value of the Retained Shares (3)................... 15,000
--------
Total sources of funds................................... $292,333
========
USES:
Equity Repurchase.......................................... $213,499
Debt Retirement............................................ 51,834
Implied Value of the Retained Shares (3)................... 15,000
Transaction fees and expenses (4).......................... 12,000
--------
Total uses of funds...................................... $292,333
========
</TABLE>
- --------
(1) Represents (i) $6.4 million drawn under the $25.0 million Revolving Credit
Facility, (ii) $30.0 million under the Term A Loan Facility (as defined
herein) and (iii) $50.0 million under the Term B Loan Facility (as defined
herein). See "Description of the Bank Facilities."
(2) Represents cash proceeds associated with the Holdings Preferred Stock and
excluding the $1.2 million officer notes receivable.
(3) Based solely on the purchase price per share to be paid for shares of
Holdings Common Stock in the Equity Repurchase, multiplied by the number of
the Retained Shares. The Implied Value of the Retained Shares does not
represent a purchase, sale or other change in such equity investment for
accounting or tax purposes or any funds or proceeds paid to or used by the
Company in the Recapitalization, and does not necessarily represent a market
valuation for the Retained Shares.
(4) Includes Holdings' expenses, financial advisory, consulting and other
professional fees and deferred financing costs, other than certain expenses
borne by the Stockholders. See "Certain Relationships and Related
Transactions."
NEW CHIEF EXECUTIVE OFFICER
In connection with the Recapitalization, Naresh K. Nakra became President,
CEO and a director of Diamond Brands. Dr. Nakra, 52, has more than 25 years of
experience in the branded consumer products and food industries. From 1993 to
1998, Dr. Nakra served as President and CEO of Gruma Corporation, a U.S.
subsidiary of Gruma, S.A., a Mexico-based multinational company. Gruma
Corporation's subsidiaries include Mission Foods Corporation, a leading
manufacturer and marketer of tortilla products, and Azteca Milling, a leading
manufacturer and marketer of corn flour. These businesses sell and distribute
products manufactured in 14 facilities to retail and food service customers in
the United States, Latin America, Europe and the Pacific Rim. Based on IRI
data, Gruma Corporation achieved significant increases in sales and market
share during Dr. Nakra's tenure.
6
<PAGE>
THE SPONSORS
SEAVER KENT & COMPANY, LLC
Seaver Kent is a private equity firm located in Menlo Park, California, that
specializes in private, control investments in middle-market companies. Seaver
Kent was founded in October 1996 by Alexander M. Seaver and Bradley R. Kent,
both of whom were formerly general partners of InterWest Partners, one of the
nation's leading venture capital firms. The principals of Seaver Kent have
successfully partnered with management to build businesses through both
internal growth and strategic acquisitions, and in particular have extensive
experience investing in consumer and household products companies. Portfolio
companies in which funds managed by the principals of Seaver Kent have made
investments include AMX Corporation, Artco-Bell Holding, Bojangles', Cafe
Valley, Favorite Brands International, Heidi's Fine Desserts and MidWest
Folding Products.
TEXAS PACIFIC GROUP
TPG was founded by David Bonderman, James G. Coulter and William S. Price,
III in 1992 to pursue public and private investment opportunities through a
variety of methods, including leveraged buyouts, recapitalizations, joint
ventures, restructurings and strategic public securities investments. The
principals of TPG manage TPG Partners, L.P. and TPG Partners II, L.P., both
Delaware limited partnerships, with aggregate committed capital of over $3.2
billion. Among TPG's other investments are branded consumer products companies
Beringer Wine Estates, Del Monte Foods Company, Ducati Motor, Favorite Brands
International and J. Crew. Other TPG portfolio companies include America West
Airlines, Belden & Blake Corporation, Denbury Resources, Genesis ElderCare,
Paradyne, Virgin Entertainment and Vivra Specialty Partners. In addition, the
principals of TPG led the $9 billion reorganization of Continental Airlines in
1993.
CORPORATE INFORMATION
The Company's predecessor, Diamond Match, was formed in 1881 following the
consolidation of 12 match companies. Holdings was incorporated under the laws
of Minnesota in 1986 when the stockholder group previous to the
Recapitalization purchased certain assets of Diamond Match. In 1991, Diamond
Brands purchased certain assets of Universal Match. In March 1995, Diamond
Brands acquired (the "Forster Acquisition") Forster Holdings, Inc. ("Forster")
and in February 1997, the Company acquired (the "Empire Acquisition") the
business of Empire Manufacturing Company ("Empire"). The Issuer is a wholly-
owned subsidiary of Holdings and was incorporated under the laws of the State
of Delaware in April 1998 as part of the Recapitalization. The principal
executive offices of the Company are located at 1800 Cloquet Avenue, Cloquet,
Minnesota 55720, and its telephone number is (218) 879-6700.
7
<PAGE>
THE EXCHANGE OFFER
Registration Rights The Old Notes were issued on April 21, 1998 to
Agreement................... the Initial Purchasers. The Initial Purchasers
placed the Old Notes with institutional
investors. In connection therewith, the Issuer,
the Guarantors and the Initial Purchasers entered
into the Registration Rights Agreement,
providing, among other things, for the Exchange
Offer. See "The Exchange Offer."
The Exchange Offer.......... New Notes are being offered in exchange for an
equal principal amount of Old Notes. As of the
date hereof, $ 100,000,000 aggregate principal
amount of Old Notes is outstanding. Old Notes may
be tendered only in integral multiples of $1,000.
Resale of New Notes......... Based on interpretations by the staff of the
Commission, as set forth in no-action letters
issued to third parties, including the Exchange
Offer No-Action Letters, the Issuer and the
Guarantors believe that the New Notes issued
pursuant to the Exchange Offer may be offered for
resale, resold or otherwise transferred by each
holder thereof (other than a broker-dealer who
acquires such New Notes directly from the Issuer
for resale pursuant to Rule 144A under the
Securities Act or any other available exemption
under the Securities Act and other than any
holder that is an "affiliate" (as defined under
Rule 405 of the Securities Act) of the Issuer)
without compliance with the registration and
prospectus delivery provisions of the Securities
Act, provided that such New Notes are acquired in
the ordinary course of such holder's business and
such holder is not engaged in, and does not
intend to engage in, a distribution of such New
Notes and has no arrangement with any person to
participate in a distribution of such New Notes.
By tendering Old Notes in exchange for New Notes,
each holder, other than a broker-dealer, will
represent to the Issuer and the Guarantors that:
(i) it is not an affiliate (as defined in Rule
405 under the Securities Act) of the Issuer; (ii)
it is not a broker-dealer tendering Old Notes
acquired for its own account directly from the
Issuer; (iii) any New Notes to be received by it
were acquired in the ordinary course of its
business; and (iv) it is not engaged in, and does
not intend to engage in, a distribution of such
New Notes and has no arrangement or understanding
to participate in a distribution of the New
Notes. If a holder of Old Notes is engaged in or
intends to engage in a distribution of New Notes
or has any arrangement or understanding with
respect to the distribution of New Notes to be
acquired pursuant to the Exchange Offer, such
holder may not rely on the applicable
interpretations of the staff of the Commission
and must comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with any secondary
resale transaction. Each Participating Broker-
Dealer that receives New Notes for its own
account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in
connection with any resale of such New Notes. The
Letter of Transmittal states that by so
8
<PAGE>
acknowledging and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus,
as it may be amended or supplemented from time to
time, may be used by a Participating Broker-
Dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old
Notes were acquired by such Participating Broker-
Dealer as a result of market-making activities or
other trading activities. The Issuer and the
Guarantors have agreed that they will make this
Prospectus available to any Participating Broker-
Dealer for a period of time not to exceed one
year after the date on which the Exchange Offer
is consummated for use in connection with any
such resale. See "Plan of Distribution." To
comply with the securities laws of certain
jurisdictions, it may be necessary to qualify for
sale or register the New Notes prior to offering
or selling such New Notes. The Issuer and the
Guarantors have agreed, pursuant to the
Registration Rights Agreement and subject to
certain specified limitations therein, to
register or qualify the New Notes for offer or
sale under the securities or "blue sky" laws of
such jurisdictions as may be necessary to permit
consummation of the Exchange Offer.
Consequences of Failure to
Exchange Old Notes......... Upon consummation of the Exchange Offer, subject
to certain exceptions, holders of Old Notes who
do not exchange their Old Notes for New Notes in
the Exchange Offer will no longer be entitled to
registration rights and will not be able to offer
or sell their Old Notes, unless such Old Notes
are subsequently registered under the Securities
Act (which, subject to certain limited
exceptions, the Issuer will have no obligation to
do), except pursuant to an exemption from, or in
a transaction not subject to, the Securities Act
and applicable state securities laws. See "Risk
Factors--Risk Factors Relating to the Notes--
Consequences of Failure to Exchange" and "The
Exchange Offer--Terms of the Exchange Offer."
Expiration Date............. 5:00 p.m., New York City time, on , 1998
(20 business days following the commencement of
the Exchange Offer), 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.
Interest on the New Notes... The New Notes will accrue interest at the
applicable per annum rate set forth on the cover
page of this Prospectus, from (i) the later of
(A) the last interest payment date on which
interest was paid on the Old Notes surrendered in
exchange therefor or (B) if the Old Notes are
surrendered for exchange on a date subsequent to
the record date for an interest payment date to
occur on or after the date of such exchange and
as to which interest will be paid, the date of
such interest payment or (ii) if no interest has
been paid on the Old Notes, from the Issue Date
(as defined herein) of such Old Notes. Interest
on the New Notes is payable on October 15 and
April 15 of each year, commencing October 15,
1998.
9
<PAGE>
Conditions to the Exchange
Offer....................... The Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being
tendered for exchange. However, the Exchange
Offer is subject to certain customary conditions,
which may, under certain circumstances, be waived
by the Issuer and the Guarantors. See "The
Exchange Offer--Conditions." Except for the
requirements of applicable federal and state
securities laws, there are no federal or state
regulatory requirements to be complied with or
obtained by the Issuer or the Guarantors in
connection with the Exchange Offer.
Procedures for Tendering
Old Notes................... Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile,
together with the Old Notes to be exchanged and
any other required documentation to the Exchange
Agent (as defined herein) at the address set
forth herein or effect a tender of Old Notes
pursuant to the procedures for book-entry
transfer as provided for herein. See "The
Exchange Offer--Procedures for Tendering" and "--
Book-Entry Transfer."
Guaranteed Delivery
Procedures.................. Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes
and a properly completed Letter of Transmittal or
any other documents required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date may tender their Old Notes
according to the guaranteed delivery procedures
set forth in "The Exchange Offer--Guaranteed
Delivery Procedures."
Withdrawal Rights........... Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
Expiration Date. To withdraw a tender of Old
Notes, a written or facsimile transmission notice
of withdrawal must be received by the Exchange
Agent at its address set forth herein under "The
Exchange Offer--Exchange Agent" prior to 5:00
p.m., New York City time, on the Expiration Date.
Acceptance of Old Notes and
Delivery of New Notes...... Subject to certain conditions, any and all Old
Notes that are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on
the Expiration Date will be accepted for
exchange. The New Notes issued pursuant to the
Exchange Offer will be delivered promptly
following the Expiration Date. See "The Exchange
Offer--Terms of the Exchange Offer."
Certain Tax Considerations.. The exchange of New Notes for Old Notes should
not be considered a sale or exchange or otherwise
a taxable event for federal income tax purposes.
See "Certain United States Federal Income Tax
Considerations."
Exchange Agent.............. State Street Bank and Trust Company is serving as
exchange agent (the "Exchange Agent") in
connection with the Exchange Offer.
Fees and Expenses........... All expenses incident to consummation of the
Exchange Offer and compliance with the
Registration Rights Agreement will be borne by
the Issuer. See "The Exchange Offer--Fees and
Expenses."
Use of Proceeds............. There will be no cash proceeds payable to the
Issuer or the Guarantors from the issuance of the
New Notes pursuant to the Exchange Offer. See
"Use of Proceeds."
10
<PAGE>
SUMMARY OF TERMS OF NEW NOTES
The Exchange Offer relates to the exchange of up to $100,000,000 aggregate
principal amount of Old Notes for up to an equal aggregate principal amount of
New Notes. The New Notes will be entitled to the benefits of the same Indenture
that governs the Old Notes and that will govern the New Notes. The form and
terms of the New Notes are the same in all material respects as the form and
terms of the Old Notes, except that the New Notes have been registered under
the Securities Act and therefore will not bear legends restricting the transfer
thereof. See "Description of the New Notes."
Maturity Date............... April 15, 2008.
Interest Rate and Payment The New Notes will bear interest at a rate of 10
Dates....................... 1/8% per annum. Interest will be payable semi-
annually in arrears on each October 15 and April
15, commencing October 15, 1998.
Guarantee................... The Issuer's payment obligations under the New
Notes are jointly and severally guaranteed by the
Guarantors.
Optional Redemption......... The New Notes will be redeemable at the option of
the Issuer, in whole or in part, at any time on
or after April 15, 2003, in cash at the
redemption prices set forth herein, plus accrued
and unpaid interest and Liquidated Damages (as
defined herein), if any, thereon to the
redemption date. In addition, at any time prior
to April 15, 2001, the Issuer may, at its option,
on any one or more occasions, redeem up to 35% of
the aggregate principal amount of the New Notes
originally issued at a redemption price equal to
110.125% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated
Damages, if any, thereon to the redemption date,
with the net cash proceeds of one or more Equity
Offerings (as defined herein); provided that at
least 65% of the original aggregate principal
amount of the New Notes remains outstanding
immediately after each such redemption. See
"Description of the New Notes--Optional
Redemption."
Subsidiary Guarantees....... The New Notes will be guaranteed, jointly and
severally, by all of the Issuer's Restricted
Subsidiaries (as defined herein) (other than
Restricted Subsidiaries that do not guarantee any
indebtedness of the Issuer or any other
Restricted Subsidiary). The Subsidiary Guarantees
(as defined herein) may be released under certain
circumstances. See "Description of the New
Notes--Guarantees."
Ranking..................... The New Notes will be general unsecured
obligations of the Issuer and will be
subordinated in right of payment to all existing
and future Senior Debt (as defined herein) of the
Issuer, including borrowings under the Bank
Facilities. The Subsidiary Guarantees will be
general unsecured obligations of the Guarantors
and will be subordinated in right of payment to
all existing and future Senior Debt of the
Guarantors, including guarantees of the Bank
Facilities. As of March 31, 1998, on a pro forma
basis giving effect to the Recapitalization, the
Issuer and the Guarantors would have had
approximately $84.8 million of Senior Debt. The
Indenture permits the Issuer and the Guarantors
to incur additional indebtedness,
11
<PAGE>
including Senior Debt, subject to certain
limitations. The Indenture prohibits the
incurrence of any indebtedness by the Issuer and
the Guarantors that is senior to the New Notes
and the Subsidiary Guarantees, as the case may
be, and subordinated to Senior Debt of the Issuer
and the Guarantors, as the case may be. See
"Description of the New Notes--Subordination" and
"--Certain Covenants--Limitation on Layering
Debt."
Repurchase at the Option of
Holders..................... Upon the occurrence of a Change of Control (as
defined herein) each holder of New Notes will
have the right to require the Company to
repurchase all or any part of such holder's New
Notes at a price in cash equal to 101% of the
aggregate principal amount thereof plus accrued
and unpaid interest and Liquidated Damages
thereon. In addition, if the Issuer or any of its
Restricted Subsidiaries consummates an Asset Sale
(as defined herein), which is permitted in
limited circumstances, and the Issuer or its
Restricted Subsidiaries has Excess Proceeds (as
defined herein), from such Asset Sale in an
amount exceeding $7.5 million, the Issuer will be
required to make an offer to all holders of New
Notes and, to the extent required by the terms of
any debt which ranks pari passu with the New
Notes ("Pari Passu Indebtedness") to purchase the
maximum principal amount of New Notes and any
such Pari Passu Indebtedness, that may be
purchased out of the Excess Proceeds, at a price
in cash equal to 100% of the principal amount
thereof plus accrued and unpaid interest and
Liquidated Damages thereon, in accordance with
the procedures set forth in the Indenture or such
Pari Passu Indebtedness, as applicable. See
"Description of the New Notes--Repurchase at the
Option of Holders."
Restrictive Covenants....... The Indenture under which the New Notes will be
issued contains certain covenants that limit the
ability of the Issuer and its Restricted
Subsidiaries to, among other things, incur
additional indebtedness, pay dividends or make
certain other restricted payments, consummate
certain asset sales, enter into certain
transactions with affiliates, incur indebtedness
that is subordinate in right of payment to any
Senior Debt and senior in right of payment to the
New Notes, incur liens, impose restrictions on
the ability of a Restricted Subsidiary to
guarantee the payment of any indebtedness of the
Issuer or any indebtedness of any other
Restricted Subsidiary, merge or consolidate with
any other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or
substantially all of the assets of the Issuer.
See "Description of the New Notes--Certain
Covenants."
12
<PAGE>
USE OF PROCEEDS
There will be no cash proceeds payable to the Issuer or the Guarantors from
the issuance of the New Notes pursuant to the Exchange Offer. The proceeds from
the sale of the Old Notes were used to fund the Recapitalization. See "Use of
Proceeds" and "The Recapitalization."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in participating in the Exchange Offer.
13
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table sets forth summary historical financial data of the
Company for each of the years in the five-year period ended December 31, 1997,
which have been audited by Arthur Andersen LLP, independent public accountants,
and for the unaudited three months ended March 31, 1997 and 1998. The summary
historical consolidated financial data for the years ended December 31, 1995,
1996 and 1997 are derived from and should be read in conjunction with the
audited consolidated financial statements of Holdings and the related notes
thereto included elsewhere in this Prospectus. The summary historical financial
data for the years ended December 31, 1993 and 1994 are derived from audited
financial statements of Holdings that are not included in this Prospectus. The
summary historical financial data for the three months ended March 31, 1997 and
1998 are derived from unaudited consolidated financial statements for such
periods included elsewhere in this Prospectus.
The unaudited pro forma consolidated statement of operations data of the
Issuer for the year ended December 31, 1997 gives effect to the
Recapitalization and the Empire Acquisition as if they had occurred on January
1, 1997. The unaudited pro forma consolidated statement of operations data of
the Issuer for the three months ended March 31, 1998 gives effect to the
Recapitalization as if it had occurred on January 1, 1998. The unaudited pro
forma consolidated balance sheet data as of March 31, 1998 gives effect to the
Recapitalization as if it had occurred on March 31, 1998. The unaudited pro
forma consolidated financial data do not purport to represent what the Issuer's
or the Company's financial condition or results of operations would actually
have been had the Recapitalization and the Empire Acquisition in fact occurred
on the assumed dates, nor do they project the Issuer's and/or the Company's
financial condition or results of operations for any future period or date.
The financial data set forth below should be read in conjunction with the
audited consolidated financial statements and the related notes thereto, the
unaudited consolidated financial statements and the related notes thereto,
"Unaudited Pro Forma Consolidated Financial Data," "Selected Historical and Pro
Forma Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," all included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, PRO FORMA ENDED MARCH 31, PRO FORMA
-------------------------------------------- DECEMBER 31, ---------------- MARCH 31,
1993 1994 1995 1996 1997 1997 1997 1998 1998
------- ------- ------- ------- -------- ------------ ------- ------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $33,538 $31,289 $77,659 $90,201 $118,072 $120,714 $22,560 $26,486 $26,486
Gross profit............ 10,730 8,223 21,169 27,169 39,490 40,186 6,885 8,209 8,209
Operating income........ 6,423 4,070 10,417 17,301 26,555 26,781 4,257 4,809 4,809
Net income (1).......... 3,957 3,578 4,102 7,636 20,629 5,389 1,929 3,762 237
Other Data:
Depreciation and
amortization (2)....... $ 1,207 $ 1,250 $ 3,761 $ 4,204 $ 4,668 $ 4,856 $ 978 $ 1,032 $ 1,032
EBITDA (3).............. 7,630 5,320 14,178 21,505 31,223 31,637 5,235 5,841 5,841
EBITDA margin (4)....... 22.8% 17.0% 18.3% 23.8% 26.4% 26.2% 23.2% 22.1% 22.1%
Capital expenditures.... $ 836 $ 585 $ 1,926 $ 1,979 $ 4,050 $ 4,050 $ 602 $ 472 $ 472
CREDIT DATA:
Cash interest expense............................................ $ 16,823 -- -- $ 4,205
Ratio of EBITDA to cash interest expense......................... 1.9x -- -- 1.4x
Ratio of total debt to EBITDA.................................... 6.8x -- -- N/A
Ratio of earnings to fixed charges (5)........................... 1.5x -- -- 1.1x
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
--------------------
HISTORICAL PRO FORMA
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $16,529 $ 26,082
Total assets.............................................. 95,590 102,916
Total debt, including current maturities.................. 50,157 184,812
Stockholders' equity (deficit)............................ 29,879 (98,185)
</TABLE>
14
<PAGE>
- --------
(1) For the years ended December 31, 1993, 1995 and 1996, the Company was a
Subchapter C corporation for federal income tax purposes and for the years
ended December 31, 1994 and 1997 and the three months ended March 31, 1997
and 1998, a Subchapter S corporation for federal income tax purposes. See
"Selected Historical and Pro Forma Consolidated Financial Data" for
unaudited pro forma income tax data.
(2) Excludes amortization of deferred financing costs.
(3) EBITDA represents operating income plus depreciation and amortization
(excluding amortization of deferred financing costs). The Company believes
that EBITDA provides useful information regarding the Company's ability to
service its debt; however, EBITDA does not represent cash flow from
operations as defined by generally accepted accounting principles and
should not be considered as a substitute for net income as an indicator of
the Company's operating performance or cash flow as a measure of liquidity.
(4) EBITDA margin represents EBITDA as a percentage of net sales.
(5) The ratio of earnings to fixed charges has been calculated by dividing
income before income taxes and fixed charges by fixed charges. Fixed
charges for this purpose include interest expense, amortization of deferred
financing costs and one-third of operating lease payments (the portion
deemed to be representative of the interest factor).
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RISK FACTORS
Prospective holders of the New Notes should carefully review the information
contained and incorporated by reference in this Prospectus and should
particularly consider the following matters:
RISK FACTORS RELATING TO THE COMPANY
SUBSTANTIAL LEVERAGE; LIQUIDITY; STOCKHOLDERS' DEFICIT
In connection with the Recapitalization, the Company incurred a significant
amount of additional indebtedness, the debt service obligations of which
could, under certain circumstances, have material consequences to security
holders of the Issuer, including holders of the New Notes. As of March 31,
1998, on a pro forma basis and after giving effect to the Recapitalization,
the Issuer and its Guarantors would have had outstanding approximately $184.8
million of total indebtedness (including approximately $84.8 million of Senior
Debt) and stockholders' deficit of approximately $98.1 million. On April 15,
2003, Holdings will be required to redeem Holdings Senior Discount Debentures
with an aggregate principal amount at maturity equal to (i) $33.2 million
multiplied by (ii) the quotient obtained by dividing (x) the aggregate
principal amount at maturity of the Holdings Senior Discount Debentures then
outstanding by (y) $84.0 million at a redemption price equal to 100% of the
principal amount at maturity of the Holdings Senior Discount Debentures so
redeemed (the "Mandatory Debenture Redemption"). Commencing October 15, 2003,
Holdings will be required to make semi-annual cash payments of interest on the
Holdings Senior Discount Debentures. Subject to the restrictions in the Bank
Facilities 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 Bank Facilities and the Indenture restrict, but do not
prohibit, the payment of dividends by the Issuer to Holdings to finance the
Mandatory Debenture Redemption and the payment of interest on the Holdings
Senior Discount Debentures. See "Description of Holdings Indebtedness,"
"Description of the Bank Facilities" and "Description of the New Notes." There
can be no assurance that the Issuer will be entitled under the terms of the
Bank Facilities and the Indenture to dividend sufficient funds to Holdings to
fund the Mandatory Debenture Redemption or the payments of cash interest on
the Holdings Senior Discount Debentures. Holdings' failure to consummate the
Mandatory Debenture Redemption or to make interest payments on the Holdings
Senior Discount Debentures would cause an Event of Default (as defined
therein) under the Holdings Senior Discount Debentures. See "Description of
Holdings Indebtedness."
The level of the Company's indebtedness could have important consequences to
holders of the Notes, including, but not limited to, the following: (i) the
Company's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, general corporate purposes or
other purposes may be impaired; (ii) a significant portion of the Issuer's
cash flow from operations must be dedicated to the payment of principal and
interest on the Company's indebtedness, thereby reducing the funds available
to the Issuer for its operations; (iii) significant amounts of the Company's
borrowings will bear interest at variable rates, which could result in higher
interest expense in the event of increases in interest rates; (iv) the
Indenture and the Bank Facilities contain financial and restrictive covenants,
the failure to comply with which may result in an Event of Default which, if
not cured or waived, could have a material adverse effect on the Company; (v)
the indebtedness outstanding under the Bank Facilities is secured and matures
prior to the maturity of the Notes; (vi) the Company may be substantially more
leveraged than certain of its competitors, which may place the Issuer at a
competitive disadvantage; and (vii) the Company's substantial degree of
leverage may limit its flexibility to adjust to changing market conditions,
reduce its ability to withstand competitive pressures and make it more
vulnerable to a downturn in general economic conditions or its business. See
"Description of Holdings Indebtedness," "Description of the Bank Facilities"
and "Description of the New Notes."
The Company's ability to make scheduled payments of principal of, or to pay
the interest or Liquidated Damages, if any, on, or to refinance its
indebtedness (including the Notes), or to fund planned capital or other
expenditures, will depend upon its future financial and operating performance,
which will be affected by
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prevailing economic conditions and financial, business and other factors, many
of which are beyond its control. There can be no assurance that the Issuer's
operating results, cash flow and capital resources will be sufficient for
payment of the Company's indebtedness in the future. In the absence of such
operating results and resources, the Issuer could face substantial liquidity
problems and might be required to dispose of material assets or operations to
meet its debt service and other obligations, and there can be no assurance as
to the timing of such sales or the proceeds that the Issuer could realize
therefrom. If the Issuer is unable to service its indebtedness, it may take
actions such as reducing or delaying planned expansion and capital
expenditures, selling assets, restructuring or refinancing its indebtedness or
seeking additional equity capital. There can be no assurance that any of these
actions could be effected on satisfactory terms, if at all, and the failure to
take these actions successfully could have a material adverse effect on the
Company's business, financial condition and operating results. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
COMPETITION; MARKET DATA
The markets for certain of the Company's products are highly competitive.
The Company competes, particularly with respect to its Candles and Cutlery
products, with a number of domestic manufacturers which are larger and have
significantly greater resources than the Company. In addition, the Company
competes with foreign manufacturers, particularly those located in Sweden,
Chile, Brazil, Japan, China and Korea, which may have lower manufacturing
costs than those of the Company. Diamond Brands believes that the barriers to
entry into the Company's business are relatively low, and there can be no
assurance that the Company will not face greater competition from existing or
additional manufacturers in the future. Diamond Brands cannot predict the
pricing or promotional activities of its competitors or their effects on the
Company's ability to market and sell its products. Attempts by existing or new
competitors seeking to gain or retain market share by reducing prices or
through other promotional activities could have a material adverse effect on
the Company's business, financial condition and operating results. In
addition, there can be no assurance that the Company's sales volume or market
shares would not be adversely affected by consumer reaction to higher prices
or that industry manufacturing capacity will not change so as to create an
imbalance of supply and demand in future periods. See "Business--Competition."
Market data used throughout this Prospectus were obtained from IRI (which
data include only sales reported by grocery stores, drug stores and mass
merchandisers), internal company surveys or industry publications. Although
the Company believes that such sources are reliable, the accuracy and
completeness of such information is not guaranteed and has not been
independently verified. In particular, the Company is not aware of the
availability of statistics relating specifically to Wooden Lights, Candles and
Woodenware products. Therefore, management's estimates with respect to such
products are based only on the limited data in the public domain and the
Company's participation in the branded consumer products industry.
Accordingly, no assurance can be given as to the accuracy of management's
estimates. Prospective holders of the New Notes should not place undue
emphasis on the market data and predictions of future trends contained in the
Prospectus, as there can be no assurance that such data or predictions are
accurate in all material respects.
RELIANCE ON MAJOR CUSTOMERS
The Company derives its revenue primarily from the sale of its products to
substantially all major grocery stores, drug stores, mass merchandisers and
warehouse clubs in the United States. During the year ended December 31, 1997,
sales to the Company's top 10 customers accounted for approximately 39% of the
Company's pro forma gross sales, with one customer, Wal-Mart and its
subsidiary, Sam's Club, accounting for approximately 19% of pro forma gross
sales. The loss of Wal-Mart or other significant customers or a significant
reduction in their purchases from the Company, could have a material adverse
effect on the Company's business, financial condition and operating results.
See "Business--Customers."
DEPENDENCE ON RAW MATERIAL AVAILABILITY; PRICING
The primary raw materials used by Diamond Brands are generally available
from multiple suppliers, and the Company has not experienced any significant
interruption in the availability of such materials. However, the
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price of polystyrene resin, the key raw material from which the Company's
Cutlery products is produced, can be volatile. The polystyrene resin used by
the Company is produced from petrochemical intermediates which are, in turn,
derived from petroleum. Polystyrene resin prices may fluctuate as a result of,
among other things, worldwide changes in natural gas and crude oil prices and
supply, as well as changes in supply and demand for polystyrene resin and
petrochemical intermediates from which it is produced. Among other industries,
the automotive and housing industries are significant users of polystyrene
resin. As a result, significant changes in worldwide capacity and demand in
these and other industries may cause significant fluctuations in the prices of
polystyrene resin. Although the Company has generally passed on these price
changes to customers on a delayed basis, there can be no assurance that the
Company will be able to purchase polystyrene resin at prices that can be
adequately passed on to customers. Although the Company in January 1997
entered into a three-year supply contract with a major supplier of polystyrene
resin, under which the Company believes it receives the lowest price available
to any customer purchasing similar volume, and receives short-term price
protection during periods of rising prices, there can be no assurance that
this transaction would reduce the impact on the Company of changes in
polystyrene resin prices.
Other primary raw materials required by Diamond Brands in its business
include glass and metal containers, wax and fragrances to produce the
Company's Candles products, birch and maple wood to produce the Company's
Woodenware products, and aspen wood and commodity chemicals to produce the
Company's Wooden Lights products. Other major raw materials include paperboard
and corrugated cardboard. Significant increases in the prices of such raw
materials could have a material adverse effect on the Company's business,
financial condition and operating results. Although the Company believes that
sources of its principal raw materials will continue to be adequate to meet
requirements and that alternative sources are available, there can be no
assurance that severe shortages of raw materials will not occur in the future
that could increase the cost or delay the shipment of the Company's products
and have a material adverse effect on the Company's business, financial
condition and operating results. See "Business--Raw Materials."
DEPENDENCE ON NEW MANAGEMENT AND KEY PERSONNEL
In connection with the Recapitalization, Naresh K. Nakra became President,
CEO and a director of Diamond Brands. Although Dr. Nakra has significant
experience in the branded consumer products and food industries, there can be
no assurance that this management transition will not adversely affect the
Company's business, financial condition and operating results. In addition,
while the Company believes that it has developed depth and experience among
its key personnel, there can be no assurance that the Company's business would
not be adversely affected if one or more of these key individuals left the
Company. See "Management."
RISKS RELATING TO THE COMPANY'S ACQUISITION STRATEGY
As part of its business strategy, Diamond Brands intends to pursue strategic
acquisitions. The Company regularly considers the acquisition of other
companies engaged in the manufacture and sale of related products. Future
acquisitions by the Company could result in the incurrence of additional
indebtedness and contingent liabilities, which could have a material adverse
effect on the Company's business, financial condition and operating results.
In addition, the process of integrating acquired operations into the Company's
operations may result in unforeseen operating difficulties, may absorb
significant management attention and may require significant financial
resources that would otherwise be available for the ongoing development or
expansion of the Company's existing operations. There is no assurance that the
Company will be able to identify desirable acquisition candidates or will be
successful in entering into definitive agreements with respect to desirable
acquisitions. Moreover, even if definitive agreements are entered into, there
can be no assurance that any future acquisition will thereafter be completed
or, if completed, that the anticipated benefits of the acquisition will be
realized. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
ENVIRONMENTAL REGULATIONS
The Company's operations are subject to a wide range of general and industry
specific federal, state and local environmental laws and regulations which
impose limitations on the discharge of pollutants into the air and
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water and establish standards for the treatment, storage and disposal of solid
and hazardous waste. Under various federal, state and local laws and
regulations, an owner or operator of real estate may be liable for the costs
of removal or remediation of certain hazardous substances on such property.
Although management believes that the Company is in substantial compliance
with all applicable environmental laws and regulations, unforeseen
expenditures to remain in such compliance, or unforeseen environmental
liabilities, could have a material adverse effect on the Company's business,
financial condition and operating results. Additionally, there can be no
assurance that changes in environmental laws and regulations or their
application will not require further expenditures by the Company. See
"Business--General--Legal and Regulatory Matters."
CONTROL OF THE COMPANY
The Sponsors and their affiliates, through their ownership of securities and
through contractual arrangements, control the Company and have the power to
elect a majority of directors of the Company, approve all amendments to the
Company's charter documents and effect fundamental corporate transactions such
as mergers and asset sales. See "The Recapitalization."
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
The information contained herein contains forward-looking statements that
involve a number of risks and uncertainties. A number of factors could cause
actual results, performance, achievements of the Company, or industry results
to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. These
factors include, but are not limited to the following: the competitive
environment in the Company's business in general and in the Company's specific
market areas; changes in prevailing interest rates and the availability of and
terms of financing to fund the anticipated growth of the Company's business;
inflation; changes in costs of goods and services; economic conditions in
general and in the Company's specific market areas; demographic changes;
changes in or failure to comply with federal, state and/or local government
regulations; liability and other claims asserted against the Company; changes
in operating strategy or development plans; the ability to attract and retain
qualified personnel; the ability to control inventory levels; the significant
indebtedness of the Company; labor disturbances; the ability to negotiate
agreements with suppliers on favorable terms; changes in the Company's capital
expenditure plan; and other factors referenced herein. In addition, such
forward-looking statements are necessarily dependent upon assumptions,
estimates and dates that may be incorrect or imprecise and involve known and
unknown risks, uncertainties and other factors. Forward-looking statements
regarding sales and EBITDA are particularly subject to a variety of
assumptions, some or all of which may not be realized. Accordingly, any
forward-looking statements included herein do not purport to be predictions of
future events or circumstances and may not be realized. Forward-looking
statements can be identified by, among other things, the use of forward-
looking terminology such as "believes," "expects," "may," "will," "should,"
"seeks," "pro forma," "anticipates" or "intends" or the negative of any
thereof, or other variations thereon or comparable terminology, or by
discussions of strategy or intentions. Given these uncertainties, prospective
holders of New Notes are cautioned not to place undue reliance on such
forward-looking statements. The Company disclaims any obligations to update
any of these factors or to announce publicly the results of any revisions to
any of the forward-looking statements contained herein to reflect future
events or developments.
RISK FACTORS RELATING TO THE NOTES
SUBORDINATION OF NOTES; ASSET ENCUMBRANCE
The Notes are subordinated in right of payment to all existing and future
Senior Debt of the Issuer, including the Bank Facilities. By reason of such
subordination, in the event of bankruptcy, liquidation, reorganization or
other winding-up of the Issuer or upon a default in payment with respect to,
or the acceleration of, any Senior Debt of the Issuer, the assets of the
Issuer will be available to pay obligations on the Notes only after all Senior
Debt has been paid in full, and there may not be sufficient assets remaining
to pay amounts due on any or all of
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the Notes then outstanding. In addition, under certain circumstances, no
payments may be made with respect to principal of or interest on the Notes if
a default exists with respect to Senior Debt. If the Issuer incurs any
additional pari passu debt, the holders of such debt would be entitled to
share ratably with the holders of the Notes in any proceeds distributed in
connection with any insolvency, liquidation, reorganization, dissolution or
other winding-up of the Issuer. This may have the effect of reducing the
amount of proceeds paid to holders of the Notes. In addition, no cash payments
may be made with respect to the Notes during the continuance of a payment
default with respect to the Senior Debt and, under certain circumstances, no
payments may be made with respect to the principal of (and premium, if any) on
the Notes for a period of up to 179 days if a nonpayment default exists with
respect to Senior Debt. The Subsidiary Guarantees are subordinated to the
Guarantor Senior Debt of each Guarantor (which includes the Guarantors'
guarantees under the Bank Facilities) to the same extent that the Notes are
subordinated to Senior Debt of the Issuer, and the ability to collect under
the Subsidiary Guarantees may therefore be similarly limited. See "Description
of the New Notes." In addition, indebtedness outstanding under the Bank
Facilities are secured by substantially all of the assets of the Issuer. As of
March 31, 1998, on a pro forma basis after giving effect to the
Recapitalization, the Issuer would have had outstanding approximately $84.8
million of Senior Debt (all of which was secured borrowings) and the
Issuer had approximately $21.2 million of additional revolving borrowing
availability under the Revolving Credit Facility. Additional Senior Debt may
be incurred by the Issuer from time to time subject to certain restrictions
contained in the Bank Facilities and the Indenture. See "--Restrictive Debt
Covenants," "Description of the Bank Facilities" and "Description of
the New Notes."
RESTRICTIVE DEBT COVENANTS
The Indenture and the Bank Facilities contain a number of significant
covenants that, among other things, restrict the ability of the Issuer and its
subsidiaries to dispose of assets, incur additional indebtedness, prepay
indebtedness (including the Notes) or amend certain debt instruments
(including the Indenture), pay dividends, create liens on assets, enter into
sale and leaseback transactions, make investments, loans or advances, make
acquisitions, engage in mergers or consolidations, change the business
conducted by the Issuer or its subsidiaries, or engage in certain transactions
with affiliates and otherwise restrict certain corporate activities. In
addition, under the Bank Facilities, the Issuer is required to comply with
specified financial ratios and tests, including minimum interest coverage
ratios, leverage ratios and fixed charge coverage ratios below a specified
maximum. See "Description of the Bank Facilities" and "Description of the New
Notes."
The Issuer's ability to comply with these covenants may be affected by
events beyond its control, including prevailing economic, financial and
industry conditions. The breach of any of these covenants or restrictions
could result in a default under the Bank Facilities and/or the Indenture,
which would permit the senior lenders, or holders of Notes, or both, as the
case may be, to declare all amounts borrowed thereunder to be due and payable,
together with accrued and unpaid interest and Liquidated Damages, if any
thereon, and the commitments of the senior lenders to make further extensions
of credit under the Bank Facilities could be terminated. If the Issuer were
unable to repay its indebtedness to its senior lenders, those lenders could
proceed against the collateral securing the indebtedness as described under
"Description of the Bank Facilities." See "--Subordination of Notes; Asset
Encumbrance."
POSSIBLE INABILITY TO REPURCHASE NOTES UPON CHANGE OF CONTROL
The Bank Facilities prohibit the Issuer from purchasing any Notes (except in
certain limited amounts) and also provide that certain change of control
events with respect to the Issuer will constitute a default thereunder. Any
future credit agreements or other agreements relating to Senior Debt to which
the Issuer becomes a party may contain similar restrictions and provisions. In
the event a Change of Control occurs at a time when the Issuer is prohibited
from purchasing the Notes, the Issuer could seek the consent of its lenders to
the purchase of the Notes or could attempt to refinance the borrowings that
contain the prohibition. If the Issuer does not obtain that consent or repay
those borrowings, the Issuer will remain prohibited from purchasing the Notes
by the relevant Senior Debt. In that case, the Issuer's failure to purchase
the tendered Notes would constitute an Event of Default
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under the Indenture which would, in turn, constitute a default under the Bank
Facilities and could constitute a default under other Senior Debt. In those
circumstances, the subordination provisions in the Indenture would likely
restrict payments to the holders of the Notes. Furthermore, no assurance can
be given that the Issuer will have sufficient resources to satisfy its
repurchase obligation with respect to the Notes following an occurrence of a
Change of Control. See "Description of the Bank Facilities" and "Description
of the New Notes."
FRAUDULENT TRANSFER STATUTES
Under federal or state fraudulent transfer laws, if a court were to find
that, at the time the Notes and Subsidiary Guarantees were issued, the Issuer
or a Guarantor, as the case may be, (i) issued the Notes or a Subsidiary
Guarantee with the intent of hindering, delaying or defrauding current or
future creditors or (ii) (A) received less than fair consideration or
reasonably equivalent value for incurring the indebtedness represented by the
Notes or a Subsidiary Guarantee, and (B)(1) was insolvent or was rendered
insolvent by reason of the issuance of the Notes or such Subsidiary Guarantee,
(2) was engaged, or about to engage, in a business or transaction for which
its assets were unreasonably small or (3) intended to incur, or believed (or
should have believed) it would incur, debts beyond its ability to pay as such
debts mature (as all of the foregoing terms are defined in or interpreted
under such fraudulent transfer statutes), such court could avoid all or a
portion of the Issuer's or a Guarantor's obligations to holders of the Notes,
subordinate the Issuer's or a Guarantor's obligations to holders of the Notes
to other existing and future indebtedness of the Issuer or such Guarantor, as
the case may be, the effect of which would be to entitle such other creditors
to be paid in full before any payment could be made on the Notes, and take
other action detrimental to holders of the Notes, including in certain
circumstances, invalidating the Notes. In that event, there would be no
assurance that any repayment on the Notes or under the Subsidiary Guarantees
would ever be recovered by holders of the Notes.
The definition of insolvency for purposes of the foregoing considerations
varies among jurisdictions depending upon the federal or state law that is
being applied in any such proceeding. However, the Issuer or a Guarantor
generally would be considered insolvent at the time it incurs the indebtedness
constituting the Notes or a Subsidiary Guarantee, as the case may be, if (i)
the fair market value (or fair saleable value) of its assets is less than the
amount required to pay its total existing debts and liabilities (including the
probable liability on contingent liabilities) as they become absolute or
matured or (ii) it is incurring debts beyond its ability to pay as such debts
mature. There can be no assurance as to what standard a court would apply in
order to determine whether the Issuer or a Guarantor was "insolvent" as of the
date the Notes and Subsidiary Guarantees were issued, or that, regardless of
the method of valuation, a court would not determine that the Issuer or a
Guarantor was insolvent on that date. Nor can there be any assurance that a
court would not determine, regardless of whether the Issuer or a Guarantor was
insolvent on the date the Notes and Subsidiary Guarantees were issued, that
the payments constituted fraudulent transfers on another ground. To the extent
that proceeds from the sale of the Notes are used to repay indebtedness under
the Bank Facilities, or to make a distribution to a stockholder on account of
the ownership of capital stock, a court may find that the Issuer or a
Guarantor did not receive fair consideration or reasonably equivalent value
for the incurrence of the indebtedness represented by the Notes or a
Subsidiary Guarantee, as the case may be.
To the extent any Subsidiary Guarantees were avoided as a fraudulent
conveyance or held unenforceable for any other reason, holders of the Notes
would cease to have any claim in respect of such Guarantor and would be
creditors solely of the Issuer and any Guarantor whose Subsidiary Guarantee
was not avoided or held unenforceable. In such event, the claims of holders of
the Notes against the issuer of an invalid Subsidiary Guarantee would
effectively be subject to the prior payment of all liabilities and preferred
stock claims of such Guarantor. There can be no assurance that, after
providing for all prior claims and preferred stock interests, if any, there
would be sufficient assets to satisfy the claims of holders of the Notes
relating to any voided portions of any of the Subsidiary Guarantees.
Based upon financial and other information currently available to it,
management of the Issuer and each Guarantor believes that the Notes and the
Subsidiary Guarantees are being incurred for proper purposes and in good faith
and that the Issuer and each Guarantor (i) is solvent and will continue to be
solvent after issuing the
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Notes or its Subsidiary Guarantees, as the case may be, (ii) will have
sufficient capital for carrying on its business after such issuance, and (iii)
will be able to pay its debts as they mature. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
In addition, if a court were to avoid the Subsidiary Guarantees under
fraudulent conveyance laws or other legal principles, or, by the terms of such
Subsidiary Guarantees, the obligations thereunder were reduced as necessary to
prevent such avoidance, or the Subsidiary Guarantees were released, the claims
of other creditors of the Guarantors, including trade creditors, would to such
extent have priority as to the assets of such Guarantors over the claims of
holders of Notes. The Subsidiary Guarantees of the Notes by any Guarantor will
be released upon the sale of such Guarantor or upon the release by the lenders
under the Bank Facilities of such Guarantor's Subsidiary Guarantee of the
Issuer's obligation under the Bank Facilities. The Indenture limits the
ability of the Issuer and its Restricted Subsidiaries to incur additional
indebtedness and to enter into agreements that would restrict the ability of
any subsidiary to make distributions, loans or other payments to the Issuer.
However, these limitations are subject to certain exceptions. See "Description
of the New Notes."
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old Notes
may not be offered or sold, unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Issuer does not
currently anticipate that it will register the Old Notes under the Securities
Act. To the extent that Old Notes are tendered and accepted in the Exchange
Offer, the trading market for untendered and tendered but unaccepted Old Notes
could be adversely affected.
ABSENCE OF PUBLIC MARKET
The Old Notes have been designated as eligible for trading in the PORTAL
market. Prior to this Exchange Offer, there has been no public market for the
New Notes. If such a market were to develop, the New Notes could trade at
prices that may be higher or lower than their principal amount. Neither the
Issuer nor any of the Guarantors intends to apply for listing of the New Notes
on any securities exchange or for quotation of the New Notes on The Nasdaq
Stock Market's National Market or otherwise. The Initial Purchasers have
previously made a market in the Old Notes, and the Issuer and the Guarantors
have been advised that the Initial Purchasers currently intend to make a
market in the New Notes, as permitted by applicable laws and regulations,
after consummation of the Exchange Offer. The Initial Purchasers are not
obligated, however, to make a market in the Old Notes or the New Notes and any
such market-making activity may be discontinued at any time without notice at
the sole discretion of the Initial Purchasers. There can be no assurance as to
the liquidity of the public market for the New Notes or that any active public
market for the New Notes will develop or continue. If an active public market
does not develop or continue, the market price and liquidity of the New Notes
may be adversely affected.
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THE RECAPITALIZATION
Holdings, the Stockholders and the Sponsors entered into the
Recapitalization Agreement, which provided for the Recapitalization of
Holdings. Pursuant to the Recapitalization Agreement, the Sponsors and other
investors purchased from Holdings, for an aggregate purchase price of $47.0
million, Holdings Preferred Stock together with the Warrants. The shares of
Holdings Common Stock issuable upon the full exercise of the Warrants would
represent 77.5% of the outstanding shares of Holdings Common Stock after
giving effect to such issuance. In addition, Holdings purchased for $213.5
million, subject to certain working capital and debt adjustments, from the
Stockholders all outstanding shares of Holdings' capital stock, other than the
Retained Shares. The Retained Shares would represent 22.5% of the outstanding
shares of Holdings Common Stock after giving effect to the full exercise of
the Warrants, having the Implied Value of $15.0 million. Holdings, the
Sponsors and the holders of the Retained Shares also entered into a
Stockholders Agreement pursuant to which, among other things, the Sponsors
have the ability to direct the voting of outstanding shares of Holdings Common
Stock in proportion to their ownership of such shares as if the Warrants were
exercised in full. Accordingly, the Sponsors have voting control of Holdings.
In connection with the Recapitalization, Holdings organized the Issuer and,
immediately prior to the consummation of the Recapitalization, Holdings
transferred substantially all of its assets and liabilities to the Issuer.
Holdings' current operation are, and future operations are expected to be,
limited to owning the stock of the Issuer. The Issuer has repaid substantially
all of the Company's funded debt obligations existing immediately before the
consummation of the Recapitalization. At March 31, 1998, the aggregate
principal amount of the Company's funded indebtedness was $50.2 million.
Funding requirements for the Recapitalization (which was consummated on
April 21, 1998) were $292.3 million (including the Implied Value of the
Retained Shares) and were satisfied through the Retained Shares and the
following: (i) the purchase by the Sponsors and other investors of Holdings
Preferred Stock and the Warrants for $47.0 million ($45.8 million in cash and
$1.2 million in officer notes receivables); (ii) $100.0 million of gross
proceeds from the Offering; (iii) $80.0 million of borrowings under the Term
Loan Facilities; (iv) $6.4 million of borrowings under the Revolving Credit
Facility; and (v) $45.1 million of gross proceeds from the sale by Holdings of
the Holdings Senior Discount Debentures in a separate offering.
The Equity Repurchase, the Offering, the Debt Retirement, the issuance and
sale by Holdings of Holdings Preferred Stock, the Warrants and the Holdings
Senior Discount Debentures and the borrowing by the Issuer of funds under the
Bank Facilities were effected in connection with the Recapitalization. The
Recapitalization was accounted for as a recapitalization transaction for
accounting purposes.
23
<PAGE>
The following table sets forth the sources and uses of funds in connection
with the Recapitalization, as it occurred on April 21, 1998.
<TABLE>
<CAPTION>
(IN
THOUSANDS)
----------
<S> <C>
SOURCES:
Bank Facilities (1)............................................. $ 86,445
Notes offered in the Offering................................... 100,000
Holdings Senior Discount Debentures............................. 45,105
Holdings Preferred Stock (2).................................... 45,783
Implied Value of the Retained Shares (3)........................ 15,000
--------
Total sources of funds........................................ $292,333
========
USES:
Equity Repurchase............................................... $213,499
Debt Retirement................................................. 51,834
Implied Value of the Retained Shares (3)........................ 15,000
Transaction fees and expenses (4)............................... 12,000
--------
Total uses of funds........................................... $292,333
========
</TABLE>
- --------
(1) Represents (i) $6.4 million drawn under the $25.0 million Revolving Credit
Facility, (ii) $30.0 million under the Term A Loan Facility and (iii)
$50.0 million under the Term B Loan Facility. See "Description of the Bank
Facilities."
(2) Represents cash proceeds associated with the Holdings Preferred Stock,
excluding the officer notes receivable of $1.2 million.
(3) Based solely on the purchase price per share to be paid for shares of
Holdings Common Stock in the Equity Repurchase, multiplied by the number
of the Retained Shares. The Implied Value of the Retained Shares does not
represent a purchase, sale or other change in such equity investment for
accounting or tax purposes or any funds or proceeds paid to or used by the
Company in the Recapitalization, and does not necessarily represent a
market valuation for the Retained Shares.
(4) Includes Holdings' expenses, financial advisory, consulting and other
professional fees and deferred financing costs, other than certain
expenses borne by the Stockholders. See "Certain Relationships and Related
Transactions."
NEW CHIEF EXECUTIVE OFFICER
In connection with the Recapitalization, Naresh K. Nakra became President,
CEO and a director of Diamond Brands. Dr. Nakra, 52, has more than 25 years of
experience in the branded consumer products and food industries. From 1993 to
1998, Dr. Nakra served as President and CEO of Gruma Corporation, a U.S.
subsidiary of Gruma, S.A., a Mexico-based multinational company. Gruma
Corporation's subsidiaries include Mission Foods Corporation, a leading
manufacturer and marketer of tortilla products, and Azteca Milling, a leading
manufacturer and marketer of corn flour. These businesses sell and distribute
products manufactured in 14 facilities to retail and food service customers in
the United States, Latin America, Europe and the Pacific Rim. Based on IRI
data, Gruma Corporation achieved significant increases in sales and market
share during Dr. Nakra's tenure.
24
<PAGE>
THE SPONSORS
SEAVER KENT & COMPANY, LLC
Seaver Kent is a private equity firm located in Menlo Park, California, that
specializes in private, control investments in middle-market companies. Seaver
Kent was founded in October 1996 by Alexander M. Seaver and Bradley R. Kent,
both of whom were formerly general partners of InterWest Partners, one of the
nation's leading venture capital firms. The principals of Seaver Kent have
successfully partnered with management to build businesses through both
internal growth and strategic acquisitions, and in particular have extensive
experience investing in consumer and household products companies. Portfolio
companies in which funds managed by the principals of Seaver Kent have made
investments include AMX Corporation, Artco-Bell Holding, Bojangles', Cafe
Valley, Favorite Brands International, Heidi's Fine Desserts and MidWest
Folding Products.
TEXAS PACIFIC GROUP
TPG was founded by David Bonderman, James G. Coulter and William S. Price,
III in 1992 to pursue public and private investment opportunities through a
variety of methods, including leveraged buyouts, recapitalizations, joint
ventures, restructurings and strategic public securities investments. The
principals of TPG manage TPG Partners, L.P. and TPG Partners II, L.P., both
Delaware limited partnerships, with aggregate committed capital of over $3.2
billion. Among TPG's other investments are branded consumer products companies
Beringer Wine Estates, Del Monte Foods Company, Ducati Motor, Favorite Brands
International and J. Crew. Other TPG portfolio companies include America West
Airlines, Belden & Blake Corporation, Denbury Resources, Genesis ElderCare,
Paradyne, Virgin Entertainment and Vivra Specialty Partners. In addition, the
principals of TPG led the $9 billion reorganization of Continental Airlines in
1993.
USE OF PROCEEDS
There will be no cash proceeds payable to the Issuer or the Guarantors from
the issuance of the New Notes pursuant to the Exchange Offer. The proceeds
from the sale of the Old Notes were used for the retirement of debt, to
consummate the other components of the Recapitalization and to pay related
fees and expenses.
25
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1998: (i) the actual
capitalization of the Issuer and (ii) the capitalization of the Issuer as
adjusted to give effect to the Recapitalization. See "The Recapitalization,"
"Use of Proceeds," "Description of the Bank Facilities" and "Description of
the New Notes." This table should be read in conjunction with the "Selected
Historical and Pro Forma Consolidated Financial Data" and "Unaudited Pro Forma
Consolidated Financial Data" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31,
1998
-----------------
ACTUAL PRO FORMA
------- ---------
(IN THOUSANDS)
<S> <C> <C>
Debt (including current maturities):
Revolving Credit Facility (1).............................. $ -- $ 4,812
Term Loan Facilities (2)................................... -- 80,000
Notes offered in the Offering.............................. -- 100,000
Existing indebtedness (3).................................. 50,157 --
Total debt............................................... 50,157 184,812
Stockholders' equity (deficit)............................... 29,879 (98,185)
Total capitalization.................................. $80,036 $ 86,627
</TABLE>
- --------
(1) Represents the portion drawn under the $25.0 million Revolving Credit
Facility. Future borrowing under the Revolving Credit Facility will be
available for general corporate purposes. See "Description of the Bank
Facilities."
(2) The Term Loan Facilities have an aggregate capacity of $80.0 million and
are comprised of a $30.0 million Term A Loan Facility and a $50.0 million
Term B Loan Facility. See "Description of the Bank Facilities."
(3) Includes approximately $5.9 million of stockholder debt.
26
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data of the Issuer
(the "Unaudited Pro Forma Consolidated Financial Data") include the unaudited
pro forma consolidated statement of operations for the year ended December 31,
1997 and for the three months ended March 31, 1998 (the "Unaudited Pro Forma
Consolidated Statements of Operations") and the unaudited pro forma
consolidated balance sheet as of March 31, 1998 (the "Unaudited Pro Forma
Consolidated Balance Sheet").
The Unaudited Pro Forma Consolidated Statement of Operations for the year
ended December 31, 1997 is based on the audited consolidated statement of
operations of Holdings, and is adjusted to give effect to the Recapitalization
and the Empire Acquisition as if they had occurred on January 1, 1997. The
Unaudited Pro Forma Consolidated Statement of Operations data for the three
months ended March 31, 1998 is based on the unaudited consolidated statement
of operations of Holdings, and is adjusted to give effect to the
Recapitalization as if it had occurred on January 1, 1998. The Unaudited Pro
Forma Consolidated Balance Sheet is based on the unaudited consolidated
balance sheet of Holdings as of March 31, 1998, and is adjusted to give effect
to the Recapitalization as if it had occurred as of March 31, 1998. The pro
forma adjustments as applied to the respective historical consolidated
financial information of Holdings reflect and account for the Recapitalization
as a recapitalization. Accordingly, the historical basis of Holdings' assets
and liabilities has not been impacted by the Recapitalization. The
Recapitalization and the Empire Acquisition and their related adjustments are
described in the accompanying notes. The pro forma adjustments are based upon
preliminary estimates and certain assumptions that management of the Issuer
believes are reasonable in the circumstances. In the opinion of management,
all adjustments have been made that are necessary to present fairly the pro
forma data. Actual amounts could differ from those set forth below.
The Unaudited Pro Forma Consolidated Financial Data should be read in
conjunction with the notes included herewith, Holdings' audited consolidated
financial statements and notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this Prospectus.
The Unaudited Pro Forma Consolidated Financial Data do not purport to
represent what the Issuer's results of operations or financial position would
have been had the Recapitalization and the Empire Acquisition occurred on the
assumed dates, or to project the Issuer's results of operations or financial
position for any future period or date. The Unaudited Pro Forma Consolidated
Statements of Operations do not give effect to non-recurring charges directly
attributable to the Recapitalization, including the Debt Retirement. See Note
3 to Unaudited Pro Forma Consolidated Statements of Operations.
27
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS
----------------------- ---------------------------------
EMPIRE
HOLDINGS (1) EMPIRE (2) ACQUISITION RECAPITALIZATION (3) PRO FORMA
------------ ---------- ----------- -------------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales............... $118,072 $2,642 $ -- $ -- $120,714
Cost of sales........... 78,582 1,946 -- -- 80,528
-------- ------ ----- -------- --------
Gross profit.......... 39,490 696 -- -- 40,186
Selling, general and
administrative
expenses............... 11,414 310 -- -- 11,724
Goodwill amortization... 1,521 -- 160 (4) -- 1,681
-------- ------ ----- -------- --------
Operating income
(loss)............... 26,555 386 (160) -- 26,781
Interest expense........ 4,550 64 270 (5) 12,608 (6) 17,492
-------- ------ ----- -------- --------
Income (loss) before
income taxes......... 22,005 322 (430) (12,608) 9,289
Provision for income
taxes.................. 1,376 -- -- 2,524 (7) 3,900
-------- ------ ----- -------- --------
Net income (loss)..... $ 20,629 $ 322 $(430) $(15,132) $ 5,389
======== ====== ===== ======== ========
</TABLE>
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
HISTORICAL RECAPITALIZATION (3) PRO FORMA
---------- ------------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales............................. $26,486 $ -- $26,486
Cost of sales......................... 18,277 -- 18,277
------- ------- -------
Gross profit........................ 8,209 -- 8,209
Selling, general and administrative
expenses............................. 2,980 -- 2,980
Goodwill amortization................. 420 -- 420
------- ------- -------
Operating income (loss)............. 4,809 -- 4,809
Interest expense...................... 1,047 3,325 (6) 4,372
------- ------- -------
Income (loss) before income taxes... 3,762 (3,325) 437
Provision for income taxes............ -- 200 (7) 200
------- ------- -------
Net income (loss)................... $ 3,762 $(3,525) $ 237
======= ======= =======
</TABLE>
See accompanying notes to Unaudited Pro Forma Consolidated Statements of
Operations.
28
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(1) Includes results of operations of Empire for the period from March 1, 1997
to December 31, 1997.
(2) Represents the results of operations of Empire for the period from January
1, 1997 to February 28, 1997.
(3) The pro forma adjustments do not reflect a deduction for deferred
financing costs pertaining to existing indebtedness of $0.8 million to be
written off in connection with the Offering. Such amount, described in
Note 2 to the Unaudited Pro Forma Consolidated Balance Sheet, represents
an item which the Company anticipates will be recorded in the consolidated
statement of operations for the period in which the Offering occurs.
(4) Reflects the additional amortization of goodwill related to the Empire
Acquisition for the period from January 1, 1997 to February 28, 1997.
(5) Reflects the additional interest expense related to the Empire Acquisition
for the period from January 1, 1997 to February 28, 1997 based on
borrowings of $24.7 million at an annualized interest rate of 8.125% less
the actual interest expense of $0.1 million.
(6) Gives effect to the increase in estimated cash and non-cash interest
expense from the use of borrowings to finance the Recapitalization:
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEAR MONTHS ENDED
ENDED DECEMBER 31, MARCH 31,
1997 1998
------------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Interest on the Notes (a)................ $10,125 $2,531
Interest on the Bank Facilities:
Revolving Credit Facility (b).......... 373 93
Term A Loan Facility (b)............... 2,325 581
Term B Loan Facility (c)............... 4,000 1,000
----- -----
Total pro forma cash interest
expense............................. 16,823 4,205
Amortization of deferred financing costs. 669 167
----- -----
Total pro forma interest expense..... 17,492 4,372
Less: amount in historical statements of
operations
(Holdings and Empire)................... 4,614 1,047
Less: pro forma interest expense
adjustment for Empire................... 270 --
------- ------
Adjustment to interest expense........... $12,608 $3,325
======= ======
</TABLE>
--------
(a) Interest is calculated at an effective interest rate of 10.125%.
(b) Interest is calculated at an effective interest rate of 7.75%.
(c) Interest is calculated at an effective interest rate of 8.00%.
(7) Estimated income tax effects of (i) the Company's election to change its
status from a Subchapter S corporation to a Subchapter C corporation as of
January 1, 1997, in conjunction with the Recapitalization and (ii) pro
forma interest expense and goodwill amortization adjustments.
29
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------
RECAPITALIZATION PRO
HISTORICAL ADJUSTMENTS FORMA
---------- ---------------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Accounts receivable, net............... $15,050 $ -- $ 15,050
Inventories............................ 23,020 -- 23,020
Deferred income taxes.................. -- 2,156 (1) 2,156
Prepaid expenses....................... 324 -- 324
------- -------- --------
Total current assets................. 38,394 2,156 40,550
------- -------- --------
Property, plant and equipment, net....... 17,405 -- 17,405
Goodwill, net............................ 39,033 -- 39,033
Deferred financing costs................. 758 5,170 (2) 5,928
------- -------- --------
Total assets......................... $95,590 $ 7,326 $102,916
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Current maturities of long-term debt... $ 7,897 $ (7,397)(3) $ 500
Account payable........................ 5,567 -- 5,567
Accrued expenses....................... 8,401 -- 8,401
------- -------- --------
Total current liabilities............ 21,865 (7,397) 14,468
------- -------- --------
Post-retirement benefit obligations...... 1,586 -- 1,586
Deferred income taxes.................... -- 735 (1) 735
Long-term debt, net of current
maturities.............................. 42,260 142,052 (3) 184,312
------- -------- --------
Total liabilities.................... 65,711 135,390 201,101
Stockholders' equity (deficit)........... 29,879 (128,064)(4) (98,185)
------- -------- --------
Total liabilities and stockholders'
equity (deficit).................... $95,590 $ 7,326 $102,916
======= ======== ========
</TABLE>
See accompanying notes to Unaudited Pro Forma Consolidated Balance Sheet.
30
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(1) Represents the recognition of deferred income taxes relating to the
Company's election to change its status from a Subchapter S corporation to
a Subchapter C corporation for federal income tax purposes in conjunction
with the Recapitalization.
(2) Represents deferred financing costs of $5.9 million associated with the
Senior Subordinated Notes and the Bank Facilities less the write-off of
deferred financing costs of $0.8 million pertaining to existing
indebtedness.
(3) Represents the issuance of the Senior Subordinated Notes for $100.0
million, borrowings under the Bank Facilities of $84.8 million and
repayments of existing indebtedness of $50.2 million.
(4) Represents the distribution to Holdings of excess proceeds of $127.4
million, transaction expenses of $1.3 million, the write-off of existing
deferred financing costs of $0.8 million and the recognition of a net
deferred tax asset of $1.4 million.
31
<PAGE>
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated historical financial
data of the Company, for each of the years in the five-year period ended
December 31, 1997, which have been audited by Arthur Andersen LLP, independent
public accountants, and for the unaudited three months ended March 31, 1997
and 1998. The selected historical consolidated financial data for the years
ended December 31, 1995, 1996 and 1997 are derived from and should be read in
conjunction with the audited consolidated financial statements of Holdings and
the related notes thereto included elsewhere in this Prospectus. The selected
historical consolidated financial data for the years ended December 31, 1993
and 1994 are derived from audited financial statements of Holdings that are
not included in this Prospectus. The selected historical consolidated
financial data for the three months ended March 31, 1997 and 1998 are derived
from unaudited consolidated financial statements for such periods included
elsewhere in this Prospectus.
The unaudited pro forma consolidated statement of operations data of the
Issuer for the year ended December 31, 1997 gives effect to the Recapitalization
and the Empire Acquisition as if they had occurred on January 1, 1997. The
unaudited pro forma consolidated statement of operations data of the Issuer for
the three months ended March 31, 1998 gives effect to the Recapitalization as if
it had occurred on January 1, 1998. The unaudited pro forma consolidated balance
sheet data of the Issuer as of March 31, 1998 gives effect to the
Recapitalization as if it had occurred on March 31, 1998. The unaudited pro
forma consolidated financial data do not purport to represent what the Issuer's
or the Company's financial condition or results of operations would actually
have been had the Recapitalization and the Empire Acquisition in fact occurred
on the assumed dates, nor do they project the Issuer's and/or the Company's
financial condition or results of operations for any future period or date.
The financial data set forth below should be read in conjunction with the
audited consolidated financial statements and the related notes thereto,
"Unaudited Pro Forma Consolidated Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations," all included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, PRO FORMA ENDED MARCH 31, PRO FORMA
-------------------------------------------- DECEMBER 31, ---------------- MARCH 31,
1993 1994 1995 1996 1997 1997 1997 1998 1998
------- ------- ------- ------- -------- ------------ ------- ------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $33,538 $31,289 $77,659 $90,201 $118,072 $120,714 $22,560 $26,486 $26,486
Cost of sales........... 22,808 23,066 56,490 63,032 78,582 80,528 15,675 18,277 18,277
------- ------- ------- ------- -------- -------- ------- ------- -------
Gross profit........... 10,730 8,223 21,169 27,169 39,490 40,186 6,885 8,209 8,209
Selling, general and
administrative
expenses............... 4,307 4,153 10,152 9,148 11,414 11,724 2,368 2,980 2,980
Goodwill amortization... -- -- 600 720 1,521 1,681 260 420 420
------- ------- ------- ------- -------- -------- ------- ------- -------
Operating income....... 6,423 4,070 10,417 17,301 26,555 26,781 4,257 4,809 4,809
Interest expense........ 639 492 3,963 3,858 4,550 17,492 952 1,047 4,372
------- ------- ------- ------- -------- -------- ------- ------- -------
Income before provision
for income taxes...... 5,784 3,578 6,454 13,443 22,005 9,289 3,305 3,762 437
Provision for income
taxes.................. 1,827 -- 2,352 5,807 1,376 3,900 1,376 -- 200
------- ------- ------- ------- -------- -------- ------- ------- -------
Net income............. $ 3,957 $ 3,578 $ 4,102 $ 7,636 $ 20,629 $ 5,389 $ 1,929 $ 3,762 $ 237
======= ======= ======= ======= ======== ======== ======= ======= =======
UNAUDITED PRO FORMA
INCOME TAX DATA:
Income before income
taxes.................. $ 5,784 $ 3,578 $ 6,454 $13,443 $ 22,005 $ 9,289 $ 3,305 $ 3,762 $ 437
Provision for income
taxes(1)............... 2,140 1,324 2,700 5,807 9,000 3,900 1,400 1,500 200
------- ------- ------- ------- -------- -------- ------- ------- -------
Pro forma net income.... $ 3,644 $ 2,254 $ 3,754 $ 7,636 $ 13,005 $ 5,389 $ 1,905 $ 2,262 $ 237
======= ======= ======= ======= ======== ======== ======= ======= =======
OTHER DATA:
Depreciation and
amortization (2)....... $ 1,207 $ 1,250 $ 3,761 $ 4,204 $ 4,668 $ 4,856 $ 978 $ 1,032 $ 1,032
EBITDA (3).............. 7,630 5,320 14,178 21,505 31,223 31,637 5,235 5,841 5,841
EBITDA margin (4)....... 22.8% 17.0% 18.3% 23.8% 26.4% 26.2% 23.2% 22.1% 22.1%
Capital expenditures.... $ 836 $ 585 $ 1,926 $ 1,979 $ 4,050 $ 4,050 $ 602 $ 472 $ 472
CREDIT DATA:
Cash Interest expense............................................ $ 16,823 -- -- $ 4,205
Ratio of EBITDA to cash interest expense......................... 1.9x -- -- 1.4x
Ratio of total debt to EBITDA.................................... 5.8x -- -- N/A
Ratio of earnings to fixed charges (5)........................... 1.5x -- -- 1.1x
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
--------------------
HISTORICAL PRO FORMA
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Balance Sheet Data:
Working capital........................................... $16,529 $ 26,082
Total assets.............................................. 95,590 102,916
Total debt, including current maturities.................. 50,157 184,812
Stockholders' equity (deficit)............................ 29,879 (98,185)
</TABLE>
- --------
(1) Reflects the pro forma income tax provision that would have been provided
had the Company been a Subchapter C corporation, rather than a Subchapter
S corporation, for federal income tax purposes. For the years ended
December 31, 1993, 1995 and 1996, the Company was a Subchapter C
corporation for federal income tax purposes and for the years ended
December 31, 1994 and 1997 and the three months ended March 31, 1997 and
1998, a Subchapter S corporation for federal income tax purposes.
(2) Excludes amortization of deferred financing costs.
(3) EBITDA represents operating income plus depreciation and amortization
(excluding amortization of deferred financing costs). The Company believes
that EBITDA provides useful information regarding the Company's ability to
service its debt; however, EBITDA does not represent cash flow from
operations as defined by generally accepted accounting principles and
should not be considered as a substitute for net income as an indicator of
the Company's operating performance or cash flow as a measure of
liquidity.
(4) EBITDA margin represents EBITDA as a percentage of net sales.
(5) The ratio of earnings to fixed charges has been calculated by dividing
income before income taxes and fixed charges by fixed charges. Fixed
charges for this purpose include interest expense, amortization of
deferred financing costs and one-third of operating lease payments (the
portion deemed to be representative of the interest factor).
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with,
and is qualified in its entirety by, "Selected Historical and Pro Forma
Consolidated Financial Data," the audited consolidated financial statements of
Holdings for the three-year period ended December 31, 1997 and the notes
thereto, and the unaudited consolidated financial statements of Holdings for
the three months ended March 31, 1997 and 1998 and the notes thereto included
elsewhere in this Prospectus.
GENERAL
The Company is a leading manufacturer and marketer of a broad range of
consumer products, including Wooden Lights, Cutlery, Candles and Woodenware.
The Company's products are marketed primarily under the nationally recognized
Diamond, Forster and Empire brand names, which have been in existence since
1881, 1887 and 1950, respectively.
The Company derives its revenue primarily from the sale of its products to
substantially all major grocery stores, drug stores, mass merchandisers and
warehouse clubs in the United States. During the year ended December 31, 1997,
sales to the Company's top 10 customers accounted for approximately 39% of the
Company's pro forma gross sales, with one customer, Wal-Mart and its
subsidiary, Sam's Club, accounting for approximately 19% of the Company's pro
forma gross sales. The Company's ability to maintain and increase its sales
depends on a variety of factors including its competitive position in such
areas as price, quality, brand identity, distribution and customer service.
See "Risk Factors." The Company's products are manufactured at its four
automated manufacturing facilities located in Cloquet, Minnesota, East Wilton,
Maine, Strong, Maine, and Kansas City, Kansas.
Net sales, as calculated by the Company, are determined by subtracting
discounts and allowances from gross sales. Discounts and allowances consist of
price promotions, cash discounts, corporate rebates, slotting fees, consumer
coupons, co-op advertising and unsaleables. The Company's cost of sales and
its resulting gross margin (defined as gross profit as a percentage of net
sales) are principally determined by the cost of raw materials, the cost of
the labor to manufacture its products, the overhead expenses of its
manufacturing facilities, warehouse costs and freight expenses to its
customers. In recent years, the Company has focused on improving its gross
margin by seeking to: (i) consolidate manufacturing operations; (ii) reduce
headcount and expenses in manufacturing; and (iii) increase operating
efficiencies through capital projects with rapid returns on investment.
Polystyrene resin, a commodity whose market price fluctuates with supply and
demand, is a significant component of cost of sales in the Company's Cutlery
products. In order to mitigate the impact of changing polystyrene resin
prices, the Company in January 1997 entered into a three-year supply contract
with a major supplier of polystyrene resin, under which the Company believes
it receives the lowest price available to any customer purchasing similar
volume, and receives short-term price protection during periods of rising
prices. During periods of rising prices, the Company generally has been able
to pass through the majority of the polystyrene resin price increases to its
customers on a delayed basis. During periods of declining polystyrene resin
prices, the Company generally has reduced prices to its customers.
Selling, general and administrative expenses consist primarily of selling
expenses, broker commissions and administrative costs. Broker commissions and
certain selling expenses generally vary with sales volume while administrative
costs are relatively fixed in nature.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, gross sales and
gross sales as a percentage of the Company's aggregate net sales for the
Company's major product groups, as well as the Company's aggregate net sales,
EBITDA and EBITDA margin.
34
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
----------------------------------------- -------------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------- --------------- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Wooden Lights........... $17.6 22.6% $19.8 22.0% $ 20.9 17.7% $ 5.0 22.1% $ 5.1 19.3%
Cutlery................. 27.9 35.9 32.6 36.1 35.4 30.0 6.2 27.4 7.0 26.4
Candles................. -- -- -- -- 25.5 21.6 1.5 6.6 5.7 21.5
Woodenware.............. 25.7 33.1 28.7 31.8 30.2 25.6 7.5 33.2 7.5 28.3
Institutional/Other..... 13.8 17.8 17.5 19.4 16.7 14.1 4.4 19.5 4.0 15.1
----- ----- ----- ----- ------ ----- ------ ------ ------ -------
Total gross sales...... 85.0 109.4 98.6 109.3 128.7 109.0 24.6 108.8 29.3 (110.6)
Discounts and allow-
ances.................. (7.3) (9.4) (8.4) (9.3) (10.6) (9.0) (2.0) (8.8) (2.8) (10.6)
----- ----- ----- ----- ------ ----- ------ ------ ------ -------
Net sales.............. $77.7 100.0% $90.2 100.0% $118.1 100.0% $ 22.6 100.0% $ 26.5 100.0%
===== ===== ===== ===== ====== ===== ====== ====== ====== =======
EBITDA (1).............. $14.2 18.3% $21.5 23.8% $ 31.2 26.4% $ 5.2 23.2% $ 5.8 22.1%
===== ===== ===== ===== ====== ===== ====== ====== ====== =======
</TABLE>
- --------
(1) EBITDA represents operating income plus depreciation and amortization
(excluding amortization of deferred financing costs). The Company believes
that EBITDA provides useful information regarding the Company's ability to
service its debt; however, EBITDA does not represent cash flow from
operations as defined by generally accepted accounting principles and should
not be considered as a substitute for net income as an indicator of the
Company's operating performance or cash flow as a measure of liquidity.
Holders tendering Old Notes in the Exchange Offer should consider the
following factors in evaluating such measures: EBITDA and related measures
(i) should not be considered in isolation, (ii) are not measures of
performance calculated in accordance with GAAP, (iii) should not be
construed as alternatives or substitutes for income from operations, net
income or cash flows from operating activities in analyzing the Issuer's
operating performance, financial position or cash flows (in each case, as
determined in accordance with GAAP) and (iv) should not be used as
indicators of the Issuer's operating performance or measures of its
liquidity. Additionally, because all companies do not calculate EBITDA and
related measures in a uniform fashion, the calculations presented in this
Prospectus may not be comparable to other similarly titled measures of other
companies.
The following table sets forth, for the periods indicated, certain
historical statement of operations data and such data as a percentage of net
sales for the Company.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- ------------------------
1995 1996 1997 1997 1998
----------- ------------ ------------ ----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $77.7 100.0% $ 90.2 100.0% $118.1 100.0% $22.6 100.0% $26.5 100.0%
Cost of sales........... 56.5 72.7 63.0 69.8 78.6 66.6 15.7 69.5 18.3 69.1
----- ----- ------ ----- ------ ----- ----- ----- ----- -----
Gross profit............ 21.2 27.3 27.2 30.2 39.5 33.4 6.9 30.5 8.2 30.9
Selling, general and
administra-
tive expenses.......... 10.1 13.0 9.2 10.2 11.4 9.6 2.3 10.2 3.0 11.3
Goodwill amortization... 0.6 0.8 0.7 0.8 1.5 1.3 0.3 1.3 0.4 1.5
----- ----- ------ ----- ------ ----- ----- ----- ----- -----
Operating income........ 10.5 13.5 17.3 19.2 26.6 22.5 4.3 19.0 4.8 18.1
Interest expense........ 4.0 5.1 3.9 4.3 4.6 3.9 1.0 4.4 1.0 3.8
----- ----- ------ ----- ------ ----- ----- ----- ----- -----
Income before provision
for income taxes....... $ 6.5 8.4% $ 13.4 14.9% $ 22.0 18.6% $ 3.3 14.6% $ 3.8 14.2%
===== ===== ====== ===== ====== ===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31,
1997
NET SALES. Net sales in the three months ended March 31, 1998 increased
17.3% to $26.5 million from $22.6 million in the three months ended March 31,
1997, primarily due to the Empire Acquisition in February 1997 which added net
sales of $3.0 million. The remaining increase in net sales in the three months
ended March 31, 1998 principally resulted from continued growth in Cutlery,
Candles and Wooden Lights products, offset by a slight decline in
Institutional/Other products. The 12.9% or $0.8 million increase in gross
sales of Cutlery products is attributed to strong performance in both branded
and private label sales. The increase in gross sales of Candles products is
due to the Empire Acquisition and the introduction of Reflections candles into
the air freshener section of the grocery trade in the first quarter of 1998.
GROSS PROFIT. Gross profit in the three months ended March 31, 1998
increased 18.8% to $8.2 million from $6.9 million in the three months ended
March 31, 1997. Gross margin remained constant at 28.0%. The increased gross
profit primarily reflects the impact of the Empire Acquisition which
contributed $0.8 million to gross profit.
35
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses as a percentage of net sales increased to 11.3% in the
three months ended March 31, 1998 from 10.2% in the three months ended March
31, 1997. Excluding the Empire Acquisition, selling, general and
administrative expenses increased to 10.6% due primarily to sales samples to
support the introduction of Reflections candles in the grocery trade and
increased travel costs.
GOODWILL AMORTIZATION. Goodwill amortization in the three months ended March
31, 1998 increased to $0.4 million from $0.3 million in the three months ended
March 31, 1997 as a result of the Empire Acquisition.
INTEREST EXPENSE. Interest expense in the three months ended March 31, 1998
remained constant at $1.0 million due primarily to additional borrowings under
the Company's existing bank credit facilities in connection with the Empire
Acquisition offset by lower borrowing rates.
PROVISION FOR INCOME TAXES. As of January 1, 1997, the Company changed its
status from a Subchapter C corporation to a Subchapter S corporation for federal
income tax purposes. As a Subchapter S corporation, the Company's stockholders
were primarily responsible for income taxes with respect to the Company's
income. The effective income tax rate of 41.6% for the three months ended March
31, 1997 resulted from the removal of the deferred tax assets and liabilities as
of January 1, 1997 due to the election of Subchapter S corporation status.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
NET SALES. Net sales in 1997 increased 30.9% to $118.1 million from $90.2
million in 1996. This increase primarily reflected the impact of the Empire
Acquisition in February 1997, which contributed net sales of $24.0 million.
Without giving effect to the Empire Acquisition, net sales in 1997 increased
4.3% to $94.1 million. The remaining increase in 1997 net sales principally
resulted from continued growth in gross sales of Wooden Lights, Cutlery and
Woodenware products, partially offset by a slight decline in gross sales of
Institutional/Other products (reflecting a $0.9 million one-time order of
advertising matches in 1996) and increased discounts and allowances resulting
from additional sales volume. Gross sales of Cutlery products increased 8.6%
to $35.4 million, primarily as a result of growth in private label sales.
Gross sales of Woodenware and Wooden Lights increased 5.2% and 5.6% to $30.2
million and $20.9 million, respectively, principally as a result of adding new
customers.
GROSS PROFIT. Gross profit in 1997 increased 45.2% to $39.5 million from
$27.2 million in 1996. Gross margin increased to 33.4% in 1997 from 30.2% in
1996. The increase in gross profit primarily reflected the impact of the
Empire Acquisition, which contributed gross profit of $6.2 million. Without
giving effect to the Empire Acquisition, gross profit increased 22.4% to $33.3
million, and gross margin increased to 35.4%. Gross margin was significantly
impacted by: (i) reduced clothespin manufacturing costs as a result of lower
headcount and raw material costs and higher manufacturing yields; (ii) reduced
Cutlery manufacturing costs as a result of lower polystyrene resin prices;
(iii) operating efficiencies achieved through capital projects with rapid
returns on investment; (iv) increased sales volume in the Company's Wooden
Lights, Cutlery and Woodenware products; and (v) the lower gross margins
associated with the Candles operations of Empire.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses as a percentage of net sales decreased to 9.6% in 1997
from 10.2% in 1996. The decrease in selling, general and administrative
expenses as a percentage of net sales resulted primarily from spreading
certain fixed and semi-fixed costs over a larger sales base, and a continued
emphasis by the Company on reducing administrative costs. Excluding the Empire
Acquisition, selling, general and administrative expenses decreased to 9.9% of
net sales in 1997.
GOODWILL AMORTIZATION. Goodwill amortization in 1997 increased to $1.5
million from $0.7 million in 1996 as a result of the Empire Acquisition.
INTEREST EXPENSE. Interest expense in 1997 increased to $4.6 million from
$3.9 million in 1996. The increase was due primarily to additional borrowings
under the Company's existing bank credit facilities in connection with the
Empire Acquisition in February 1997.
36
<PAGE>
PROVISION FOR INCOME TAXES. As of January 1, 1997, the Company changed its
status from a Subchapter C corporation to a Subchapter S corporation for
federal income tax purposes. As a Subchapter S corporation, the Company's
stockholders were primarily responsible for income taxes with respect to the
Company's income. The effective income tax rate of 6.2% for the year ended
December 31, 1997 resulted from the removal of the deferred tax assets and
liabilities as of December 31, 1996 due to the election of Subchapter S
corporation status. The effective income tax rate of 43.2% for the year ended
December 31, 1996 varied from the federal statutory rate primarily as a result
of non-deductible goodwill amortization and state income taxes.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
NET SALES. Net sales in 1996 increased 16.1% to $90.2 million from $77.7
million in 1995. This increase primarily reflected: (i) a full year of Forster
operations in 1996 as compared to approximately 10 months in 1995; (ii)
continued growth in the sales volume of Cutlery products; (iii) increased
sales of Wooden Lights products as a result of increases in unit volumes and
prices; (iv) a 3% unit price increase in toothpick products; and (v) a $0.9
million one-time order of advertising matches.
GROSS PROFIT. Gross profit in 1996 increased 28.3% to $27.2 million from
$21.2 million in 1995. Gross margin increased to 30.2% in 1996 from 27.3% in
1995. The increases in gross profit and gross margin principally resulted
from: (i) increased sales volume achieved in connection with the Forster
Acquisition; (ii) cost savings achieved in connection with the consolidation
of the manufacturing of the toothpick and clothespin products into a single
facility; (iii) increased sales volume of higher-margin Wooden Lights
products; (iv) declining polystyrene resin prices; and (v) reduced Cutlery
manufacturing costs through investments in automated equipment that lowered
headcount and increased efficiency.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses as a percentage of net sales decreased to 10.2% in
1996 from 13.0% in 1995. The decrease in selling, general and administrative
expenses was due primarily to cost savings achieved in connection with the
Forster Acquisition, as well as spreading certain fixed and semi-fixed costs
over a larger sales base and a continued emphasis by the Company on reducing
administrative costs.
GOODWILL AMORTIZATION. Goodwill amortization in 1996 increased to $0.7
million from $0.6 million in 1995 as a result of a full year of goodwill
amortization in connection with the Forster Acquisition.
INTEREST EXPENSE. Interest expense in 1996 decreased to $3.9 million from
$4.0 million in 1995. This decrease was due primarily to the Company's
payments on indebtedness incurred in the Forster Acquisition in March 1995 and
lower variable interest rates associated with the Company's term note and
revolving line of credit during 1996 compared to 1995.
PROVISION FOR INCOME TAXES. The effective income tax rate increased to 43.2%
for the year ended December 31, 1996 from 36.4% for the year ended December
31, 1995. The 1995 effective tax rate decreased due to the recognition of a
net deferred tax asset of $0.3 million as a result of the Company's election
to change its status from a Subchapter S corporation to a Subchapter C
corporation for federal income tax purposes effective January 1, 1995. The
1995 and 1996 effective income tax rates varied from the federal statutory
rate primarily as a result of non-deductible goodwill amortization and state
income taxes.
LIQUIDITY AND CAPITAL RESOURCES
HISTORICAL
Cash provided by operating activities was $0.8 million and $3.5 million for
the three months ended March 31, 1997 and 1998, respectively. Cash provided by
operating activities was $4.5 million, $13.8 million and $21.3 million for the
years ended December 31, 1995, 1996 and 1997, respectively. The Company's
primary cash requirements have been to fund working capital, maintenance
capital expenditures and acquisitions. The
37
<PAGE>
Company has generally used internally generated funds and amounts available
under its existing revolving credit facility as its primary sources of
liquidity, with borrowings being utilized principally to fund acquisitions. In
1997, the Company invested $24.7 million in the Empire Acquisition, and in
1995 the Company invested $42.4 million in the Forster Acquisition. These
acquisitions were funded from borrowings under senior bank credit facilities.
Capital expenditures (excluding acquisition costs) for the three months
ended March 31, 1997 were $0.6 million compared to $0.5 million for the three
months ended March 31, 1998. Capital expenditures (excluding acquisition
costs) for the year ended December 31, 1997 were $4.1 million compared to $2.0
million for the year ended December 31, 1996 and $1.9 million for the year
ended December 31, 1995. This higher level of capital spending in 1997 was
primarily attributed to facility consolidation and investments in new candle
lines at the Company's Kansas City facility. The Company's historical capital
expenditures have been primarily used to expand capacity and improve
manufacturing efficiencies. The Company currently expects its capital
expenditures for 1998 to be approximately $2.5 million.
AFTER THE RECAPITALIZATION
Holdings, the Stockholders and the Sponsors entered into the
Recapitalization Agreement, which provided for the Recapitalization of
Holdings. Pursuant to the Recapitalization Agreement, the Sponsors and other
investors purchased from Holdings, for an aggregate purchase price of $47.0
million, Holdings Preferred Stock together with the Warrants. In addition,
Holdings purchased for $213.5 million, subject to certain working capital and
debt adjustments, from the Stockholders, all outstanding shares of Holdings
capital stock other than the Retained Shares.
As a result of the Recapitalization, the Company's capital structure changed
substantially. As of April 21, 1998, the Company's capital structure consisted
of $100.0 million of Old Notes; $80.0 million of Term Loan Facilities; the
Revolving Credit Facility, of which approximately $6.4 million was used to
consummate the Recapitalization; and $84.0 million Holdings Senior Discount
Debentures, of which $45.1 million was received in gross proceeds and $47.0
million of Holdings Preferrred Stock. In April 2003, the Company will be
required to redeem a certain amount of Holdings Senior Discount Debentures
equal to (i) $33.2 million multiplied by (ii) the quotient obtained by dividing
(x) the aggregate principal amount at maturity of Holdings Senior Discount
Debentures then outstanding by (y) $84.0 million, at a redemption price equal
to 100% of the principal amount of Holdings Senior Discount Debentures so
redeemed. Commencing October 15, 2003, the Company will be required to make
semi-annual cash payments of interest on the Holdings Senior Discount
Debentures.
The Company's ability to make scheduled payments of the principal of, or to
pay the interest or Liquidated Damages, if any, on, or to refinance, its
indebtedness (including Holdings Senior Discount Debentures), or to fund
planned capital or other expenditures will depend on its future financial or
operating performance, which will be affected by prevailing economic
conditions and financial, business, and other factors, many of which are
beyond its control. Based upon the current level of operations, management
believes that cash flow from operations and available borrowings under the
Revolving Credit Facility will be adequate to meet the Company's anticipated
future requirements for working capital, budgeted capital and other
expenditures and scheduled payments of principal and interest on its
indebtedness, including Holdings Senior Discount Debentures, for the next
several years. There can be no assurance that the Company's business will
generate sufficient cash flow from operations or that future borrowings will
be available under the Revolving Credit Facility in an amount sufficient to
enable the Company to service its indebtedness, including Holdings Senior
Discount Debentures, or to make anticipated capital and other expenditures.
Following the Recapitalization, the Company's primary sources of liquidity
are cash flow from operations and borrowing under the Revolving Credit
Facility. The Company's primary uses of cash are debt service requirements,
capital expenditures and working capital. The Company expects that continuing
requirements for debt service, capital expenditures and working capital will
be funded from operating cash flow and borrowings under the Revolving Credit
Facility.
38
<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARDS
Financial Accounting Standards Board Statement ("SFAS") No. 131,
"Disclosures About Segments of an Enterprise and Related Information," issued
in June 1997 and effective for fiscal years beginning after December 15, 1997,
redefines how operating segments are determined and requires expanded
quantitative and qualitative disclosures relating to a company's operating
segments. The Company believes that the effect on it of adopting SFAS No. 131
will not be significant.
INFLATION AND ECONOMIC TRENDS
Although its operations are affected by general economic trends, the Company
does not believe that inflation has had a material impact on its results of
operations.
YEAR 2000
Many computer systems and software applications, including most of those
used by the Company, identify dates using only the last two digits of the
year. These systems are unable to distinguish between dates in the year 2000
and dates in the year 1900. That inability (referred to as the "Year 2000"
issue), if not addressed, could cause certain systems or applications to fail
or provide incorrect information after December 31, 1999 or when using dates
after December 31, 1999. This in turn, could have an adverse effect on the
Company, due to the Company's direct dependence on its own system and
applications and indirect dependence on those of other entities with which the
Company must interact.
The Company has implemented a process to either replace or modify all of the
Company's current computer systems and software applications which will be
Year 2000 compliant. The Company expects to complete the entire project by
June 1999. In connection with this process, the Company has retained two
information technology consulting groups.
The Company currently estimates that its costs incurred in 1997 and through
the year 2000 to enhance its information systems may cost approximately $0.9
million. These costs include estimates for employee compensation on the
project team, consultants, hardware and software. The Company does not
anticipate incurring any additional expenses in connection with the Year 2000
issue.
As a result of the implementation of the new information system, the Company
is not likely to initiate other major systems projects in connection with the
Year 2000 issue. There can be no assurance that the Company will not
experience cost overruns or delays in connection with its plan for replacing
or modifying its information systems.
39
<PAGE>
BUSINESS
OVERVIEW
Diamond Brands is a leading manufacturer and marketer of a broad range
of branded consumer products, including Wooden Lights, Cutlery, Candles and
Woodenware. The Company's products are marketed primarily under the Diamond,
Forster and Empire brand names, which have been in existence since 1881, 1887
and 1950, respectively. The Company believes it has the leading domestic retail
market share in the wooden match, plastic cutlery, toothpick, clothespin and
wooden craft product categories. In each of these product categories, which in
the aggregate represented approximately 63% of 1997 pro forma gross sales, the
Company believes it has achieved a domestic retail market share of more than
double that of its nearest branded competitor. For the year ended December 31,
1997, the Company generated pro forma net sales of $120.7 million and pro forma
EBITDA of $31.6 million, which represented a pro forma EBITDA margin of 26.2%.
For the three months ended March 31, 1998, the Company generated net sales of
$26.5 million and EBITDA of $5.8 million, which represented an EBITDA margin of
22.1%
The Company believes it has achieved its leading market shares and strong
profitability by: (i) capitalizing on the Company's strong brand name
recognition, high quality products and category management strategy to secure
and maintain retail shelf space; (ii) expanding its product offerings through
strategic acquisitions, including the Forster Acquisition in 1995 and the
Empire Acquisition in 1997; (iii) achieving significant cost savings through
the integration of the Forster and Empire businesses, including headcount
reductions and facilities consolidations; and (iv) focusing on reducing
manufacturing and administrative costs.
The Company's products are sold in substantially all major grocery stores,
drug stores, mass merchandisers and warehouse clubs in the United States.
Diamond Brands also sells certain of its products to institutional and other
customers such as food service and food processing companies and
redistributors. The Company sells its products through a nationwide sales
network consisting primarily of independent broker organizations and also
sells products directly to selected mass merchandisers and warehouse clubs,
including Wal-Mart and Price Costco. In order to strengthen relationships with
its customers, the Company employs a category management strategy, which
includes a corporate rebate program that provides incentives to grocery
retailers to buy multiple products from the Company.
Diamond Brands produces its products at four automated manufacturing
facilities located in Cloquet, Minnesota, East Wilton, Maine, Strong, Maine,
and Kansas City, Kansas. The Company believes it is a low-cost manufacturer in
most of its product categories. In the United States, Diamond Brands believes
it is the sole manufacturer of wooden matches and the largest manufacturer of
toothpicks and clothespins.
COMPETITIVE STRENGTHS
The Company believes that its stable and diverse product portfolio, strong
brand names, national distribution and cost-efficient manufacturing have
resulted in strong financial performance and provide an attractive platform
for growth. In particular, the Company believes it is distinguished by the
following competitive strengths:
. DIVERSE PRODUCT PORTFOLIO WITH ATTRACTIVE SALES MIX. The Company has a
diverse product portfolio with its 1997 pro forma gross sales consisting
of Wooden Lights (15.9%), Cutlery (26.9%), Candles (21.5%), Woodenware
(23.0%) and Institutional/Other (12.7%). This product portfolio allows
the Company to offer retailers a broad product offering without relying
on any one product category for profitability. Diamond Brands' product
mix includes stable and well-established categories (such as Wooden
Lights and Woodenware), as well as higher-growth categories (such as
Cutlery and Candles). In addition, the Company believes its product mix
is attractive because its product categories tend to be less reliant on
new product introductions than are other consumer product categories.
Approximately 98% of the Company's 1997 pro forma gross sales consisted
of products introduced prior to 1994. The Company also believes that its
products are not significantly impacted by changes in overall economic
conditions.
. STRONG BRAND NAMES WITH LEADING MARKET SHARES. The Company's three primary
brand names--Diamond, Forster and Empire--have been in existence since
1881, 1887 and 1950, respectively. The Company believes that strong brand
name recognition and high quality products have contributed to its
40
<PAGE>
leading domestic retail market shares in the wooden match, plastic
cutlery, toothpick, clothespin and wooden craft product categories. In
each of these product categories, which in the aggregate represented
approximately 63% of 1997 pro forma gross sales, the Company believes it
has achieved a domestic retail market share of more than double that of
its nearest branded competitor. The Company believes its strong brand
names and leading market shares provide a competitive advantage in
selling its products to retailers.
. WELL-ESTABLISHED NATIONAL RETAIL DISTRIBUTION. Diamond Brands' products
are sold in substantially all major grocery stores, drug stores, mass
merchandisers and warehouse clubs in the United States. The Company has
established relationships with many of the largest retailers in the
United States such as Wal-Mart, Price Costco, Target, Publix and Kroger.
The Company sells its products through a nationwide sales network
consisting primarily of independent broker organizations and also sells
products directly to selected mass merchandisers and warehouse clubs. The
Company employs a category management strategy which includes a corporate
rebate program that provides incentives to grocery retailers to buy
multiple products from the Company.
. COST-EFFICIENT MANUFACTURING. The Company believes that its four automated
manufacturing facilities position it as a low-cost manufacturer in most
of its product categories. The Company continues to invest in automation
equipment in order to reduce headcount and increase efficiency.
. STRONG CASH FLOW WITH LIMITED MAINTENANCE CAPITAL EXPENDITURES. The
Company's strong EBITDA and EBITDA margin, together with limited
maintenance capital expenditure requirements, provide the Company with
significant cash flow to reduce indebtedness and implement its business
strategy. Over 90% of the Company's capital expenditures in the five
years ended December 31, 1997 have related to productivity improvements
and capacity expansions. The Company currently expects its capital
expenditures for 1998 to be approximately $2.5 million, of which
approximately $0.5 million had been expended in the three months ended
March 31, 1998.
. EXPERIENCED MANAGEMENT TEAM. The Company's existing senior management team
possesses extensive industry and product knowledge and has an average
tenure of seven years with the Company. In addition, in connection with
the Recapitalization, Naresh K. Nakra became President, CEO and a
director of Diamond Brands. Dr. Nakra has more than 25 years of
experience in the branded consumer products and food industries,
including five years as President and CEO of Gruma Corporation, whose
subsidiaries include Mission Foods Corporation, a leading manufacturer
and marketer of tortilla products, and Azteca Milling, a leading
manufacturer and marketer of corn flour. Based on IRI data, Gruma
Corporation achieved significant increases in sales and market share
during Dr. Nakra's tenure. Dr. Nakra and the Company's existing senior
management team have experience in identifying, consummating and
integrating strategic acquisitions. See "New Chief Executive Officer."
BUSINESS STRATEGY
The Company's business strategy, which is designed to enhance its strong
market positions and increase sales and EBITDA, includes the following
elements:
. CONTINUE TO PRODUCE HIGH QUALITY PRODUCTS. The Company believes that
product quality has been a key factor in its success and intends to
continue manufacturing high quality products in a cost-efficient manner
in each of its product categories. The Company believes that its products
are of superior or equivalent quality compared to those of its
competitors, and that its brand names and "Made in the USA" label
distinguish the Company's products from those of its competitors.
. EXPAND CATEGORY MANAGEMENT STRATEGY TO INCREASE RETAIL SHELF
SPACE. Diamond Brands utilizes a category management strategy to maintain
and increase shelf space for its products at retail outlets. A central
element of this strategy is the Company's corporate rebate program, which
provides incentives to grocery retailers to buy multiple products from
the Company. The Company intends to expand its corporate rebate program
to include additional grocery retailers. The category management strategy
also includes consolidated invoicing and shipping across the Company's
product lines, which allows retailers to lower buying costs and reduce
their number of suppliers.
41
<PAGE>
. ENTER NEW DISTRIBUTION CHANNELS. The Company's products are sold primarily
through grocery stores, drug stores, mass merchandisers and warehouse
clubs in the United States. While the Company has been successful in
these distribution channels, management believes there is potential to
increase sales and EBITDA by: (i) penetrating additional retail outlets
including gift stores and party supply stores; (ii) increasing sales
efforts in the food service industry; and (iii) entering international
markets. The Company intends to utilize its strong brand names, diverse
product portfolio and cost-efficient manufacturing to facilitate its
entry into new distribution channels.
. CAPITALIZE ON STRONG BRAND NAMES AND NATIONAL DISTRIBUTION TO INTRODUCE
NEW PRODUCTS. The Company intends to continue developing new products and
product line extensions designed to capitalize on the Company's strong
brand names and existing distribution and manufacturing capabilities. The
Company intends to use its category management strategy and existing
relationships with retailers to secure retail shelf space for these new
products.
. PURSUE ATTRACTIVE ACQUISITION OPPORTUNITIES. The Company has successfully
completed and integrated three strategic acquisitions in the last seven
years. In 1991, the Company purchased certain assets of Universal Match.
In 1995, the Company strengthened its position in the Woodenware and
Cutlery product categories through the Forster Acquisition and in
February 1997, the Company added candles to its product portfolio through
the Empire Acquisition. The Company believes there are additional
opportunities to generate incremental sales and EBITDA through strategic
acquisitions. The Company intends to continue to pursue strategic
acquisitions that: (i) add to or complement its product portfolio; (ii)
leverage its existing distribution and manufacturing capabilities; or
(iii) provide access to new distribution channels for its products.
PRODUCTS
The following table sets forth the Company's gross sales and percentage of
total gross sales by product category.
<TABLE>
<CAPTION>
GROSS SALES PERCENTAGE OF GROSS SALES
------------------------------------------ -----------------------------------------
FISCAL YEAR THREE MONTHS FISCAL YEAR THREE MONTHS
ENDED DECEMBER 31, ENDED MARCH 31, ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------- --------------- ---------------------------- -----------------
PRO PRO
FORMA FORMA
1995 1996 1997 1997(1) 1997 1998 1995 1996 1997 1997(1) 1997 1998
----- ----- ------ ------- ------- ------- ----- ----- ----- ------- ----- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Wooden Lights........... $17.6 $19.8 $ 20.9 $ 20.9 $ 5.0 $ 5.1 20.7% 20.1% 16.2% 15.9% 20.3% 17.4%
Cutlery................. 27.9 32.6 35.4 35.4 6.2 7.0 32.8 33.1 27.5 26.9 25.2 23.9
Candles................. -- -- 25.5 28.3 1.5 5.7 -- -- 19.8 21.5 6.1 19.4
Woodenware.............. 25.7 28.7 30.2 30.2 7.5 7.5 30.2 29.1 23.5 23.0 30.5 25.6
Institutional/Other..... 13.8 17.5 16.7 16.7 4.4 4.0 16.3 17.7 13.0 12.7 17.9 13.7
----- ----- ------ ------ ------- ------- ----- ----- ----- ----- ----- -----
Total................ $85.0 $98.6 $128.7 $131.5 $ 24.6 $ 29.3 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ====== ====== ======= ======= ===== ===== ===== ===== ===== =====
</TABLE>
(1) The pro forma gross sales data for the year ended December 31, 1997 give
effect to the Empire Acquisition as though it had occurred on January 1,
1997.
WOODEN LIGHTS
The Company's Wooden Lights products include kitchen matches, penny matches
(smaller wooden matches), fireplace matches and fire starter products. The
Company focuses on the retail consumer market, which it believes offers higher
margins and less competition than the institutional market. The Company sells
its wooden match products primarily under the Diamond, Ohio Blue Tip and Fire
Chief names and its fire starter products under the SuperMatch and Superstart
names. Diamond Brands' Wooden Lights products are primarily sold through
grocery stores, drug stores and mass merchandisers. The Company manufactures
its Wooden Lights products at its Cloquet, Minnesota facility.
The Company believes it is the sole manufacturer of wooden matches in the
United States and that it holds the leading domestic retail market share in
the wooden match category with a market share of more than double that of its
nearest branded competitor. The Company competes in the domestic retail wooden
match market with foreign manufacturers, particularly from Sweden, Chile,
China and Korea. The wooden match market is mature,
42
<PAGE>
and the Company has maintained relatively stable sales and attractive gross
margins. Although the market for penny match and kitchen match products is
affected by smoking patterns, the Company believes that its wooden match
product mix makes it somewhat less dependent on smoking patterns than
manufacturers of book matches and disposable lighters. The market for fire
starter products, which are used by consumers in both household and camping
applications, is growing in the United States, and the Company competes with
First Brands, Duraflame and Pine Mountain, each of which the Company believes
has a greater market share than that of the Company.
Diamond Brands' kitchen match products are sold primarily in 250 count boxes
in both the "strike anywhere" and "strike on box" format. Penny matches are
sold in 32 and 40 count boxes in both strike formats. The Company's fireplace
matches are imported. Retail prices for the Company's wooden matches generally
range from $0.59 to $1.99. Retail prices for the Company's fire starter
products generally range from $1.29 to $4.99.
The Company's strategy in Wooden Lights focuses on maintaining and
increasing retail shelf space. In addition, the Company plans to focus on
increasing its presence in the fire starter category by expanding consumer and
trade promotions.
CUTLERY
The Company offers a wide range of plastic cutlery and straws. The Company
focuses on the retail consumer market which it believes offers higher margins
and less competition than the institutional market. The Company significantly
expanded its Cutlery business through the Forster Acquisition in March 1995.
In 1997, Diamond Brands entered the retail plastic straw market to offer its
customers a more complete product line. The Company's Cutlery products are
sold under both the Diamond and Forster brand names. The Company is also a
major supplier of private label plastic cutlery to retailers. Diamond Brands'
Cutlery products are primarily sold through grocery stores, drug stores and
mass merchandisers. The Company manufactures its Cutlery products at its East
Wilton, Maine facility.
The retail plastic cutlery market includes four major branded participants
(Diamond Brands, OWD, Maryland Plastic and Envirodyne Inc.'s Clear Shield
division) and a sizable private label component. The Company believes that it
holds the leading domestic retail market share in the plastic cutlery category
with a market share of more than double that of its nearest branded
competitor. The Company also believes that private label sales will continue
to represent an attractive growth area. Consumer demand for convenience and
the growing popularity of prepared foods are positively impacting the
Company's Cutlery product growth.
The Company produces its plastic cutlery products in various weights (heavy
duty, full size and lightweight), colors (including holiday themes) and
packages (boxes and bags of 24, 48, 72, 100 and 288 pieces). The Company also
manufactures seasonal products for Christmas and Halloween. Heavy duty cutlery
is the Company's largest plastic cutlery product line, followed by full-size
cutlery, which is marketed as dinnerware. Servingware consists of large
plastic serving spoons and forks. Retail prices for the Company's Cutlery
products generally range from $0.59 to $1.49.
The Company's strategy in the Cutlery segment focuses on: (i) expanding on
the Company's current category management strategy in grocery stores by
emphasizing the corporate rebate program; (ii) providing consumer promotions
such as coupon inserts and "buy one, get one free" promotions; (iii)
increasing private label sales to better utilize the Company's manufacturing
capabilities; and (iv) supporting newly introduced plastic straw products
through cross-promotions with plastic cutlery.
CANDLES
The Company's candle products include scented candles, outdoor citronella
candles, holiday candles, luminaries and related products. The Company entered
the candle business through the Empire Acquisition in February 1997. The
Company sells its Candles primarily under the Empire, Richly Scented Candle,
Patty-O-Candle, Diamond Reflections and Concord names. The Company
manufactures its candle products at its Kansas City, Kansas facility.
The Company believes the U.S. candle market exceeds $1 billion in annual
sales and is highly fragmented, with the majority of manufacturers generating
annual sales of less than $15 million each. The candle market is
43
<PAGE>
divided into holiday products (approximately one-third) and non-holiday
products (approximately two-thirds), with the fastest growing segment being
scented candles. The Company's principal competitors in the candle business
include Blyth Industries, Inc., the industry leader with a broad portfolio and
extensive distribution, Dial Corporation, Lancaster Colony Corporation, S.C.
Johnson, Lamplight Farms and The Yankee Candle Company. From time to time
during the year-end holiday season, the Company experiences competition from
foreign manufacturers of candles.
The Company currently manufactures poured candles and imports holiday
candles, tapers, pillars and votives. The Company offers its candle products
in various containers, sizes (ranging from 4 ounces to 23 ounces) and
fragrances. Citronella candles' popularity has grown in recent years due to
their effectiveness as a natural insect repellent. The Company sells
citronella candles in a variety of decorative container types, including
pails, glass jars, pottery, terra cotta bowls and planters, and bamboo
torches. Imported holiday candles are sold under the Concord name. Retail
prices for the Company's candle products generally range from $0.99 to $9.99.
The Company's Candles are sold primarily through mass merchandisers,
warehouse clubs and grocery stores. Part of Diamond Brands' rationale for the
Empire Acquisition was a plan to increase the Company's sales of candle
products to grocery stores by capitalizing on the Company's network of
independent broker organizations. As part of this strategy, the Company
recently introduced Diamond Reflections to compete in grocery stores at a
discount to the market leaders. The Company also intends to leverage its
distribution capabilities and further enhance its product line by beginning to
manufacture votive, pillar and taper candles over the next three years. In
addition, the Company believes that the recently completed consolidation of
its candle manufacturing facility in Kansas City, Kansas will further lower
its candle manufacturing costs and improve product quality.
WOODENWARE
The Company's Woodenware products include toothpicks, clothespins,
clothesline and wooden crafts (small wooden shapes). Diamond Brands
strengthened its leadership position in these product lines with the Forster
Acquisition in March 1995. The Company focuses on the retail consumer market,
which it believes offers higher margins and less competition than the
institutional market. Diamond Brands' Woodenware products, with the exception
of wooden crafts, are sold through grocery stores, mass merchandisers,
warehouse clubs and drug stores. Wooden crafts are sold primarily through Wal-
Mart and craft retail stores. All of the Company's Woodenware products, with
the exception of clothesline and wooden crafts, are sold both under the
Diamond and Forster brand names. The Company manufactures its Woodenware
products at its facilities in Cloquet, Minnesota (toothpicks), East Wilton,
Maine (plastic clothespins), and Strong, Maine (toothpicks, clothespins and
wooden crafts).
The Company believes it holds the leading domestic retail market share in
the clothespins, toothpick, and wooden craft categories with a market share of
more than double that of its nearest branded competitor in each of these
product categories. The toothpick market is a mature market and the Company
faces competition from two domestic toothpick companies and imports from
China, Brazil and Canada. The clothespin market is a mature market, and the
Company faces competition from Magla/Seymour and imports from China.
The Company sells a variety of toothpick stock-keeping units ("SKUs") under
both the Diamond and Forster brand names. The majority of its square, round
and flat toothpicks are sold in 250 count boxes, while specialty and colored
toothpick SKUs are sold in 100, 120 or 250 count plastic containers. Retail
prices on the Company's toothpicks generally range from $0.39 to $1.99. The
Company also sells both wooden and plastic clothespins under the Diamond and
Forster names. The Company sells clothespins in 18, 24, 36, 50 and 100 count
bags. Retail prices for the Company's clothespins generally range from $0.99
to $3.49. The Company's wooden craft products are used for creative play and
to build structures, including houses and figurines, and comprise a large
number of SKUs. Retail prices for the Company's wooden craft products
generally range from $0.39 to $1.99.
The Company's Woodenware strategy focuses on maintaining and increasing
shelf space. For both its toothpick and clothespin products, the Company
utilizes a "Made in the USA" label on the package to differentiate its
products from imports. The Company believes that Woodenware products
manufactured in the
44
<PAGE>
United States are regarded by consumers as having higher quality levels than
foreign brands. Diamond Brands also cross-markets clothespins and clothesline.
INSTITUTIONAL/OTHER
The Company's Institutional/Other product group consists of
institutional/food service products (such as wrapped toothpicks, heavy duty
reusable plastic cutlery, bulk cutlery, coffee stirrers, skewers and steak
markers) and industrial woodenware products (such as ice cream sticks and corn
dog sticks), which are sold primarily to food service and food processing
customers. The Company's Institutional/Other products also include resale book
matches, which are sold primarily to retailers, and advertising matches, which
are primarily sold to redistributors. Diamond Brands is the primary supplier
of wooden advertising matches to the two leading redistributors of advertising
matches in North America and is also the largest producer of corn dog sticks
in North America. Advertising matches are penny matches packaged in boxes
carrying an advertising logo and are principally utilized as promotional tools
by restaurants, bars and hotels.
The Company offers certain products in the institutional market, largely to
utilize available production capabilities. Although the Company has not
focused on competing generally in the institutional market, management
believes there is potential to increase sales and EBITDA by increasing its
presence in the institutional market.
SALES AND MARKETING
The Company sells its products in substantially all major grocery stores,
drug stores, mass merchandisers and warehouse clubs in the United States.
Diamond Brands also sells certain of its products to institutional and other
customers such as food service and food processing companies and
redistributors. The Company has established strong relationships with many of
the largest retailers in the United States (such as Wal-Mart, Price Costco,
Target, Publix and Kroger). The Company sells its products through a
nationwide sales network consisting primarily of independent broker
organizations and also sells products directly to selected mass merchandisers
and warehouse clubs, including Wal-Mart and Price Costco.
The Company utilizes a category management strategy designed to maintain and
increase shelf space at retail outlets. A central element of this strategy is
the Company's corporate rebate program, which provides incentives to grocery
retailers to buy multiple products from the Company. The Company intends to
expand its corporate rebate program to include additional grocery retailers.
The category management strategy also includes consolidated invoicing and
shipping across the Company's product lines, which allows retailers to lower
buying costs and reduce their number of suppliers.
The Company cross-markets its products through the use of product packaging
which include coupons or promotional offers for other Company products. The
Company offers price promotions and cash discounts to retailers as a means of
increasing sales volume from time to time. In addition, the Company employs
consumer promotion programs to increase sales, including coupon inserts, "buy
one, get one free" promotions, bonus packs and shipper displays.
PRODUCT DEVELOPMENT
The Company has an active program of product development, focusing on
product line extensions (such as specialty toothpicks, fireplace matches and
plastic servingware) and new products in related areas (such as plastic
straws, SuperMatch and clothesline). The Company believes its products mix is
attractive because its product categories tend to be less reliant on new
product introductions than are other consumer product categories.
CUSTOMERS
The Company derives its revenue primarily from the sale of its products to
substantially all major grocery stores, drug stores, mass merchandisers and
warehouse clubs in the United States. During the year ended December 31, 1997,
sales to the Company's top 10 customers accounted for approximately 39% of the
Company's pro forma gross sales, with one customer, Wal-Mart and its
subsidiary, Sam's Club, accounting for approximately 19% of pro forma gross
sales.
45
<PAGE>
MANUFACTURING
Diamond Brands operates four automated manufacturing facilities located in
Cloquet, Minnesota (round and flat toothpicks, matches, ice cream and corn dog
sticks), East Wilton, Maine (Cutlery and plastic clothespins), Strong, Maine
(clothespins, square toothpicks and wooden crafts), and Kansas City, Kansas
(Candles). The Company believes that its four automated manufacturing
facilities position it as a low-cost manufacturer in most of its product
categories. The Company has continued to invest in automation equipment in
order to reduce headcount and increase efficiency. For example, Diamond
Brands' automated cutlery operations consist of combination modules which
include an injection molding machine, molds and robotic packaging machinery,
which allows the Company to automatically package cutlery in boxes and bags
suitable for retail distribution. The Company believes that these operations
provide it with a competitive advantage over other retail plastic cutlery
manufacturers. The Company believes it has sufficient manufacturing capacity
to satisfy its foreseeable production requirements.
Following the Empire Acquisition in February 1997, Diamond Brands
consolidated its two Candles manufacturing facilities to one location in
Kansas City, Kansas. In addition, the layout of the new facility has increased
efficiencies and reduced handling significantly. The Company believes that the
consolidation of its candle manufacturing facility will significantly reduce
its candle manufacturing costs in 1998.
The Company is currently outsourcing the production of certain products,
including resale book and fireplace matches, specialty toothpicks, holiday
candles and plastic straws. In the aggregate, sales of outsourced products
amounted to less than 10% of the Company's 1997 pro forma gross sales.
COMPETITION
The markets for certain of the Company's products are highly competitive.
The Company competes, particularly with respect to its Candles and Cutlery
products, with a number of domestic manufacturers which are larger and have
significantly greater resources than the Company. In addition, the Company
competes with foreign manufacturers, particularly those located in China,
Sweden, Brazil, Chile, Japan and Korea. Although the barriers to entry into
the Company's businesses are relatively low, the Company believes that it has
a number of competitive advantages over potential new market entrants
(including strong brand names, established national distribution and existing
cost-efficient manufacturing operations) and that the relatively small market
size for certain of the Company's products may make those markets economically
less attractive to potential competitors.
RAW MATERIALS
The primary raw materials used by Diamond Brands are generally available
from multiple suppliers, and the Company has not experienced any significant
interruption in the availability of such materials. However, the price of
polystyrene resin, the key raw material from which the Company's Cutlery
products is produced, can be volatile. The polystyrene resin used by the
Company is produced from petrochemical intermediates which are, in turn,
derived from petroleum. Polystyrene resin prices may fluctuate as a result of,
among other things, worldwide changes in natural gas and crude oil prices and
supply, as well as changes in supply and demand for polystyrene resin and
petrochemical intermediates from which it is produced. Among other industries,
the automotive and housing industries are significant users of polystyrene
resin. As a result, significant changes in worldwide capacity and demand in
these and other industries may cause significant fluctuations in the prices of
polystyrene resin. In an attempt to mitigate the impact of changing
polystyrene resin prices, the Company in January 1997 entered into a three-
year supply contract with a major supplier of polystyrene resin, under which
the Company believes it receives the lowest price available to any customer
purchasing similar volume, and receives short-term price protection during
periods of rising prices. During periods of rising prices, the Company
generally has been able to pass through the majority of the polystyrene resin
price increases to its customers on a delayed basis. During periods of
declining polystyrene resin prices, the Company generally has reduced prices
to its customers.
Other primary raw materials required by Diamond Brands in its business
include glass and metal containers, wax and fragrances to produce the
Company's Candles products, birch and maple wood to produce the Company's
Woodenware products, and aspen wood and commodity chemicals to produce the
Company's Wooden Lights products. Other major raw materials include paperboard
and corrugated cardboard.
46
<PAGE>
GENERAL
TRADEMARKS
The Company owns over 30 United States trademark registrations with respect
to certain of its products. All of the Company's United States trademark
registrations can be maintained and renewed provided that the trademarks are
still in use for the goods and services covered by such registrations. The
Company regards its trademarks and tradenames as valuable assets.
EMPLOYEES
At March 31, 1998, the Company had 742 full-time employees of which 208 of
the Company's employees are represented by the United Paper Workers
International Union. In August 1997, the Company signed a six-year labor
agreement with the United Paper Workers International Union, which included a
3.0% annual wage increase. Five of the Company's employees are represented by
the International Union of Operating Engineers. In 1997, the Company extended
its labor agreement with the International Union of Operating Engineers for
six additional years. The Company has not had a work stoppage at any of its
current facilities in the last 25 years and believes its relations with its
employees are good.
PROPERTIES
The following table sets forth certain information regarding the Company's
facilities:
<TABLE>
<CAPTION>
SIZE
(SQUARE LEASE
LOCATION PRIMARY USE FEET) TITLE EXPIRATION
-------- ----------------------------- ------- ------ ----------
<C> <S> <C> <C> <C>
Cloquet,
Minnesota........ Manufacturing of matches, 290,000 Owned --
toothpicks and ice cream and
corn dog sticks; warehouse;
administration
Minneapolis, 5,000 Leased April 2000
Minnesota........ Sales and marketing
East Wilton,
Maine............ Manufacturing of plastic 75,000 Owned --
cutlery and plastic
clothespin; administration
East Wilton, 150,000 Owned --
Maine............ Warehouse
East Wilton, 240,000 Owned --
Maine............ Printing; warehouse
Strong, Maine..... Manufacturing of toothpicks, 62,000 Owned --
clothespins and wooden crafts
Kansas City,
Kansas........... Manufacturing of candles; 282,000 Leased July 2000(1)
warehouse; administration
</TABLE>
- --------
(1) Option to renew lease until July 2002.
LEGAL AND REGULATORY MATTERS
The Company is a defendant in several lawsuits, including product liability
lawsuits, arising in the ordinary course of business. Although the amount of
any liability that could arise with respect to any such lawsuit cannot be
accurately predicted, in the opinion of management, the resolution of these
matters is not expected to have a material adverse effect on the financial
position or results of operations of the Company. A predecessor to the Company
and certain other match producers are parties to a 1946 consent decree under
which the parties thereto are prohibited from engaging in anticompetitive acts
or participating in specified commercial relationships with one another.
The Company's operations are subject to a wide range of general and industry
specific federal, state and local environmental laws and regulations which
impose limitations on the discharge of pollutants into the air and water and
establish standards for the treatment, storage and disposal of solid and
hazardous waste. Under various federal, state and local laws and regulations,
an owner or operator of real estate may be liable for the costs of removal or
remediation of certain hazardous substances on such property. Although
management believes that the Company is in substantial compliance with all
applicable environmental laws and regulations, unforeseen expenditures to
remain in such compliance, or unforeseen environmental liabilities, could have
a material adverse affect on its business and financial positions.
Additionally, there can be no assurance that changes in environmental laws and
regulations or their application will not require further expenditures by the
Company.
47
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of individuals who
are serving as the directors and executive officers of Holdings, the Issuer and
the Guarantors. Each director of the Issuer or any of the Guarantors will hold
office until the next annual meeting of stockholders or until his or her
successor has been elected and qualified. Officers of the Issuer and each of
the Guarantors are elected by their respective Boards of Directors and serve
at the discretion of such Boards.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ --- -----------------------------------------------------
<S> <C> <C>
Naresh K. Nakra......... 52 President, CEO and Director
Alexander M. Seaver..... 39 Director
Bradley R. Kent......... 34 Director
Richard S. Campbell..... 45 Vice President of Supply Chain
Thomas W. Knuesel....... 50 Vice President of Finance and Chief Financial Officer
Christopher A. Mathews.. 43 Vice President of Manufacturing
John F. Young........... 56 Vice President of Sales and Marketing
</TABLE>
NARESH K. NAKRA
PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR
Dr. Nakra has been President, CEO and a director of Holdings, the Issuer and
the Guarantors since April 1998. From January 1993 to March 1998, he served as
President and CEO of Gruma Corporation, a U.S. subsidiary of Gruma, S.A.
ALEXANDER M. SEAVER
DIRECTOR
Mr. Seaver has been a director of Holdings, the Issuer and the Guarantors
since April 1998. Mr. Seaver is a principal and founding member of Seaver
Kent. Prior to forming Seaver Kent in October 1996, Mr. Seaver was with
InterWest Partners from 1987 to 1996, where he was a general partner. At
InterWest Partners, Mr. Seaver focused on non-technology acquisitions,
recapitalizations and late-stage venture capital investments. Mr. Seaver has
served on the board of directors of a variety of companies including Favorite
Brands International, Bojangles', Cafe Valley, Heidi's Fine Desserts, Java
City and Pacific Grain Products.
BRADLEY R. KENT
DIRECTOR
Mr. Kent has been a director of Holdings, the Issuer and the Guarantors
since April 1998. Mr. Kent is a principal and founding member of Seaver Kent.
Prior to forming Seaver Kent in October 1996, Mr. Kent was with InterWest
Partners from 1993 to 1996, where he was a general partner. At InterWest, Mr.
Kent focused on non-technology acquisitions, recapitalizations and late-stage
venture capital investments. Mr. Kent has served on the board of directors of
Cafe Valley, Artco-Bell Holding and MidWest Folding Products.
RICHARD S. CAMPBELL
VICE PRESIDENT OF SUPPLY CHAIN
Mr. Campbell joined the Company in 1992 and served as the Vice President of
Operations--Maine. In June 1998, Mr. Campbell was appointed Vice President of
Supply Chain for all facilities. Prior to joining the Company, Mr. Campbell
served as the Director of Engineering at Parker Brothers from 1984 to 1992.
THOMAS W. KNUESEL
VICE PRESIDENT OF FINANCE AND CHIEF FINANCIAL OFFICER
Mr. Knuesel rejoined the Company in 1995 as the Vice President of Finance
and Chief Financial Officer. Prior to rejoining the Company, Mr. Knuesel
served as the Vice President of Finance of VEE Corporation from
48
<PAGE>
1989 to 1995. He served as the Vice President and Corporate Controller of the
Company from 1986 to 1989 and as the Vice President and Controller of Carter-
Day Co. from 1984 to 1986.
CHRISTOPHER A. MATHEWS
VICE PRESIDENT OF MANUFACTURING
Mr. Mathews joined the Company in 1986 and served as the Vice President of
Operations--Minnesota. In June 1998, Mr. Mathews was appointed Vice President
of Manufacturing for all facilities. Prior to joining the Company, Mr. Mathews
served as the General Manager of Northern Mining Equipment Corporation from
1981 to 1986 and as the Mill Engineer of United States Steel from 1979 to
1981.
JOHN F. YOUNG
VICE PRESIDENT OF SALES AND MARKETING
Mr. Young joined the Company in 1991 as the Vice President of Sales and
Marketing. Prior to joining the Company, Mr. Young served as an Independent
Master Broker/Sales Agent from 1989 to 1991 and as the Executive Vice
President of Minnetonka, Inc. from 1979 to 1989.
EXECUTIVE COMPENSATION
The following table sets forth compensation paid by the Company for fiscal
year 1995, 1996 and 1997 to its CEO during fiscal 1997 and to each of the four
other most highly compensated executive officers of the Company as of the end of
fiscal 1997 (collectively, the "named executives").
<TABLE>
<CAPTION>
NUMBER OF
NAME AND PRINCIPAL SECURITIES UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
- ------------------------ ---- -------- -------- --------------------- ------------
<S> <C> <C> <C> <C> <C>
EDWARD A. MICHAEL....... 1997 $225,000 $118,102 -- $13,022(1)
Chief Executive Officer 1996 210,000 115,000 -- 10,023(2)
and President 1995 160,000 80,000 -- 9. 915(3)
A. DRUMMOND CREWS....... 1997 214,113 -- -- 8,542(4)
Chief Operating Officer, 1996 -- -- --
Empire Candle, Inc. 1995 -- -- --
CHRISTOPHER A. MATHEWS.. 1997 128,000 81,957 20,000 13,022(1)
Vice President of 1996 115,000 45,840 -- 10,023(2)
Operations--Minnesota 1995 97,781 40,000 -- 7,699(5)
THOMAS W. KNUESEL....... 1997 128,000 72,728 20,000 13,022(1)
Vice President of 1996 120,000 44,904 -- 52,084(7)
Finance and Chief 1995 85,039 33,000 -- 5,545(7)
Financial Officer
RICHARD S. CAMPBELL..... 1997 123,000 66,900 20,000 12,275(8)
Vice President of 1996 115,000 40,365 -- 8,015
Operations--Minnesota 1995 105,000 20,000 -- 7,370(10)
</TABLE>
- --------
(1) This amount includes the Company's contribution of $4,750 to 401K and
$8,272 to the profit sharing plan.
(2) This amount includes the Company's contribution of $4,500 to 401K and
$5,523 to the profit sharing plan.
(3) This amount includes the Company's contribution of $4,500 to 401K and
$5,415 to the profit sharing plan.
(4) This amount includes the Company's contribution of $4,750 to 401K and
$3,792 to the profit sharing plan.
(5) This amount includes the Company's contribution of $3,494 to 401K and
$4,205 to the profit sharing plan.
(6) This amount includes the Company's contribution of $4,500 to 401K and
$5,523 to the profit sharing plan and $42,061 of reimbursement for moving
expenses.
(7) This amount includes the Company's contribution of $2,475 to 401K and
$3,070 to the profit sharing plan.
(8) This amount includes the Company's contribution of $2,892 to 401K and
$9,383 to the profit sharing plan.
(9) This amount includes the Company's contribution of $1,350 to 401K and
$6,665 to the profit sharing plan.
(10) This amount includes the Company's contribution of $1,283 to 401K and
$6,087 to the profit sharing plan.
49
<PAGE>
The option grants in 1997 for the named executive officers are shown in the
following table.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
NUMBER OF OPTION TERM
SECURITIES EXERCISE OF -----------------------------
NAME AND PRINCIPAL UNDERLYING OPTION BASE PRICE EXPIRATION
POSITION GRANTED ($/SHARE) DATE 5% 10%
------------------ ----------------- ----------- ------------ -------------- ---------------
<S> <C> <C> <C> <C> <C>
EDWARD A. MICHAEL....... -- -- -- $ -- $ --
Chief Executive Officer
and President
A. DRUMMOND CREWS....... -- -- -- -- --
Chief Operating
Officer, Empire
Candle, Inc.
CHRISTOPHER A. MATHEWS.. 20,000 7.50 December 31, 244,334 389.061
Vice President of 2006
Operations--Minnesota
THOMAS W. KNUESEL....... 20,000 7.50 December 31, 244,334 389,061
Vice President of 2006
Finance and Chief
Finance Officer
RICHARD S. CAMPBELL..... 20,000 7.50 December 31, 244,334 389,061
Vice President of 2006
Operations--Maine
</TABLE>
The number of options held and their value at year end of fiscal 1997 for
the named executive officers are shown on the following table.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
NUMBER OF UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT
SHARES ACQUIRED VALUE OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END
NAME AND PRINCIPAL POSITION ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------------- --------------- -------- -------------------------- -------------------------
<S> <C> <C> <C> <C>
EDWARD A. MICHAEL........ -- $-- -- $ --
Chief Executive Officer
and President
A. DRUMMOND CREWS........ -- -- -- --
Chief Operating Officer,
Empire Candle, Inc.
CHRISTOPHER A. MATHEWS... 0 0 6,667/13,333 72,204/144,396
Vice President of
Operations--Minnesota
THOMAS W. KNUESEL........ 0 0 6,667/13,333 72,204/144,396
Vice President of
Finance and Chief
Finance Officer
RICHARD S. CAMPBELL...... 0 0 6,667/13,333 72,204/144,396
Vice President of
Operations--Maine
</TABLE>
EMPLOYMENT AGREEMENTS AND OTHER COMPENSATION ARRANGEMENTS
The Company and Dr. Nakra entered into an employment agreement, dated April
21, 1998, which provides that in consideration for Dr. Nakra's service as
President, CEO and a director of the Company, Dr. Nakra will receive an annual
base salary of $375,000 and an annual target bonus based on certain
performance objectives of the Company. The Company paid Dr. Nakra a cash bonus
equal to 10% of the aggregate fees paid to equity investors with respect to
the Recapitalization and will pay additional bonuses equal to 10% of the
aggregate fees paid to equity investors with respect to any subsequent
acquisitions by the Company. Dr. Nakra is also entitled to various executive
benefits and perquisites under the employment agreement. Dr. Nakra's
employment agreement provides that in the event Dr. Nakra's employment is
terminated by the Company without cause, or by Dr. Nakra for good reason, the
Company will continue to pay Dr. Nakra his base salary for a one-year period.
Upon consummation of the Recapitalization, Dr. Nakra, pursuant to his
employment agreement, purchased $1.0 million of Holdings Preferred Stock with
Warrants for a purchase price equal to the per share price that the Sponsors
paid for Holdings Preferred Stock with Warrants in connection with the
Recapitalization (the "Preferred Share Price"). Pursuant to his employment
agreement, Dr. Nakra provided for $666,000 of such purchase price through a
full-recourse five-year promissory note, which will be accelerated upon change
of control of the Company, bearing an annual interest rate of 6.75%. The
balance of the purchase price was paid by Dr. Nakra in cash.
50
<PAGE>
In addition, the Company provides Dr. Nakra a 10-year option to purchase
additional shares of Holdings Common Stock which represent: (i) 6% of the
total outstanding shares of Holdings Common Stock after giving effect to the
full exercise of the Warrants at an exercise price equal to the Implied Value
of Holdings Common Stock and (ii) 2% of the total outstanding shares of
Holdings Common Stock after giving effect to the full exercise of the Warrants
and other management options at the time of Recapitalization at an exercise
price equal to two times the Implied Value of Holdings Common Stock. On the
180th day after the commencement of Dr. Nakra's employment, one-quarter of
such options will vest and become exercisable, and on the first day of each of
the subsequent 30 consecutive calendar months, one-thirtieth of the balance of
such options will vest and become exercisable.
In the event Holdings sells stock to provide funds for future acquisitions,
Holdings will grant Dr. Nakra a 10-year option to purchase: (i) 4% of such
newly issued stock at a price equal to that paid by other investors; and (ii)
1% of such newly issued stock at a price equal to two times that paid by other
investors. Dr. Nakra's right to exercise these options will fully vest in 48
equal portions over the 48-month period following grant of such options.
All non-vested options, however, will become fully-vested and exercisable in
the event of the death or disability of Dr. Nakra or a change in control of
the Issuer (except in connection with initial public offering). All non-vested
options will be forfeited upon termination of Dr. Nakra's employment with the
Issuer and all vested options will be exercisable for a period of 30 days
following the termination date.
The shares of Holdings Common Stock acquired by Dr. Nakra pursuant to the
foregoing will be subject to a stockholders agreement providing for certain
transfer restrictions, registration rights and customary tag-along and bring-
along rights.
Holdings also provides 10-year non-qualified stock options to Messrs.
Campbell, Knuesel, Mathews and Young to purchase shares of Holdings Common
Stock which represent up to an aggregate of 166,953 shares at an exercise
price of $13.976 per share. On the first anniversary of the date of the
Recapitalization, one-quarter of such options will vest and become
exercisable, and at the end of each of the subsequent 36 consecutive calendar
months, one thirty-sixth of the balance of such options will vest and become
exercisable.
Prior to the Recapitalization, Holdings was a party to certain 10-year non-
qualified stock option agreements, dated January 1, 1997, with these
executives and Mr. Beach that provided the right to purchase up to an
aggregate of 90,000 shares of Holdings Common Stock at an exercise price of
$7.50 per share. One-third of the options became exercisable immediately upon
entering into such agreements, one-third vested and became exercisable on
January 1, 1998, and the remainder were to vest and become exercisable on
January 1, 1999. Upon consummation of the Recapitalization, the Company
accelerated the exercisability of any part of such options which were not then
exercisable. The cash-out payment for such compensation arrangement was
$518,132. In addition, the Company made a severance payment to Mr. Crews in
the amount of $125,000 upon consummation of the Recapitalization, to be paid
over a six-month period.
Upon consummation of the Recapitalization, the Company awarded bonus
payments in an aggregate amount equal to approximately $1.2 million to Messrs.
Campbell, Knuesel, Mathews, Young and Crews pursuant to their respective
employment agreements. The bonus payments were provided for by the Company
from the proceeds payable to the Stockholders in the Equity Repurchase.
In the event that the employment of Messrs. Knuesel, Mathews or Young is
terminated by the Company without cause, or voluntarily by such executive for
good reason, the Company will pay such executive a severance payment in an
amount equal to 130% of such executive's annual base salary. The severance
payment will be offset, however, by any compensation received by such executive
under new employment during the 12-month period after leaving the Company. In
the event that the employment of Mr. Campbell is terminated by the Company other
than for cause, death, retirement or voluntary resignation, the Company will pay
Mr. Campbell a severance payment in an amount equal to Mr. Campbell's annual
base salary.
51
<PAGE>
The Company maintains a bonus program pursuant to which each of Messrs.
Knuesel, Matthews, Young and Campbell has the opportunity to earn an annual
bonus based upon target operating profit levels and individual performance
goals. The amount of each executive's annual bonus under the bonus plan is
based on certain target operating profit levels and an executive's individual
performance goals and ranges from 0% to 60% of the respective executive's
annual salary, with the target bonus set at 30% if such performance objectives
are achieved and a maximum of 60% if such objectives are exceeded.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the Recapitalization, the Company entered into a ten-year
agreement (the "Management Advisory Agreement") with Seaver Kent to which
entitled Seaver Kent to receive from the Company (but, at its discretion, may
waive) an annual fee for management advisory services equal to the greater of
$200,000 and 0.05% of the budgeted consolidated net sales of the Company. In
addition, the Company agreed to indemnify Seaver Kent, its affiliates and
shareholders, and their respective directors, officers, agents, employees and
affiliates from and against all claims, actions, proceedings, demands,
liabilities, damages, judgments, assessments, losses and costs, including fees
and expenses, arising out of or in connection with the services rendered by
Seaver Kent thereunder. The Management Advisory Agreement makes available the
resources of Seaver Kent concerning a variety of financial and operational
matters. The services provided by Seaver Kent cannot otherwise be obtained by
the Issuer without the addition of personnel or the engagement of outside
professional advisors.
In connection with the Recapitalization, the Issuer also entered into an
agreement (the "Transaction Advisory Agreement") with Seaver Kent pursuant to
which Seaver Kent received a cash financial advisory fee of approximately
$2.75 million upon the closing of the Recapitalization as compensation for its
services as financial advisor for the Recapitalization. Seaver Kent is also
entitled to receive (but, at its discretion, may waive) fees of up to 1.5% of
the "transaction value" for each subsequent transaction in which the Issuer is
involved. The term "transaction value" means the total value of any subsequent
transaction, including, without limitation, the aggregate amount of the funds
required to complete the subsequent transaction (excluding any fees payable
pursuant to the Transaction Advisory Agreement and fees, if any, paid to any
other person or entity for financial advisory, investment banking, brokerage
or any other similar services rendered in connection with such transaction)
including the amount of any indebtedness, preferred stock or similar items
assumed (or remaining outstanding).
The Stockholders bore (from the proceeds of the Equity Repurchase) certain
other financial advisory, legal and accounting fees and expenses incurred by
the Company in connection with the Recapitalization.
In addition, the Sponsors and Andrew M. Hunter, III entered into a letter
agreement dated March 3, 1998 which stated the Sponsors' intent to grant Mr.
Hunter an option to purchase Holdings Common Stock in an amount representing
2.73% of the fully diluted outstanding shares of Holdings Common Stock as of
the date of grant, with an exercise price equal to the Per Share Equity Value
(as defined in the Recapitalization Agreement), in consideration of certain
consulting services to be provided by Mr. Hunter on a mutually acceptable
basis after the consummation of the Recapitalization.
Holdings and its subsidiaries entered into a tax sharing agreement
providing, among other things, that each of the subsidiaries will reimburse
Holdings for its share of income taxes determined as if such subsidiary had
filed its tax returns separately from Holdings.
Immediately following the consummation of the Recapitalization, certain of
the Stockholders held 22.5% of outstanding shares of Holdings Common Stock
after giving effect to the full exercise of the Warrants. See "The
Recapitalization."
52
<PAGE>
DESCRIPTION OF HOLDINGS INDEBTEDNESS
The Holdings Senior Discount Debentures were issued at a discount to their
aggregate principal amount at maturity to generate gross proceeds to Holdings
of approximately $45.1 million. The yield to maturity of the Holdings Senior
Discount Debentures is 12 7/8% (computed on a semi-annual bond equivalent
basis), calculated from April 21, 1998. The Holdings Senior Discount
Debentures were issued under an indenture dated as of April 21, 1998 (the
"Holdings Indenture") between Holdings and State Street Bank and Trust
Company, as trustee, and are senior unsecured obligations of Holdings. Cash
interest will not accrue or be payable on the Holdings Senior Discount
Debentures prior to April 15, 2003. Thereafter, cash interest on the Holdings
Senior Discount Debentures will accrue at a rate of 12 7/8% per annum and will
be payable in arrears on October 15 and April 15 of each year, commencing
October 15, 2003. The Holdings Senior Discount Debentures will mature on April
15, 2009.
On April 15, 2003, Holdings will be required to redeem Holdings Senior
Discount Debentures with an aggregate principal amount at maturity equal to (i)
$33.2 million multiplied by (ii) the quotient obtained by dividing (x) the
aggregate principal amount at maturity of the Holdings Senior Discount
Debentures then outstanding by (y) $84.0 million, at a redemption price equal to
100% of the principal amount at maturity of the Holdings Senior Discount
Debentures so redeemed. The Holdings Senior Discount Debentures will be
redeemable at the option of Holdings, in whole or in part, at any time on or
after April 15, 2003, in cash at the redemption prices (expressed as a
percentage of principal amount) set forth below, plus accrued and unpaid
interest and liquidated damages, if any, thereon to the date of redemption, if
redeemed during the twelve-month period commencing April 15 in the years set
forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2003.......................... 106.438%
2004.......................... 104.292%
2005.......................... 102.146%
2006 and thereafter........... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time on or prior to April 15, 2001
Holdings may (but shall not have the obliagation to) redeem, on one or more
occasions, up to 35% of principal amount at maturity of the Holdings Senior
Discount Debentures originally issued at a redemption price equal to 112.875% of
the Accreted Value (as defined in the Holdings Indenture) thereof plus accrued
and unpaid interest and Liquidated Damages (as defined in the Holdings
Indenture), if any, thereon to the redemption date, with net cash proceeds of
one or more Equity Offerings (as defined in the Holdings Indenture); provided
that at least 65% of the original aggregate principal amount at maturity of the
Holding Senior Discount Debentures remains outstanding immediately after each
such redemption and provided further, that such redemption will occur within 90
days of the date of the closing of such Equity Offering.
In the event of a Change of Control (as defined in the Holdings Indenture),
each holder of Holdings Senior Discount Debentures has the right to
require the repurchase of such holder's Holdings Senior Discount Debentures at
a purchase price equal to 101% of the principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages, if any, thereon to the purchase
date.
The Holdings Indenture contains covenants that, among other things, limit
the ability of Holdings to enter into certain mergers or consolidations or
incur certain liens and of Holdings and its subsidiaries to incur additional
indebtedness, pay dividends, redeem capital stock or make certain other
restricted payments and engage in certain transactions with affiliates. Under
certain circumstances, Holdings will be required to make an offer to purchase
the Holdings Senior Discount Debentures at a price equal to 100% of the
principal amount thereof, plus accrued interest to the date of purchase with
the proceeds of certain asset sales. The Holdings Indenture contains certain
customary events of defaults, which include the failure to pay interest and
principal, the failure to comply with certain covenants in the Holdings Senior
Discount Debentures or the Holdings Indenture, a default under certain
indebtedness, the imposition of certain final judgments or warrants of
attachment and certain events occurring under bankruptcy laws.
53
<PAGE>
CAPITAL STOCK OF HOLDINGS AND THE ISSUER
GENERAL
The Issuer is authorized by the terms of its Certificate of Incorporation to
issue 1,000 shares of common stock, par value $.01 per share. The Issuer has
issued and outstanding 1,000 shares of common stock, each share of which is
entitled to one vote. Holdings owns all of the issued and outstanding capital
stock of the Issuer. Holdings does not have any material assets other than the
common stock of the Issuer.
Holdings' Articles of Incorporation authorizes Holdings to issue an
aggregate total of 50,000,000 shares of common stock. Holdings currently has
outstanding 1,490,650 shares of common stock and 47,000 shares of Holdings
Preferred Stock.
The Holdings Preferred Stock has a liquidation preference of $1,000 per
share (the "Liquidation Preference") and will accumulate dividends at the rate
of 12.0% of the Liquidation Preference per annum, payable semi-annually.
Dividends will compound to the extent not paid. Holdings will be required on
October 15, 2009 to redeem shares of Holdings Preferred Stock. Shares of
Holdings Preferred Stock may be redeemed at the option of Holdings, in whole
or in part, at a redemption price per share equal to the Liquidation
Preference per share plus an amount equal to all accumulated and unpaid
dividends.
Optional redemption of Holdings Preferred Stock is subject to, and expressly
conditioned upon, certain limitations under the Indenture, the Holdings
Indenture, the Bank Facilities, the New Notes offered hereby and other documents
relating to Holdings' or the Issuer's indebtedness. Holdings may also be
required to redeem shares of Holdings Preferred Stock in certain other
circumstances, including the occurrence of a change of control of Holdings, in
each case subject to the terms of the Indenture, the Holdings Indenture, the
Bank Facilities, the New Notes offered hereby and other documents relating to
Holdings' or the Issuer's indebtedness. Holders of Holdings Preferred Stock do
not have any voting rights with respect thereto, except for such rights as are
provided under applicable law, the right to elect, as a class, one director of
Holdings in the event that Holdings fails to comply with its redemption
obligations and class voting rights with respect to transactions adversely
affecting the rights, preferences or powers of the Holdings Preferred Stock.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Beneficial Owners of More Than 5% of the Issuer's
Voting Securities(1)
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNERSHIP
BENEFICIAL OWNER TITLE OF CLASS (NUMBER OF SHARES) PERCENT OF CLASS
- ------------------- --------------------- -------------------- ----------------
<S> <C> <C> <C>
Seaver Kent-TPG
Partners, L.P.......... Holdings Common Stock 2,659,320(2) 55.75%(4)
3000 Sand Hill Road,
Suite 230
Menlo Park, California
94025
Seaver Kent I
Parallel, L.P.......... Holdings Common Stock 265,217(3) 5.56%(5)
3000 Sand Hill Road,
Suite 230
Menlo Park, California
94025
Alexander M. Seaver..... -- -- (6) --
Bradley R. Kent......... -- -- (7) --
Andrew M. Hunter, III... Holdings Common Stock 289,736 19.44%
537 Herrington Road
Wayzata, Minnesota 55391
John L. Morrison........ Holdings Common Stock 109,350 7.34%
234 S. Edgewood Avenue
Wayzata, Minnesota 55391
</TABLE>
- --------
54
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNERSHIP
BENEFICIAL OWNER TITLE OF CLASS (NUMBER OF SHARES) PERCENT OF CLASS
- ------------------- --------------------- -------------------- ----------------
<S> <C> <C> <C>
Edward A. Michael....... Holdings Common Stock 97,272 2.04%
4901 Golf Shore Blvd.,
Suite 201
Naples, Florida 34103
Alan S. McDowell........ Holdings Common Stock 87,751 5.88%
Box 25152
Jackson, Wyoming 83001
Robert J. Keith, Jr..... Holdings Common Stock 86,206 5.78%
100 Bushaway Road
Wayzata, Minnesota 55391
</TABLE>
- --------
(1) Because the Issuer is a wholly-owned subsidiary of Holdings, this chart
identifies beneficial owners of more than 5% of the voting securities of
Holdings.
(2) Includes 300,216 shares acquired through the exercise of Warrants, 215
shares utilized for cashless exercise, and 2,358,889 shares issuable upon
exercise of Warrants.
(3) Includes 29,813 shares acquired through the exercise of Warrants, 22 shares
utilized for cashless exercise, and 235,382 shares issuable upon exercise
of Warrants.
(4) Includes 49.25% represented by unexercised, issuable Warrants as described
in note (2) above.
(5) Includes 4.93% represented by unexercised, issuable Warrants as described
in note (3) above.
SECURITY OWNERSHIP OF MANAGEMENT
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP (NUMBER
OF SHARES) PERCENT OF CLASS
----------------------------- ----------------------------
HOLDINGS HOLDINGS HOLDINGS HOLDINGS
NAME OF BENEFICIAL OWNER COMMON STOCK PREFERRED STOCK COMMON STOCK PREFERRED STOCK
- ------------------------ ------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Seaver Kent--TPG
Partners, L.P.......... 2,659,320(1) 22,636 55.75%(10) 48.16%
Seaver Kent I Parallel,
L.P.................... 265,217(2) 2,264 5.56%(11) 4.82%
Alexander M. Seaver..... --(3) -- -- --
Bradley R. Kent......... --(4) -- -- --
Naresh K. Nakra ........ 117,344(5) 1,000 2.46%(12) 2.13%
Edward A. Michael....... 97,272 -- 2.04% --
A. Drummond Crews....... -- -- -- --
Christopher A. Mathews.. 50,721(6) 400 1.06%(13) 0.85%
Thomas W. Knuesel....... 11,925(7) 100 0.25%(14) 0.21%
Richard S. Campbell..... 47,224(8) 400 0.99%(15) 0.85%
John F. Young........... 14,589(9) 100 0.31%(16) 0.21%
All Executive Officers
and Directors
(nine persons)......... 3,263,612(17) 26,900 68.42% 57.23%
</TABLE>
- --------
(1) Includes 300,216 shares acquired through the exercise of Warrants, 215
shares utilized for cashless exercise, and 2,358,889 shares issuable upon
exercise of Warrants.
(2) Includes 29,813 shares acquired through the exercise of Warrants, 22 shares
utilized for cashless exercise, and 235,382 shares issuable upon exercise
of Warrants.
(3) Seaver Kent-TPG Partners, L.P. and Seaver Kent I Parallel, L.P. are
entities affiliated with Alexander M. Seaver. Mr. Seaver disclaims
beneficial ownership of all shares owned by such entities.
(4) Seaver Kent-TPG Partners, L.P. and Seaver Kent I Parallel, L.P. are
entities affiliated with Bradley R. Kent. Mr. Kent disclaims beneficial
ownership of all shares owned by such entities.
(5) Includes 13,267 shares acquired through the exercise of Warrants, 10 shares
utilized for cashless exercise, and 104,067 shares issuable upon exercise
of Warrants.
(6) Includes 3,497 shares owned prior to the Recapitalization, 5,366 shares
acquired through the exercise of Warrants, 4 shares utilized for cashless
exercise, and 41,854 shares issuable upon exercise of Warrants.
(7) Includes 1,342 shares acquired through the exercise of Warrants, 1 share
utilized for cashless exercise, and 10,582 shares issuable upon exercise of
Warrants.
(8) Includes 5,366 shares acquired through the exercise of Warrants, 4 shares
utilized for cashless exercise, and 41,854 shares issuable upon exercise of
Warrants.
(9) Includes 2,664 shares owned prior to the Recapitalization, 1,342 shares
acquired through the exercise of Warrants, 1 share utilized for cashless
exercise, and 10,582 shares issuable upon exercise of Warrants.
(10) Includes 49.45% represented by unexercised, issuable shares as described in
note (1) above.
(11) Includes 4.93% represented by unexercised, issuable shares as described in
note (2) above.
(12) Includes 2.18% represented by unexercised, issuable shares as described in
note (5) above.
(13) Includes 0.88% represented by unexercised, issuable shares as described in
note (6) above.
(14) Includes 0.22% represented by unexercised, issuable shares as described in
note (7) above.
(15) Includes 0.88% represented by unexercised, issuable shares as described in
note (8) above.
(16) Includes 0.22% represented by unexercised, issuable shares as described in
note (9) above.
(17) Includes all shares currently held and exercisable by entities affiliated
with a director as described in notes (1) and (2) above and all shares
currently held and issuable as described in notes (5) through (9) above.
55
<PAGE>
DESCRIPTION OF THE BANK FACILITIES
On the closing date of the Recapitalization (the "Closing Date"), the
Issuer entered into the Bank Facilities among the Issuer, the Banks, DLJ Capital
Funding, as Syndication Agent, Wells Fargo, as Administrative Agent, and Morgan
Stanley Senior Funding, as Documentation Agent. DLJ Capital Funding is a lender
under the Bank Facilities. The following is a summary description of the
principal terms of the Bank Facilities. The description set forth below does not
purport to be complete and is qualified in its entirety by reference to certain
agreements setting forth the principal terms and conditions of the Bank
Facilities, which are available upon request from the Company.
STRUCTURE
The Banks provided the Issuer with loans of (i) $30.0 million under a senior
secured term loan facility (the "Term A Loan Facility"), (ii) $50.0 million
under a senior secured term loan facility (the "Term B Loan Facility") and
(iii) up to $25.0 million under the Revolving Credit Facility.
The full amount of the Term A Loan Facility, the Term B Loan Facility
and approximately $7.0 million of the Revolving Credit Facility were borrowed on
the Closing Date under the Bank Facilities to: (i) partially finance the
Recapitalization, including the Debt Retirement, (ii) pay certain fees and
expenses related to the Recapitalization and (iii) fund working capital
requirements. See "Use of Proceeds." The Revolving Credit Facility may be
utilized to fund the Issuer's working capital requirements, including issuance
of stand-by and trade letters of credit, and for other general corporate
purposes.
The Term A Loan Facility is comprised of a single tranche term facility of
$30.0 million, and the Term B Loan Facility is comprised of a single tranche
term facility of $50.0 million. Loans and letters of credit under the
Revolving Credit Facility will be available at any time during its six-year
term subject to the fulfillment of customary conditions precedent including
the absence of a material adverse change in the condition of the Issuer and
the absence of a default under the Bank Facilities.
The Company is required to repay loans outstanding under the Term Loan
Facilities in accordance with the following amortization schedule:
<TABLE>
<CAPTION>
AMOUNT
AMORTIZED
---------------
FISCAL YEAR TERM A TERM B
----------- ------- -------
(IN THOUSANDS)
<S> <C> <C>
1998....................................................... $ -- $ 375
1999....................................................... 2,250 500
2000....................................................... 4,125 500
2001....................................................... 4,500 500
2002....................................................... 5,625 500
2003....................................................... 6,000 500
2004....................................................... 6,000 500
2005....................................................... 1,500 35,000
2006....................................................... -- 11,625
------- -------
Total.................................................... $30,000 $50,000
======= =======
</TABLE>
SECURITY; GUARANTY
The Issuer's obligations under the Bank Facilities are guaranteed by each of
the Issuer's direct and indirect domestic subsidiaries. The Bank Facilities
and the guarantees thereof are secured by (i) a first priority perfected lien
on all the property and assets (tangible and intangible) of the Issuer and
each of its existing and future direct and indirect domestic subsidiaries,
(ii) all of the capital stock of the Issuer and (iii) all of the capital stock
(or similar equity interests) of the Issuer's existing and future direct and
indirect domestic subsidiaries.
56
<PAGE>
INTEREST; MATURITY
At the Issuer's option, borrowings under the Bank Facilities bear interest
at (i) the Administrative Agent's base rate or (ii) the Administrative Agent's
Adjusted Eurodollar Rate, plus applicable margins as set forth under the Bank
Facilities. The Term A Loan Facility will mature seven years after the Closing
Date. The Term B Loan Facility will mature eight years after the Closing Date,
and the Revolving Credit Facility will terminate six years after the Closing
Date.
FEES
The Issuer is required to pay the Banks, on a quarterly basis, an annual
commitment fee based on the daily average unused portion of the Revolving
Credit Facility which has accrued from the Closing Date. The Issuer is also
obligated to pay (i) a quarterly letter of credit fee on the aggregate amount
of outstanding letters of credit and (ii) a fronting bank fee for the letter
of credit issuing bank.
COVENANTS
The Bank Facilities contain a number of covenants that, among other things,
restrict the ability of Holdings (other than the financial covenants), the
Issuer and its subsidiaries to dispose of assets, incur additional
indebtedness, prepay other indebtedness (including the Notes) or amend certain
debt instruments (including the Indenture), pay dividends, create liens on
assets, enter into sale and leaseback transactions, make investments, loans or
advances, make acquisitions, engage in mergers or consolidations, change the
business conducted by the Issuer or its subsidiaries, make capital
expenditures or engage in certain transactions with affiliates and otherwise
restrict certain corporate activities. In addition, under the Bank Facilities,
the Issuer is required to maintain, on a consolidated basis, specified
financial ratios and tests, including minimum fixed charge coverage ratios,
leverage ratios below a specified maximum and interest coverage ratios.
EVENTS OF DEFAULT
The Bank Facilities contain customary events of default, including
nonpayment of principal, interest or fees, material inaccuracy of
representations and warranties, violation of covenants, cross-default to
certain other indebtedness, certain events of bankruptcy and insolvency,
material judgments against the Issuer, invalidity of any guarantee or security
interest and a change of control of the Issuer in certain circumstances as set
forth therein.
57
<PAGE>
THE EXCHANGE OFFER
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and reference is made to the
provisions of the Registration Rights Agreement, which has been filed as an
exhibit to the Registration Statement and a copy of which is available as set
forth under the heading "Available Information."
TERMS OF THE EXCHANGE OFFER
In connection with the issuance of the Old Notes pursuant to a Purchase
Agreement dated as of April 15, 1998, by and among the Issuer, the Guarantors
and the Initial Purchasers, the Initial Purchasers and their respective
assignees became entitled to the benefits of the Registration Rights
Agreement.
Under the Registration Rights Agreement, the Issuer and the Guarantors are
required to file within 75 days after April 21, 1998 (the date the
Registration Rights Agreement was entered into and the Closing Date) a
registration statement (the "Exchange Offer Registration Statement") for a
registered exchange offer with respect to an issue of New Notes. Under the
Registration Rights Agreement, the Issuer and the Guarantors are also required
to (i) use their respective best efforts to cause such Exchange Offer
Registration Statement to become effective within 150 days after the Closing
Date, (ii) use their respective best efforts to keep the Exchange Offer open
for at least 20 business days (or longer if required by applicable law), (iii)
use their respective best efforts to consummate the Exchange Offer on or prior
to the 45th day following the date on which the Exchange Offer
Registration Statement is declared effective by the Commission and (iv) cause
the Exchange Offer to comply with all applicable federal and state securities
laws. The Exchange Offer being made hereby, if commenced and consummated
within the time periods described in this paragraph, will satisfy those
requirements under the Registration Rights Agreement.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, all Old Notes validly tendered and not
withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date will
be accepted for exchange. New Notes of the same class will be issued in
exchange for an equal principal amount of outstanding Old Notes accepted in
the Exchange Offer. Old Notes may be tendered only in integral multiples of
$1,000. This Prospectus, together with the Letter of Transmittal, is being
sent to all registered holders as of , 1998. The Exchange Offer is
not conditioned upon any minimum principal amount of Old Notes being tendered
in exchange. However, the obligation to accept Old Notes for exchange pursuant
to the Exchange Offer is subject to certain conditions as set forth herein
under "--Conditions."
Old Notes will be deemed to have been accepted as validly tendered when, as
and if the Trustee has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders of Old
Notes for the purposes of receiving the New Notes and delivering New Notes to
such holders.
Based on interpretations by the staff of the Commission, as set forth in no-
action letters issued to third parties, including the Exchange Offer No-Action
Letters, the Issuer and the Guarantors believe that the New Notes issued
pursuant to the Exchange Offer may be offered for resale, resold or otherwise
transferred by each holder thereof (other than a broker-dealer who acquires
such New Notes directly from the Issuer for resale pursuant to Rule 144A under
the Securities Act or any other available exemption under the Securities Act
and other than any holder that is an "affiliate" (as defined in Rule 405 under
the Securities Act) of the Issuer without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business and such
holder is not engaged in, and does not intend to engage in, a distribution of
such New Notes and has no arrangement with any person to participate in a
distribution of such New Notes. By tendering the Old Notes in exchange for New
Notes, each holder, other than a Participating Broker-Dealer, will represent
to the Issuer and the Guarantors that: (i) it is not an affiliate (as defined
in Rule 405 under the Securities Act) of the Issuer; (ii) it is not a broker-
dealer tendering Old Notes acquired for its own account directly from the
Issuer; (iii) any New Notes to be received by it will be acquired in the
ordinary course of its business; and (iv) it is not engaged in, and does not
intend to engage in, a distribution of such New Notes and has no arrangement
or understanding to participate in a distribution of the New Notes. If a
holder of New Notes is engaged in or intends to engage in a distribution of
the New Notes or has any arrangement or understanding with respect to the
distribution of the New Notes to be acquired pursuant to the
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Exchange Offer, such holder may not rely on the applicable interpretations of
the staff of the Commission and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
secondary resale transaction. Each Participating Broker-Dealer that receives
New Notes for its own account pursuant to the Exchange Offer must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may
be used by a Participating Broker-Dealer in connection with resales of New
Notes received in exchange for Old Notes where such Old Notes were acquired by
such Participating Broker-Dealer as a result of market-making activities or
other trading activities. The Issuer and the Guarantors have agreed that they
will make this Prospectus available to any Participating Broker-Dealer for a
period of time not to exceed one year after the date on which the Exchange
Offer is consummated for use in connection with any such resale. See "Plan of
Distribution."
In the event that (i) any changes in law or the applicable interpretations of
the staff of the Commission do not permit the Issuer and the Guarantors to
effect the Exchange Offer, or (ii) if any holder of Transfer Restricted
Securities (as defined herein) notifies the Issuer within 20 business days
following the consummation of the Exchange Offer that (A) such holder was
prohibited by law or Commission policy from participating in the Exchange Offer
or (B) such holder may not resell the New Notes acquired by it in the Exchange
Offer to the public without delivering a prospectus and the prospectus contained
in the Exchange Offer Registration Statement is not appropriate or available for
such resales by such holder or (C) such holder is a broker-dealer and holds Old
Notes acquired directly from the Issuer or one of its affiliates, then the
Issuer and the Guarantors will (x) cause to be filed a shelf registration
statement pursuant to Rule 415 under the Act (the "Shelf Registration
Statement") on or prior to 30 days after the date on which the Issuer determines
that it is not required to file the Exchange Offer Registration Statement
pursuant to clause (i) above or 60 days after the date on which the Issuer
receives the notice specified in clause (ii) above and will (y) use their
respective best efforts to cause such Shelf Registration Statement to become
effective within 150 days after the date on which the Issuer becomes obligated
to file such Shelf Registration Statement. If, after the Issuer has filed an
Exchange Offer Registration Statement, the Issuer is required to file and make
effective a Shelf Registration Statement solely because the Exchange Offer will
not be permitted under applicable federal law, then the filing of the Exchange
Offer Registration Statement will be deemed to satisfy the requirements of
clause (x) above. Such an event will have no effect on the requirements of
clause (y) above. The Issuer and the Guarantors will use their respective best
efforts to keep the Shelf Registration Statement continuously effective,
supplemented and amended to the extent necessary to ensure that it is available
for sales of Transfer Restricted Securities by the holders thereof for a period
of at least two years following the date on which such Shelf Registration
Statement first becomes effective under the Securities Act. The term "Transfer
Restricted Securities" means each Old Note, until the earliest to occur of (a)
the date on which such Old Note is exchanged in the Exchange Offer and entitled
to be resold to the public by the holder thereof without complying with the
prospectus delivery requirements of the Act, (b) the date on which such Old Note
has been disposed of in accordance with a Shelf Registration Statement, (c) the
date on which such Old Note is disposed of by a broker-dealer pursuant to the
"Plan of Distribution" contemplated by the Exchange Offer Registration Statement
(including delivery of the prospectus contained therein) or (d) the date on
which such Old Note is distributed to the public pursuant to Rule 144 under the
Act.
If (i) the Exchange Offer Registration Statement or the Shelf Registration
Statement is not filed with the Commission on or prior to the date specified
in the Registration Rights Agreement, (ii) any such Registration Statement has
not been declared effective by the Commission on or prior to the date
specified for such effectiveness in the Registration Rights Agreement, (iii)
the Exchange Offer has not been consummated within 195 days after the Closing
Date or (iv) any Registration Statement required by the Registration Rights
Agreement is filed and declared effective but will thereafter cease to be
effective or fail to be usable for its intended purpose without being
succeeded immediately by a post-effective amendment to such Registration
Statement that cures such failure and that is itself declared effective
immediately (each such event referred to in clauses (i) through (iv), a
"Registration Default"), then the Issuer and the Guarantors hereby jointly and
severally agree to pay Liquidated Damages to each holder of New Transfer
Restricted Securities. With respect to the first 90-day period immediately
following the occurrence of such Registration Default the Liquidated Damages
will equal $.05 per
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week per $1,000 principal amount of Transfer Restricted Securities held by
such holder for each week or portion thereof that the Registration Default
continues. The amount of the Liquidated Damages will increase by an additional
$.05 per week per $1,000 in principal amount of Transfer Restricted Securities
with respect to each subsequent 90-day period until all Registration Defaults
have been cured, up to a maximum amount of Liquidated Damages of $.30 per week
per $1,000 principal amount of Transfer Restricted Securities. Notwithstanding
anything to the contrary set forth herein, (1) upon filing of the Exchange
Offer Registration Statement (and/or, if applicable, the Shelf Registration
Statement), in the case of (i) above, (2) upon the effectiveness of the
Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement), in the case of (ii) above, (3) upon consummation of
the Exchange Offer, in the case of (iii) above, or (4) upon the filing of a
post-effective amendment to the Registration Statement or an additional
Registration Statement that causes the Exchange Offer Registration Statement
(and/or, if applicable, the Shelf Registration Statement) to again be declared
effective or made usable in the case of (iv) above, the Liquidated Damages
payable with respect to the Transfer Restricted Securities a result of such
clause (i), (ii), (iii) or (iv), as applicable, will cease.
All accrued Liquidated Damages will be paid to the holder of the global
notes representing the Old Notes by wire transfer of immediately available
funds or by federal funds check and to holders of certificated securities by
mailing checks to their registered addresses on each October 15 and April 15.
All obligations of the Issuer and the Guarantors set forth in the preceding
paragraph that are outstanding with respect to any Transfer Restricted
Security at the time such security ceases to be a Transfer Restricted Security
will survive until such time as all such obligations with respect to such
security will have been satisfied in full.
Upon consummation of the Exchange Offer, subject to certain exceptions,
holders of Old Notes who do not exchange their Old Notes for New Notes in the
Exchange Offer will no longer be entitled to registration rights and will not
be able to offer or sell their Old Notes, unless such Old Notes are
subsequently registered under the Securities Act (which, subject to certain
limited exceptions, the Issuer will have no obligation to do), except pursuant
to an exemption from, or in a transaction not subject to, the Securities Act
and applicable state securities laws. See "Risk Factors--Risk Factors Relating
to the Notes--Consequences of Failure to Exchange."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION
The term "Expiration Date" will mean , 1998 (20 business days
following the commencement of the Exchange Offer), unless the Exchange Offer
is extended, if and as required by applicable law, in which case the term
"Expiration Date" will mean the latest date to which the Exchange Offer is
extended.
In order to extend the Expiration Date, the Issuer will notify the Exchange
Agent of any extension by oral or written notice and will notify the holders
of the Old Notes by means of a press release or other public announcement
prior to 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date.
The Issuer and the Guarantors reserve the right (i) to delay acceptance of
any Old Notes, to extend the Exchange Offer or to terminate the Exchange Offer
and not permit acceptance of Old Notes not previously accepted if any of the
conditions set forth herein under "--Conditions" has occurred and has not been
waived by the Issuer and the Guarantors, by giving oral or written notice of
such delay, extension or termination to the Exchange Agent, or (ii) to amend
the terms of the Exchange Offer in any manner deemed by it to be advantageous
to the holders of the Old Notes. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral
or written notice thereof to the Exchange Agent. If the Exchange Offer is
amended in a manner determined by the Issuer to constitute a material change,
the Issuer will promptly disclose such amendment in a manner reasonably
calculated to inform the holders of the Old Notes of such amendment.
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INTEREST ON THE NEW NOTES
The New Notes will accrue interest at the applicable per annum rate set
forth on the cover page of this Prospectus, from (i) the later of (A) the last
interest payment date on which interest was paid on the Old Notes surrendered
in exchange therefor or (B) if the Old Notes are surrendered for exchange on a
date subsequent to the record date for an interest payment date to occur on or
after the date of such exchange and as to which interest will be paid, the
date of such interest payment or (ii) if no interest has been paid on the Old
Notes, from the date the Old Notes were issued (the "Issue Date"). Interest on
the New Notes is payable on October 15 and April 15 of each year commencing
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 the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with any other
required documents, to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. In addition, either (i) certificates for such Old
Notes must be received by the Exchange Agent along with the Letter of
Transmittal, (ii) a timely confirmation of a book-entry transfer (a "Book- Entry
Confirmation") of such Old Notes, if such procedure is available, into the
Exchange Agent's account at DTC (the "Book-Entry Transfer Facility") pursuant to
the procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date or (iii) the holder must comply with
the guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF
OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDERS OF OLD NOTES. IF SUCH DELIVERY IS BY MAIL, IT
IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE
ISSUER. Delivery of all documents must be made to the Exchange Agent at its
address set forth below. Holders of Old Notes may also request their respective
brokers, dealers, commercial banks, trust companies or nominees to effect such
tender for such holders.
The tender by a holder of Old Notes will constitute an agreement between
such holder and the Issuer in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
The term "holder" with respect to the Exchange Offer means any person in whose
name Old Notes are registered on the books of the Issuer or any other person
who has obtained a properly completed bond power from the registered holder.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial owner wishes to
tender on his own behalf, such beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering his Old Notes, either make
appropriate arrangements to register ownership of the Old Notes in such
owner's name or obtain a properly completed bond power from the registered
holder. The transfer of registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by any member firm of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or correspondent in
the United States or an "eligible guarantor" institution within the meaning of
Rule 17Ad-15 under the Exchange Act (each an "Eligible Institution") unless
the Old Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Issuance Instructions"
or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for
the account of an Eligible Institution.
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If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by bond powers and a proxy which authorizes such person to tender
the Old Notes on behalf of the registered holder, in each case as the name of
the registered holder or holders appears on the Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Issuer,
evidence satisfactory to the Issuer 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 withdrawal of the tendered Old Notes will be determined by the
Issuer in its sole discretion, which determination will be final and binding.
The Issuer reserves the absolute right to reject any and all Old Notes not
properly tendered or any Old Notes which, if accepted, would, in the opinion
of counsel for the Issuer, be unlawful. The Issuer also reserves the absolute
right to waive any irregularities or conditions of tender as to particular Old
Notes. The Issuer's interpretation of the terms and conditions of the Exchange
Offer (including the instructions in the Letter of Transmittal) will be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Issuer will determine. Neither the Issuer, the Guarantors, the Exchange Agent
nor any other person will be under any duty to give notification of defects or
irregularities with respect to tenders of Old Notes, nor will any of them
incur any liability for failure to give such notification. Tenders of Old
Notes will not be deemed to have been made until such irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned without cost to such holder by the Exchange
Agent to the tendering holders of Old Notes, unless otherwise provided in the
Letter of Transmittal, as soon as practicable following the Expiration Date.
In addition, the Issuer reserves the right in its sole discretion, subject
to the provisions of the Indenture, to (i) purchase or make offers for any Old
Notes that remain outstanding subsequent to the Expiration Date or, as set
forth under "--Conditions," (ii) to terminate the Exchange Offer in accordance
with the terms of the Registration Rights Agreement and (iii) to the extent
permitted by applicable law, purchase Old 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.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
all Old Notes properly tendered will be accepted, promptly after the
Expiration Date, and the New Notes will be issued promptly after acceptance of
the Old Notes. See "--Conditions" below. For purposes of the Exchange Offer,
Old Notes will be deemed to have been accepted as validly tendered for
exchange when, as and if the Issuer has given oral or written notice thereof
to the Exchange Agent.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-
Entry Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are
not accepted for any reason set forth in the terms and conditions of the
Exchange Offer or if Old Notes are submitted for a greater principal amount
than the holder desires to exchange, such unaccepted or nonexchanged Old Notes
will be returned without expense to the tendering holder thereof (or, in the
case of Old Notes tendered by book-entry transfer procedures described below,
such nonexchanged Old Notes will be credited to an account maintained with
such Book-Entry Transfer Facility) as promptly as practicable after the
expiration or termination of the Exchange Offer.
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BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus. Any
financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the Book-
Entry Transfer Facility, the Letter of Transmittal or facsimile thereof with
any required signature guarantees and any other required documents must, in
any case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under "--Exchange Agent" on or prior to the
Expiration Date or the guaranteed delivery procedures described below must be
complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of New the Old Notes desires to tender such Old
Notes, and the Old Notes are not immediately available, or time will not
permit such holder's Old Notes or other required documents to reach the
Exchange Agent before the Expiration Date, or the procedures for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if
(i) the tender is made through an Eligible Institution, (ii) prior to the
Expiration Date, the Exchange Agent receives from such Eligible Institution a
properly completed and duly executed Letter of Transmittal and Notice of
Guaranteed Delivery, substantially in the form provided by the Issuer (by mail
or hand delivery), setting forth the name and address of the holder of New Old
Notes and the amount of Old Notes tendered, stating that the tender is being
made thereby and guaranteeing that within three New York Stock Exchange
("NYSE") trading days after the date of execution of the Notice of Guaranteed
Delivery, the certificates for all physically tendered Old Notes, in proper
form for transfer, or a Book-Entry Confirmation, as the case may be, and any
other documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent and (iii) the certificates for
all physically tendered Old Notes, in proper form for transfer, or a Book-
Entry Confirmation, as the case may be, and all other documents required by
the Letter of Transmittal are received by the Exchange Agent within three NYSE
trading days after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL OF TENDERS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent prior to 5:00 p.m., New York City time on the
Expiration Date at one of the addresses set forth below under "--Exchange
Agent." Any such notice of withdrawal must specify the name of the person
having tendered the Old Notes to be withdrawn, identify the Old Notes to be
withdrawn (including the principal amount of such Old Notes) and (where
certificates for Old Notes have been transmitted) specify the name in which
such Old Notes are registered, if different from that of the withdrawing
holder. If certificates for Old Notes have been delivered or otherwise
identified to the Exchange Agent, then, prior to the release of such
certificates, the withdrawing holder must also submit the serial numbers of
the particular certificates to be withdrawn and a signed notice of withdrawal
with signatures guaranteed by an Eligible Institution unless such holder is an
Eligible Institution. If Old Notes have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of withdrawal
must specify the name and number of the account at the Book-Entry Transfer
Facility to be credited with the withdrawn Old Notes and otherwise comply with
the procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Issuer, whose determination will be final and binding on all parties. Any
Old Notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the Exchange Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's
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account at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described above, such Old Notes will be credited to an
account maintained with such Book-Entry Transfer Facility for the Old Notes)
as soon as practicable after withdrawal, rejection of tender or termination of
the Exchange Offer. Properly withdrawn Old Notes may be retendered by
following one of the procedures described under "-- Procedures for Tendering"
and "--Book-Entry Transfer" above at any time on or prior to the Expiration
Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, Old Notes will
not be required to be accepted for exchange, nor will New Notes be issued in
exchange for any Old Notes, and the Issuer and the Guarantors may terminate or
amend the Exchange Offer as provided herein before the acceptance of such Old
Notes, if because of any change in law, or applicable interpretations thereof by
the Commission, the Issuer and the Guarantors determine that they are not
permitted to effect the Exchange Offer. The Issuer and the Guarantors have no
obligation to, and will not knowingly, permit acceptance of tenders of Old Notes
from affiliates (within the meaning of Rule 405 under the Securities Act) of the
Issuer or the Guarantors or from any other holder or holders who are not
eligible to participate in the Exchange Offer under applicable law or
interpretations thereof by the Commission, or if the New Notes to be received by
such holder or holders of Old Notes in the Exchange Offer, upon receipt, will
not be tradable by such holder without restriction under the Securities Act and
the Exchange Act and without material restrictions under the "blue sky" or
securities laws of substantially all of the states of the United States.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as Exchange Agent for
the Exchange Offer. Questions and requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
By Mail: By Overnight Mail or Courier:
P.O. Box 778 Two International Place
Boston, Massachusetts 02102 Boston, Massachusetts 02102
Attention: Corporate Trust Department Attention: Corporate Trust Department
Kellie Mullen Kellie Mullen
By Hand in New York to 5:00 p.m. By Hand in Boston to 5:00 p.m.:
(as drop agent): Two International Place
61 Broadway Fourth Floor
15th Floor Corporation Trust
Corporate Trust Window Boston, Massachusetts 02110
New York, New York 10006
For information call:
(617) 664-5587
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Issuer. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail; however, additional solicitations may be
made by telegraph, telephone, telecopy or in person by officers and regular
employees of the Company.
The Issuer will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. The Issuer, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection
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therewith. The Issuer 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 Old Notes, and in handling or forwarding tenders for
exchange.
The expenses to be incurred in connection with the Exchange Offer will be
paid by the Issuer, including fees and expenses of the Exchange Agent and
Trustee and accounting, legal, printing and related fees and expenses.
The Issuer will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or
issued in the name of, any person other than the registered holder of the
Old Notes tendered, or if tendered Old Notes are registered in the name of any
person other than the person signing the Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Old Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
holder.
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DESCRIPTION OF THE NEW NOTES
GENERAL
The Old Notes were issued, and the New Notes offered hereby will be
issued, pursuant to the Indenture dated as of April 21, 1998 among the Issuer,
the Guarantors and State Street Bank and Trust Company, as trustee (the
"Trustee"). The terms of the New Notes will include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The New Notes
will be subject to all such terms, and perspective holders of New Notes are
referred to the Indenture and the Trust Indenture Act for a statement thereof.
The following summary of the material provisions of the Indenture does not
purport to be complete and is qualified in its entirety by reference to the
Indenture, including the definitions therein, of certain terms used below.
Copies of the proposed form of Indenture and Registration Rights Agreement are
available as set forth below under "--Additional Information." The definitions
of certain terms used in the following summary are set forth below under "--
Certain Definitions."
The New Notes will be general unsecured obligations of the Issuer and will
be subordinated in right of payment to all current and future Senior Debt. The
operations of the Issuer are conducted in part through its Subsidiaries and,
therefore, the Issuer is dependent in part upon the cash flow of its
Subsidiaries to meet its obligations under the New Notes on a senior
subordinated unsecured basis. See "Risk Factors--Risk Factors Relating to the
Notes--Fraudulent Transfer Statutes." As of the Issue Date, all of the
Issuer's subsidiaries were Restricted Subsidiaries. However, under certain
circumstances, the Issuer will be able to designate current or future
Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not
be subject to many of the restrictive covenants set forth in the Indenture. As
of March 31, 1998, on a pro forma basis and after giving effect to the
Recapitalization, the Issuer would have had Senior Debt of approximately $84.8
million. The Indenture permits the incurrence of additional Senior Debt in the
future.
PRINCIPAL, MATURITY AND INTEREST
The New Notes in an aggregate principal amount of up to $100.0 million will
be issued in the Exchange Offer. The New Notes will mature on April 15, 2008.
Interest on the New Notes will accrue at the rate of 10 1/8% per annum and will
be payable semi-annually in arrears on October 15 and April 15, commencing
October 15, 1998, to holders of record on the immediately preceding October 1
and April 1, respectively. Interest on the New Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the Issue Date. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. Principal, premium, if any, and interest
and Liquidated Damages, if any, on the New Notes will be payable at the office
or agency of the Issuer maintained for such purpose within the City and State
of New York or, at the option of the Issuer, payment of principal, premium,
interest and Liquidated Damages may be made by check mailed to holders of the
New Notes at their respective addresses set forth in the register of holders
of the New Notes; provided that all payments of principal, premium, interest
and Liquidated Damages with respect to New Notes represented by one or more
permanent global notes ("Global Notes") will be required to be made by wire
transfer of immediately available funds to the accounts of DTC or any
successor thereto. Until otherwise designated by the Issuer, the Issuer's
office or agency in New York will be the office of the Trustee maintained for
such purpose. The New Notes will be issued in denominations of $1,000 and
integral multiples thereof.
GUARANTEES
The Issuer's payment obligations under the New Notes are jointly and
severally guaranteed by the Guarantors (the "Subsidiary Guarantees"). The
Subsidiary Guarantee of each Guarantor will be subordinated to the prior
payment in full of all Senior Debt of such Guarantor, which would include
approximately $84.8 million of Senior Debt outstanding on a pro forma basis
and after giving effect to the Recapitalization as of March 31, 1998, and the
amounts for which the Guarantors will be liable under the guarantees issued
from time to time with respect to Senior Debt. The obligations of each
Guarantor under its Subsidiary Guarantee will be limited so
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as not to constitute a fraudulent conveyance under applicable law. See "Risk
Factors--Risk Factors Relating to the Notes--Fraudulent Transfer Statutes."
The Indenture provides that no Guarantor may consolidate with or merge with
or into (whether or not such Guarantor is the surviving Person), another
corporation, Person or entity whether or not affiliated with such Guarantor
unless (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) assumes all the obligations of such Guarantor, pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under the Indenture and the Subsidiary Guarantees; and (ii)
immediately after giving effect to such transaction, no Default or Event of
Default exists.
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Guarantor, then such Guarantor (in the event of a sale or other disposition,
by way of such a merger, consolidation or otherwise, of all of the capital
stock of such Guarantor) or the corporation acquiring the property (in the
event of a sale or other disposition of all or substantially all of the assets
of such Guarantor) will be released and relieved of any obligations under its
Subsidiary Guarantee. In addition, the Indenture provides that, in the event
the Company designates a Restricted Subsidiary to be an Unrestricted
Subsidiary in accordance with the Indenture, then such Restricted Subsidiary
will be released from its obligations under its Subsidiary Guarantee. See "--
Repurchase at the Option of Holders--Asset Sales."
SUBORDINATION
The payment of Obligations in respect of the New Notes is subordinated in
right of payment, as set forth in the Indenture, to the prior payment in full
of all Obligations in respect of Senior Debt, whether outstanding on the date
of the Indenture or thereafter incurred.
Upon any payment or distribution to creditors of the Issuer of any kind,
whether in cash, property or securities in a liquidation or dissolution of the
Issuer or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Issuer or its property, an assignment for the
benefit of creditors or any marshaling of the Issuer's assets and liabilities,
whether voluntary or involuntary, the holders of Senior Debt of the Issuer
will be entitled to receive payment in full in cash of all Obligations due in
respect of such Senior Debt (including interest after the commencement of any
such proceeding at the rate specified in the applicable Senior Debt whether or
not allowable as a claim in any such proceeding) before holders of New Notes
will be entitled to receive any payment or distribution of any kind with
respect to the New Notes, and until all Obligations with respect to Senior
Debt are paid in full, any payment or distribution to which holders of New
Notes would be entitled will be made to the holders of Senior Debt (except
that holders of New Notes may receive and retain Permitted Junior Securities
and payments made from the trust described under "--Legal Defeasance and
Covenant Defeasance").
The Issuer also may not make any payment upon or in respect of the New Notes
(except in Permitted Junior Securities or from the trust described under "--
Legal Defeasance and Covenant Defeasance") if (i) a default in the payment of
the principal of, premium, if any, or interest on Designated Senior Debt
occurs and is continuing or (ii) any other default occurs and is continuing
with respect to Designated Senior Debt that permits holders of the Designated
Senior Debt as to which such default relates to accelerate its maturity, in
the case of this clause (ii) only, and the Trustee receives a notice of such
default invoking the provisions described in this paragraph (a "Payment
Blockage Notice") from the holders of any Designated Senior Debt or any agent
or trustee therefor. Payments on the New Notes may and will be resumed (a) in
the case of a payment default, upon the date on which such default is cured or
waived and (b) in case of a nonpayment default, the earlier of the date on
which such nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received, unless a payment
default has occurred and is continuing (as a result of nonpayment of a
scheduled principal repayment upon Designated Senior Debt, nonpayment of
principal upon the stated maturity of any Designated Senior Debt or the
acceleration of the maturity of any Designated Senior Debt). No
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new period of payment blockage (other than for a payment default) may be
commenced unless and until 360 days have elapsed since the effectiveness of
the immediately prior Payment Blockage Notice. No nonpayment default that
existed or was continuing on the date of delivery of any Payment Blockage
Notice to the Trustee will be, or be made, the basis for a subsequent Payment
Blockage Notice unless such default will have been cured or waived for a
period of not less than 90 days. Whenever the Issuer is prohibited from making
any payment in respect of the New Notes, the Issuer also will be prohibited
from making, directly or indirectly, any payment of any kind on account of the
purchase or other acquisition of the New Notes. If any holder of New Notes
receives any payment or distribution that such holder of New Notes is not
entitled to receive with respect to the New Notes, such holder of New Notes
will be required to pay the same over to the holders of Senior Debt.
The Indenture further requires that the Company promptly notify holders of
Senior Debt if payment of the New Notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, holders of New Notes may recover less ratably
than creditors of the Issuer who are holders of Senior Debt. As of March 31,
1998, on a pro forma basis after giving effect to the Recapitalization, the
Issuer and its Guarantors would have had outstanding approximately $84.8
million in aggregate principal amount of Senior Debt. The Indenture limits,
subject to certain financial tests, the amount of additional Indebtedness,
including Senior Debt, that the Issuer and its Subsidiaries can incur. See "--
Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock."
OPTIONAL REDEMPTION
Except as described below, the New Notes will not be redeemable at the
Issuer's option prior to April 15, 2003. Thereafter, the New Notes will be
subject to redemption at any time at the option of the Issuer, in whole or in
part, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the
applicable redemption date, if redeemed during the twelve-month period
beginning on April 15 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2003........................................ 105.063%
2004........................................ 103.375%
2005........................................ 101.688%
2006 and thereafter......................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time on or prior to April 15, 2001,
the Issuer may (but will not have the obligation to) redeem, on one or more
occasions, up to an aggregate of 35% of the principal amount of New Notes
originally issued at a redemption price equal to 110.125% of the principal
amount thereof, plus accrued and unpaid interest and Liquidated Damages, if
any, thereon to the redemption date, with the net cash proceeds of one or more
Equity Offerings; provided that at least 65% in aggregate principal amount of
the New Notes originally issued remains outstanding immediately after the
occurrence of such redemption; and provided further, that such redemption
occurs within 90 days of the date of the closing of such Equity Offering.
MANDATORY REDEMPTION
Except as set forth under "--Repurchase at the Option of Holders," the
Issuer is not required to make mandatory redemption or sinking fund payments
with respect to the New Notes.
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REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of New Notes will
have the right to require the Issuer to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such holder's New Notes pursuant to
the offer described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the date of
purchase (the "Change of Control Payment"). Within 30 days following any
Change of Control, the Issuer will mail a notice to each holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase New Notes on the date specified in such notice, which date will
be no earlier than 30 days (or such shorter time period as may be permitted
under applicable law, rules and regulations) and no later than 60 days from
the date such notice is mailed (the "Change of Control Payment Date"),
pursuant to the procedures required by the Indenture and described in such
notice. The Issuer will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the New Notes as a result of a Change of Control. To the extent
that the provisions of any securities laws or regulations conflict with the
provisions of the Indenture relating to such Change of Control Offer, the
Issuer will comply with the applicable securities laws and regulations and
will not be deemed to have breached its obligations described in the Indenture
by virtue thereof.
On the Change of Control Payment Date, the Issuer will, to the extent
lawful, (1) accept for payment all New Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the office
or agency where the New Notes may be presented for payment (the "Paying
Agent") an amount equal to the Change of Control Payment in respect of all New
Notes or portions thereof so tendered and (3) deliver or cause to be delivered
to the Trustee the New Notes so accepted together with an officer's
certificate stating the aggregate principal amount of New Notes or portions
thereof being purchased by the Issuer. The Paying Agent will promptly mail to
each holder of New Notes so tendered the Change of Control Payment for such
New Notes, and the Trustee will promptly authenticate and mail (or cause to be
transferred by book entry) to each holder a new New Note equal in principal
amount to any unpurchased portion of the New Notes surrendered, if any;
provided that each such new New Note will be in a principal amount of $1,000
or an integral multiple thereof. The Indenture provides that, prior to
complying with the provisions of this covenant, but in any event within 90
days following a Change of Control, the Issuer will either repay all
outstanding Senior Debt or obtain the requisite consents, if any, under all
agreements governing outstanding Senior Debt to permit the repurchase of New
Notes required by this covenant. The Issuer will not be required to purchase
any New Notes until it has complied with the preceding sentence, but failure
to comply with the preceding sentence will constitute an Event of Default. The
Issuer will publicly announce the results of the Change of Control Offer on or
as soon as practicable after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit holders of New Notes to require that the Issuer
repurchase or redeem the New Notes in the event of a takeover,
recapitalization or similar transaction.
The Bank Facilities prohibit the Issuer from purchasing any New Notes and
provides that certain change of control events with respect to the Issuer
would constitute a default thereunder. Any future credit agreements or other
agreements relating to Senior Debt to which the Issuer becomes a party may
contain similar restrictions and provisions. In the event a Change of Control
occurs at a time when the Issuer is prohibited from purchasing New Notes, the
Issuer could seek the consent of its lenders to the purchase of New Notes or
could attempt to refinance the borrowings that contain such prohibition. If
the Issuer does not obtain such a consent or repay such borrowings, the Issuer
will remain prohibited from purchasing New Notes. In such case, the Issuer's
failure to purchase tendered New Notes would constitute an Event of Default
under the Indenture which would, in turn, constitute a default under the Bank
Facilities. In such circumstances, the subordination provisions in the
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Indenture would likely restrict payments to holders of New Notes. In addition,
the exercise by holders of New Notes of their right to require the Issuer to
repurchase the New Notes could cause a default under such Senior Debt, even if
the Change of Control itself does not, due to the financial effect of such
repurchases on the Issuer. Finally, the Issuer's ability to pay cash to
holders of New Notes upon a repurchase may be limited by the Issuer's then
existing financial resources.
The Issuer will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Issuer and purchases all New Notes validly tendered and not withdrawn under
such Change of Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Issuer and its Subsidiaries taken as a whole. 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 New Notes to require
the Issuer to repurchase such New Notes as a result of a sale, lease,
transfer, conveyance or other disposition of less than all of the assets of
the Issuer and its Subsidiaries taken as a whole to another Person or group
may be uncertain.
ASSET SALES
The Indenture provides that the Issuer will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Issuer
(or the Restricted Subsidiary, as the case may be) receives consideration at
the time of such Asset Sale at least equal to the fair market value (evidenced
by a resolution of the Board of Directors set forth in an officer's
certificate delivered to the Trustee) of the assets or Equity Interests issued
or sold or otherwise disposed of and (ii) at least 75% of the consideration
therefor received by the Issuer or such Restricted Subsidiary is in the form
of cash or Cash Equivalents, provided that the amount of (x) any liabilities
(as shown on the Issuer's or such Restricted Subsidiary's most recent balance
sheet) of the Issuer or any Restricted Subsidiary (other than contingent
liabilities and liabilities that are by their terms subordinated to the New
Notes or any guarantee thereof) that are assumed by the transferee of any such
assets pursuant to a customary novation agreement that releases the Issuer or
such Restricted Subsidiary from further liability and (y) any securities,
notes or other obligations received by the Issuer or any such Restricted
Subsidiary from such transferee that are converted by the Issuer or such
Restricted Subsidiary into cash (to extent of the cash received) within 180
days following the closing of such Asset Sale will be deemed to be cash for
purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Issuer or the Restricted Subsidiaries may apply such Net Proceeds, at its
option, (a) to repay Senior Debt, or (b) to the investment in, or the making
of a capital expenditure or the acquisition of other long-term assets, in each
case used or useable in a Permitted Business, from a party other than the
Issuer or a Restricted Subsidiary, or (c) the acquisition of Capital Stock of
any Person primarily engaged in a Permitted Business if, as a result of the
acquisition by the Issuer or any Restricted Subsidiary thereof, such Person
becomes a Restricted Subsidiary, or (d) a combination of the uses described in
clauses (a), (b) and (c). Pending the final application of any such Net
Proceeds, the Issuer or its Restricted Subsidiaries may temporarily reduce
Senior Debt or otherwise invest such Net Proceeds in any manner that is not
prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph will
be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess
Proceeds exceeds $7.5 million, the Issuer will be required to make an offer to
all holders of New Notes and, to the extent required by the terms of any Pari
Passu Indebtedness, all holders of such Pari Passu Indebtedness (an "Asset
Sale Offer"), to purchase the maximum principal amount of New Notes and any
such Pari Passu Indebtedness that may be purchased out of the Excess Proceeds,
at an offer price in cash in an amount equal to 100% of the principal amount
thereof plus accrued and unpaid interest and Liquidated Damages thereon, if
any, to the date of purchase, in accordance with the procedures set forth in
the Indenture or such Pari Passu Indebtedness, as applicable. To the extent
any Excess Proceeds remain after consummation of
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the Asset Sale Offer, the Issuer may use such Excess Proceeds for any purpose
not otherwise prohibited by the Indenture. If the aggregate principal amount
of New Notes and any such Pari Passu Indebtedness tendered pursuant to an
Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee will
select the New Notes to be purchased on a pro rata basis. Upon completion of
such Asset Sale Offer, the amount of Excess Proceeds will be reset at zero.
SELECTION AND NOTICE
If less than all of the New Notes are to be redeemed or repurchased in an
offer to purchase at any time, selection of New Notes for redemption or
repurchase will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the New Notes are
listed, or, if the New Notes are not so listed, on a pro rata basis, by lot or
by such other method as the Trustee deems fair and appropriate; provided that
New Notes purchased pursuant to an Asset Sale Offer or to be redeemed with the
proceeds of an Equity Offering will be selected on a pro rata basis; provided
further that no New Notes of $1,000 or less will be redeemed or repurchased in
part. Notices of redemption may not be conditional. Notices of redemption or
repurchase will be mailed by first class mail at least 30 but not more than 60
days before the redemption date or repurchase date to each holder of New Notes
to be redeemed or repurchased at its registered address. If any New Note is to
be redeemed or repurchased in part only, the notice of redemption or
repurchase that relates to such New Note will state the portion of the
principal amount thereof to be redeemed or repurchased. A new New Note in
principal amount equal to the unredeemed or unrepurchased portion thereof will
be issued in the name of the holder thereof upon cancellation of the original
New Note. On and after the redemption or repurchase date, interest and
Liquidated Damages will cease to accrue on New Notes or portions of them
called for redemption or repurchase.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that the Issuer will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution on account of the Issuer's
or any of its Restricted Subsidiaries' Equity Interests (including, without
limitation, any such dividend, distribution or other payment made in
connection with any merger or consolidation involving the Issuer or any of its
Restricted Subsidiaries), other than dividends or distributions payable in
Equity Interests (other than Disqualified Stock) of the Issuer or dividends or
distributions payable to the Issuer or any Wholly Owned Subsidiary of the
Issuer; (ii) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, any such purchase, redemption, or other
acquisition or retirement for value made as a payment in connection with any
merger or consolidation involving the Issuer) any Equity Interests of the
Issuer or any Restricted Subsidiary (other than any such Equity Interests
owned by the Issuer or any Restricted Subsidiary of the Issuer); (iii) make
any payment on or with respect to, or purchase, redeem, defease or otherwise
acquire or retire for value, any Indebtedness that is subordinated to the New
Notes, except a payment of interest or a payment of principal at Stated
Maturity; or (iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of and immediately
after giving effect to such Restricted Payment:
(a) no Default or Event of Default will have occurred and be continuing;
and
(b) the Issuer would, at the time of such Restricted Payment, and after
giving pro forma effect thereto as if any Indebtedness incurred in order to
make such Restricted Payment had been incurred at the beginning of the
applicable four quarter period, have been permitted to incur at least $1.00
of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test
set forth in the first paragraph of the covenant described below under
caption "--Incurrence of Indebtedness and Issuance of Preferred Stock;" and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Issuer and its Restricted
Subsidiaries after the date of the Indenture (excluding Restricted
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Payments permitted by clauses (ii), (iii), (iv), (vi), (vii), (viii) and
(x) of the next succeeding paragraph), is less than the sum (without
duplication) of (i) 50% of the Consolidated Net Income of the Issuer for
the period (taken as one accounting period) from the beginning of the first
fiscal quarter commencing after the date of the Indenture to the end of the
Issuer's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less 100% of
such deficit), plus (ii) 100% of the aggregate Qualified Proceeds received
by the Issuer from contributions to the Issuer's capital or the issue or
sale subsequent to the date of the Indenture of Equity Interests of the
Issuer (other than Disqualified Stock) or of Disqualified Stock or debt
securities of the Issuer that have been converted into such Equity
Interests (other than Equity Interests (or Disqualified Stock or
convertible debt securities) sold to a Subsidiary of the Issuer and other
than Disqualified Stock or convertible debt securities that have been
converted into Disqualified Stock), plus (iii) to the extent that any
Restricted Investment that was made after the date of the Indenture is sold
for Qualified Proceeds or otherwise liquidated or repaid (including,
without limitation, by way of a dividend or other distribution, a repayment
of a loan or advance or other transfer of assets) for in whole or in part,
the lesser of (A) the Qualified Proceeds with respect to such Restricted
Investment (less the cost of disposition, if any) and (B) the initial
amount of such Restricted Investment, plus (iv) upon the redesignation of
an Unrestricted Subsidiary as a Restricted Subsidiary, the lesser of (x)
the fair market value of such Subsidiary or (y) the aggregate amount of all
Investments made in such Subsidiary subsequent to the Issue Date by the
Issuer and its Restricted Subsidiaries, plus (v) $2.0 million.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Issuer
or any Guarantor in exchange for, or out of the net cash proceeds of the
substantially concurrent sale (other than to a Restricted Subsidiary of the
Issuer) of, other Equity Interests of the Issuer (other than any Disqualified
Stock); provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement, defeasance or other
acquisition will be excluded from clause (c) (ii) of the preceding paragraph;
(iii) the defeasance, redemption, repurchase, retirement or other acquisition
of subordinated Indebtedness in exchange for, or with the net cash proceeds
from, an incurrence of Permitted Refinancing Indebtedness; (iv) the payment of
any dividend (or the making of a similar distribution or redemption) by a
Restricted Subsidiary of the Issuer to the holders of its common Equity
Interests on a pro rata basis; (v) so long as no Default or Event of Default
has occurred and is continuing, the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests of the Issuer,
Holdings or any Restricted Subsidiary of the Issuer, held by any member of the
Issuer's (or any of its Subsidiaries') management, employees or consultants
pursuant to any management, employee or consultant equity subscription
agreement or stock option agreement in effect as of the date of the Indenture;
provided that the aggregate price paid for all such repurchased, redeemed,
acquired or retired Equity Interests must not exceed (1) $1.5 million in any
twelve-month period and (2) in the aggregate, the sum of (A) $7.0 million and
(B) the aggregate cash proceeds received by the Issuer from any reissuance of
Equity Interests by Holdings or the Issuer to members of management of the
Issuer and its Subsidiaries (provided that the cash proceeds referred to in
this clause (B) will be excluded from clause (c)(ii) of the preceding
paragraph); (vi) payments required to be made under the Tax Sharing Agreement;
(vii) distributions made by the Issuer on the date of the Indenture, the
proceeds of which were utilized solely to consummate the Recapitalization;
(viii) the payment of dividends or the making of loans or advances by the
Issuer to Holdings not to exceed $1.5 million in any fiscal year for costs and
expenses incurred by Holdings in its capacity as a holding Issuer or for
services rendered by Holdings on behalf of the Issuer; (ix) so long as no
Default or Event of Default has occurred and is continuing, the declaration
and payment of dividends to holders of any class or series of Disqualified
Stock of the Issuer or any Guarantor issued after the date of the Indenture in
accordance with the covenant described below under the caption "--Incurrence
of Indebtedness and Issuance of Preferred Stock"; and (x) so long as (A) no
Default or Event of Default has occurred and is continuing and (B) immediately
before and immediately after giving effect thereto, the Issuer would have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph described
under the caption "--Incurrence of Indebtedness and Preferred Stock," (I) from
and after
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April 15, 2003, payments of cash dividends to Holdings in an amount sufficient
to enable Holdings to make payments of interest required to be made in respect
of the Holdings Senior Discount Debentures in accordance with the terms
thereof in effect on the date of the Indenture, provided that such interest
payments are made with the proceeds of such dividends, and (II) a $16.0
million cash dividend that the Issuer will be entitled to declare and pay to
Holdings on April 15, 2003 to enable Holdings to redeem $33.2 million
aggregate principal amount at maturity of the Holdings Senior Discount
Debentures as required by the terms of the Holdings Senior Discount Debentures
in accordance with such terms in effect on the date of the Indenture, provided
that such redemption is made with the proceeds of such dividend.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default or an
Event of Default. For purposes of making such determination, all outstanding
Investments by the Issuer and its Restricted Subsidiaries (except to the
extent repaid in cash) in the Subsidiary so designated will be deemed to be
Restricted Payments at the time of such designation and will reduce the amount
available for Restricted Payments under the first paragraph of this covenant.
All such outstanding Investments will be deemed to constitute Investments in
an amount equal to the greater of (i) the net book value of such Investments
at the time of such designation and (ii) the fair market value of such
Investments at the time of such designation. Such designation will only be
permitted if such Restricted Payment would be permitted at such time and if
such Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
The amount of all (i) Restricted Payments (other than cash) will be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Issuer or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment
and (ii) Qualified Proceeds (other than cash) will be the fair market value on
the date of receipt thereof by the Issuer of such Qualified Proceeds. The fair
market value of any non-cash Restricted Payment and Qualified Proceeds will be
determined by the Board of Directors whose resolution with respect thereto
will be delivered to the Trustee, such determination to be based upon an
opinion or appraisal issued by an accounting, appraisal or investment banking
firm of national standing, if such fair market value exceeds $10.0 million.
Not later than the date of making any Restricted Payment, the Issuer will
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "--Restricted Payments" were computed, together with
a copy of any fairness opinion or appraisal required by the Indenture.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture provides that: (i) the Issuer will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt); (ii) that neither the Issuer nor any
Guarantor will issue any Disqualified Stock; and (iii) that the Issuer will
not permit any of its Restricted Subsidiaries that are not Guarantors to issue
any shares of preferred stock; provided, however, that the Issuer or any
Guarantor may incur Indebtedness (including Acquired Debt) or issue shares of
Disqualified Stock if the Fixed Charge Coverage Ratio for the Issuer's most
recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock is issued would
have been at least 2.0 to 1.0, determined on a pro forma basis (including a
pro forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred, or the Disqualified Stock had been issued, as
the case may be, at the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant do not apply to the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Issuer (and the guarantee thereof by the
Guarantors) of Indebtedness under Credit Facilities; provided that the
aggregate principal amount of all Indebtedness (with letters of credit
being deemed to have a principal amount equal to the maximum potential
liability of the Issuer and the
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Guarantors thereunder) outstanding under all Credit Facilities after giving
effect to such incurrence, including all Indebtedness incurred to refund,
refinance or replace any Indebtedness incurred pursuant to this clause (i),
does not exceed an amount equal to $105.0 million less the aggregate amount
of all principal repayments (optional and mandatory) thereunder
constituting permanent reductions of such Indebtedness pursuant to and in
accordance with the covenant described under "--Repurchase at the Option of
Holders--Asset Sales";
(ii) the incurrence by the Issuer and the Guarantors of Indebtedness
represented by the New Notes and the Subsidiary Guarantees;
(iii) the incurrence by the Issuer or any of the Guarantors of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or purchase money obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvements of property used in the business of the Issuer or such
Guarantor, in an aggregate principal amount not to exceed $5.0 million at
any time outstanding;
(iv) other Indebtedness of the Issuer and its Restricted Subsidiaries
outstanding on the Issue Date (other than Indebtedness to be repaid in
connection with the Recapitalization);
(v) the incurrence by the Issuer or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance or replace Indebtedness (other than
intercompany Indebtedness) that was permitted by the Indenture to exist or
be incurred;
(vi) the incurrence of intercompany Indebtedness (A) between or among the
Issuer and any Wholly Owned Restricted Subsidiaries of the Issuer or (B) by
a Restricted Subsidiary that is not a Wholly Owned Restricted Subsidiary of
the Issuer or a Wholly Owned Restricted Subsidiary; provided, however, that
(i) if the Issuer is the obligor on such Indebtedness, such Indebtedness is
expressly subordinated to the prior payment in full in cash of all
Obligations with respect to the New Notes, and if a Guarantor incurs such
Indebtedness to a Restricted Subsidiary that is not a Guarantor, such
Indebtedness is subordinate in right of payment to the Subsidiary Guarantee
of such Guarantor; and (ii)(A) any subsequent issuance or transfer of
Equity Interests that results in any such Indebtedness being held by a
Person other than the Issuer or a Wholly Owned Restricted Subsidiary of the
Issuer and (B) any sale or other transfer of any such Indebtedness to a
Person that is not either the Issuer or a Wholly Owned Restricted
Subsidiary of the Issuer will be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Issuer or such Subsidiary, as the
case may be, not permitted by this clause (vi);
(vii) the incurrence by the Issuer or any of the Guarantors of Hedging
Obligations that are incurred for the purpose of fixing or hedging (i)
interest rate risk with respect to any floating rate Indebtedness that is
permitted by the terms of this Indenture to be outstanding, (ii) the value
of foreign currencies purchased or received by the Issuer in the ordinary
course of business or (iii) the price of raw materials used by the Issuer
or its Restricted Subsidiaries in a Permitted Business;
(viii) Indebtedness incurred in respect of workers' compensation claims,
self insurance obligations and performance, surety and similar bonds
provided by the Issuer or a Guarantor in the ordinary course of business;
(ix) Indebtedness arising from agreements of the Issuer or a Restricted
Subsidiary providing for indemnification, adjustment of purchase price or
similar obligations, in each case, incurred or assumed in connection with
the disposition of any business, assets or Capital Stock of a Restricted
Subsidiary;
(x) the guarantee by the Issuer or any of the Guarantors of Indebtedness
of the Issuer or a Guarantor that was permitted to be incurred by another
provision of this covenant;
(xi) the incurrence by the Issuer or any of its Restricted Subsidiaries
of Acquired Debt in an aggregate principal amount at any time outstanding
not to exceed $17.0 million;
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(xii) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except
in the case of daylight overdrafts) drawn against insufficient funds in the
ordinary course of business; provided, however, that such Indebtedness is
extinguished within five business days of incurrence; and
(xiii) the incurrence by the Issuer or any Guarantor of additional
Indebtedness (which may be Indebtedness under Credit Facilities) in an
aggregate principal amount (or accreted value, as applicable) at any time
outstanding, including all Indebtedness incurred to refund, refinance or
replace any Indebtedness incurred pursuant to this clause (xiii), not to
exceed $10.0 million.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories
of Permitted Debt described in clauses (i) through (xiii) above or is entitled
to be incurred pursuant to the first paragraph of this covenant, the Issuer
will, in its sole discretion, classify such item of Indebtedness in any manner
that complies with this covenant and such item of Indebtedness will be treated
as having been incurred pursuant to only one of such clauses or pursuant to
the first paragraph hereof. Accrual of interest, the accretion of accreted
value and the payment of interest in the form of additional Indebtedness will
not be deemed to be an incurrence of Indebtedness for purposes of this
covenant.
LIENS
The Indenture provides that the Issuer will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien securing Indebtedness or trade payables on any
asset now owned or hereafter acquired, or any income or profits therefrom or
assign or convey any right to receive income therefrom for purposes of
security, except Permitted Liens unless (x) in the case of Liens securing
Indebtedness that is expressly subordinate or junior in right of payment to
the New Notes, the New Notes are secured by a Lien on such property, assets or
proceeds that is senior in priority to such Liens, (with the same relative
priority as such subordinate or junior Indebtedness will have with respect to
the New Notes and Subsidiary Guarantees) and (y) in all other cases, the New
Notes are secured by such Lien on an equal and ratable basis.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that the Issuer will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Issuer or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation
in, or measured by, its profits, or (b) pay any Indebtedness owed to the
Issuer or any of its Restricted Subsidiaries, (ii) make loans or advances to
the Issuer or any of its Restricted Subsidiaries; (iii) guarantee any
Indebtedness of the Issuer or any Restricted Subsidiary of the Issuer
(provided that this clause (iii) will apply only to Restricted Subsidiaries
that are Guarantors); or (iv) transfer any of its properties or assets to the
Issuer or any of its Restricted Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (a) the Bank Facilities as in
effect as of the date of the Indenture, and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof, provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings are no more restrictive with respect to such dividend and other
payment restrictions than those contained in the Bank Facilities as in effect
on the date of the Indenture, (b) the Indenture and the New Notes, (c)
applicable law or any applicable rule, regulation or order, (d) any agreement
or instrument governing Indebtedness or Capital Stock of a Person acquired by
the Issuer or any of its Restricted Subsidiaries as in effect at the time of
such acquisition (except to the extent such agreement or instrument was
created or entered into in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person, or
the property or assets of the Person, so acquired, provided that, in the case
of Indebtedness, such Indebtedness was permitted to be incurred under the
terms of the Indenture, (e) customary non- assignment provisions in leases,
licenses, encumbrances,
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contracts or similar assets entered into in the ordinary course of business
and consistent with past practices, (f) purchase money obligations for
property acquired in the ordinary course of business that impose restrictions
of the nature described in clause (iv) above on the property so acquired, (g)
Permitted Refinancing Indebtedness, provided that the restrictions contained
in the agreements governing such Permitted Refinancing Indebtedness are no
more restrictive than those contained in the agreements governing the
Indebtedness being refinanced and (h) contracts for the sale of assets
containing customary restrictions with respect to a Subsidiary pursuant to an
agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such Subsidiary.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture provides that the Issuer may not consolidate or merge with or
into (whether or not the Issuer is the surviving corporation), or, sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially
all of its properties or assets in one or more related transactions, to
another Person unless (i) the Issuer is the surviving corporation or the
Person formed by or surviving any such consolidation or merger (if other than
the Issuer) or to which such sale, assignment, transfer, lease, conveyance or
other disposition have been made is a corporation or limited liability company
organized or existing under the laws of the United States, any state thereof
or the District of Columbia; (ii) the Person formed by or surviving any such
consolidation or merger (if other than the Company) or the Person to which
such sale, assignment, transfer, lease, conveyance or other disposition have
been made assumes all the obligations of the Issuer under the New Notes and
the Indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee; (iii) immediately after such transaction no
Default or Event of Default exists; and (iv) except in the case of a merger of
the Issuer with or into a Wholly Owned Restricted Subsidiary of the Issuer,
the Issuer or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Issuer), or to which such sale,
assignment, transfer, lease, conveyance or other disposition have been made
will, at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant described above under the caption "--
Incurrence of Indebtedness and Issuance of Preferred Stock." For purposes of
this covenant, the sale, lease, conveyance, assignment, transfer, or other
disposition of all or substantially all of the properties and assets of one or
more Subsidiaries of the Issuer, which properties and assets, if held by the
Issuer instead of such Subsidiaries, would constitute all or substantially all
of the properties and assets of the Issuer on a consolidated basis, will be
deemed to be the transfer of all or substantially all of the properties and
assets of the Issuer. The foregoing clause (iv) will not prohibit (a) a merger
between the Issuer and a Wholly Owned Restricted Subsidiary of Holdings
created for the purpose of holding the Capital Stock of the Issuer or (b) a
merger between the Issuer and a Wholly Owned Restricted Subsidiary of the
Issuer so long as, in the case of each of clause (a) and (b), the amount of
Indebtedness of the Issuer and its Restricted Subsidiaries is not increased
thereby.
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Issuer will not, and will not permit any of
its Restricted Subsidiaries to, make any payment to or Investment in, or sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms
that are no less favorable to the Issuer or the relevant Restricted Subsidiary
than those that would have been obtained in a comparable transaction by the
Issuer or such Restricted Subsidiary with an unrelated Person and (ii) the
Issuer delivers to the Trustee (a) with respect to any Affiliate Transaction
or series of related Affiliate Transactions involving aggregate consideration
in excess of $1.0 million, a resolution of the Board of Directors set forth in
an officer's certificate certifying that such Affiliate Transaction complies
with clause (i) above and that such Affiliate Transaction has been approved by
a majority of the disinterested members of the Board of Directors and (b) with
respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of
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$10.0 million, an opinion as to the fairness to the holders of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal
or investment banking firm of national standing; provided that the following
will not be deemed to be Affiliate Transactions: (1) any employment
agreements, stock option or other compensation agreements or plans (and the
payment of amounts or the issuance of securities thereunder) and other
reasonable fees, compensation, benefits and indemnities paid or entered into
by the Issuer or any of its Restricted Subsidiaries in the ordinary course of
business of the Issuer or such Restricted Subsidiary to or with the officers,
directors or employees of the Issuer or its Restricted Subsidiaries, (2)
transactions between or among the Issuer and/or its Restricted Subsidiaries,
(3) Restricted Payments (other than Restricted Investments) that are permitted
by the provisions of the Indenture described above under the caption
"Restricted Payments," (4) customary advisory and investment banking fees paid
to Seaver Kent and its Affiliates, and (5) transactions with suppliers or
customers, in each case in the ordinary course of business (including, without
limitation, pursuant to joint venture agreements) and otherwise in accordance
with the terms of the Indenture, which are fair to the Issuer in the good
faith determination of the Board of Directors of the Issuer and are on terms
at least as favorable as might reasonably have been obtained at such time from
an unaffiliated party.
LIMITATION ON LAYERING DEBT
The Indenture provides that (i) the Issuer will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt and senior in any
respect in right of payment to the New Notes, and (ii) no Guarantor will
incur, create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is subordinate or junior in right of payment to Senior Debt
of such Guarantor and senior in any respect in right of payment to such
Guarantor's Subsidiary Guarantee.
BUSINESS ACTIVITIES
The Issuer will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses.
ADDITIONAL SUBSIDIARY GUARANTEES
The Indenture provides that the Issuer will not permit any Restricted
Subsidiary to guarantee the payment of any Indebtedness of the Issuer or any
Indebtedness of any other Restricted Subsidiary (in each case, the "Guaranteed
Debt"), unless (i) if such Restricted Subsidiary is not a Guarantor, such
Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture to the Indenture providing for a Subsidiary Guarantee of payment of
the New Notes by such Restricted Subsidiary, (ii) if the New Notes or the
Subsidiary Guarantee (if any) of such Restricted Subsidiary are subordinated
in right of payment to the Guaranteed Debt, the Subsidiary Guarantee under the
supplemental indenture will be subordinated to such Restricted Subsidiary's
guarantee with respect to the Guaranteed Debt substantially to the same extent
as the New Notes or the Subsidiary Guarantee are subordinated to the
Guaranteed Debt under the Indenture, (iii) if the Guaranteed Debt is by its
express terms subordinated in right of payment to the New Notes or the
Subsidiary Guarantee (if any) of such Restricted Subsidiary, any such
guarantee of such Restricted Subsidiary with respect to the Guaranteed Debt
will be subordinated in right of payment to such Restricted Subsidiary's
Subsidiary Guarantee with respect to the New Notes substantially to the same
extent as the Guaranteed Debt is subordinated to the New Notes or the
Subsidiary Guarantee (if any) of such Restricted Subsidiary, (iv) such
Restricted Subsidiary subordinates rights of reimbursement, indemnity or
subrogation or any other rights against the Issuer or any other Restricted
Subsidiary as a result of any payment by such Restricted Subsidiary under its
Subsidiary Guarantee to its obligation under its Subsidiary Guarantee, and (v)
such Restricted Subsidiary delivers to the Trustee an opinion of counsel to
the effect that (A) such Subsidiary Guarantee of the New Notes has been duly
authorized, executed and delivered, and (B) such Subsidiary Guarantee of the
New Notes constitutes a valid, binding and enforceable obligation of such
Restricted Subsidiary, except insofar as enforcement thereof may be limited by
bankruptcy, insolvency or similar laws (including, without limitation, all
laws relating to fraudulent transfers) and except insofar as enforcement
thereof is subject to general principles of equity.
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REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any New Notes are outstanding, the
Issuer will furnish to holders of New Notes (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Issuer were required to file such
Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that describes the financial condition
and results of operations of the Issuer and its consolidated Subsidiaries and,
with respect to the annual information only, a report thereon by the Issuer's
certified independent accountants and (ii) all current reports that would be
required to be filed with the Commission on Form 8-K if the Issuer were
required to file such reports, in each case within the time periods set forth
in the Commission's rules and regulations. In addition, whether or not
required by the rules and regulations of the Commission, at any time after the
consummation of the Exchange Offer contemplated by the Registration Rights
Agreement (or, if the Exchange Offer is not consummated, after the
effectiveness of the Shelf Registration Statement), the Issuer will file a
copy of all such information and reports with the Commission for public
availability within the time periods set forth in the Commission's rules and
regulations (unless the Commission will not accept such a filing) and make
such information available to securities analysts and prospective investors
upon request. In addition, at all times that the Commission does not accept
the filings provided for in the preceding sentence, the Issuer and the
Guarantors have agreed that, for so long as any New Notes remain outstanding,
they will furnish to holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default (each, an "Event of Default"): (i) default for 30 days in the payment
when due of interest on, or Liquidated Damages with respect to, the New Notes
(whether or not prohibited by the subordination provisions of the Indenture);
(ii) default in payment when due of the principal of or premium, if any, on
the New Notes (whether or not prohibited by the subordination provisions of
the Indenture); (iii) failure by the Issuer or any of its Restricted
Subsidiaries for 30 days after notice by the Trustee or by holders of at least
25% in principal amount of New Notes then outstanding to comply with the
provisions described under the captions "--Repurchase at the Option of Holders--
Change of Control" or "--Asset Sales," "--Certain Covenants--Restricted
Payments" or "--Incurrence of Indebtedness and Issuance of Preferred Stock";
(iv) failure by the Issuer or any of its Restricted Subsidiaries for 60 days
after notice by the Trustee or by holders of at least 25% in principal amount
of New Notes then outstanding to comply with any of its other agreements in
the Indenture or the New Notes; (v) default under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Issuer or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by the Issuer
or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee
now exists, or is created after the date of the Indenture, which default (a)
is caused by a failure to pay principal of such Indebtedness after giving
effect to any grace period provided in such Indebtedness (a "Payment Default")
or (b) results in the acceleration of such Indebtedness prior to its stated
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $10.0 million or more; (vi) failure by the Issuer or
any of its Restricted Subsidiaries to pay final non-appealable judgments
aggregating in excess of $10.0 million (net of any amounts with respect to
which a reputable and creditworthy insurance Issuer has acknowledged liability
in writing), which judgments are not paid, discharged or stayed for a period
of 60 days; (vii) except as permitted by the Indenture, any Subsidiary
Guarantee is held in any judicial proceeding to be unenforceable or invalid or
ceases for any reason to be in full force and effect or any Guarantor, or any
Person acting on behalf of any Guarantor, denies or disaffirms its obligations
under its Subsidiary Guarantee; and (viii) certain events of bankruptcy or
insolvency with respect to the Issuer or any of its Significant Subsidiaries.
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If any Event of Default occurs and is continuing, the Trustee or holders of
at least 25% in principal amount of the then outstanding New Notes may declare
all the New Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Issuer or any Significant
Subsidiary, all outstanding New Notes will become due and payable without
further action or notice. Holders of the New Notes may not enforce the
Indenture or the New Notes except as provided in the Indenture. Subject to
certain limitations, holders of a majority in principal amount of the then
outstanding New Notes may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from holders of New Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest. In the event of a declaration of
acceleration of the New Notes because an Event of Default has occurred and is
continuing as a result of the acceleration of any Indebtedness described in
clause (v) of the preceding paragraph, the declaration of acceleration of the
New Notes will be automatically annulled if the holders of any Indebtedness
described in clause (v) of the preceding paragraph have rescinded the
declaration of acceleration in respect of such Indebtedness within 30 days of
the date of such declaration and if (a) the annulment of the acceleration of
New Notes would not conflict with any judgment or decree of a court of
competent jurisdiction and (b) all existing Events of Default, except
nonpayment of principal or interest on the New Notes that became due solely
because of the acceleration of the New Notes, have been cured or waived.
The holders of a majority in aggregate principal amount of the New Notes
then outstanding by notice to the Trustee may on behalf of holders of all New
Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the New Notes.
The Issuer is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Issuer is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Issuer,
as such, will have any liability for any obligations of the Issuer under the
New Notes, the Indenture or the Subsidiary Guarantees or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
holder of New Notes by accepting a New Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance
of the New Notes. Such waiver may not be effective to waive liabilities under
the federal securities laws and it is the view of the Commission that such a
waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Issuer may, at its option and at any time, elect to have all of its
obligations and the obligations of the Guarantors discharged with respect to
the outstanding New Notes ("Legal Defeasance") except for (i) the rights of
holders of outstanding New Notes to receive payments in respect of the
principal of, premium, if any, and interest and Liquidated Damages on such New
Notes when such payments are due from the trust referred to below, (ii) the
Issuer's obligations with respect to the New Notes concerning issuing
temporary New Notes, registration of New Notes, mutilated, destroyed, lost or
stolen New Notes and the maintenance of an office or agency for payment and
money for security payments held in trust, (iii) the rights, powers, trusts,
duties and immunities of the Trustee, and the Issuer's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the
Indenture. In addition, the Issuer may, at its option and at any time, elect
to have the obligations of the Issuer released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations will not constitute a
Default or Event of Default with respect to the New Notes. In the event
Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described
under "--Events of Default and Remedies" will no longer constitute an Event of
Default with respect to the New Notes.
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In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Issuer must irrevocably deposit with the Trustee, in trust, for the benefit of
holders of New Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest and
Liquidated Damages on the outstanding New Notes on the stated maturity or on
the applicable redemption date, as the case may be, and the Issuer must
specify whether the New Notes are being defeased to maturity or to a
particular redemption date; (ii) in the case of Legal Defeasance, the Issuer
must have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Issuer has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel must confirm that, subject to customary
assumptions and exclusions, holders of the outstanding New Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, the Issuer must have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that, subject to customary assumptions and exclusions, holders of the
outstanding New Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Covenant Defeasance had not
occurred; (iv) no Default or Event of Default has occurred and be continuing
on the date of such deposit (other than a Default or Event of Default
resulting from the financing of amounts to be applied to such deposit) or
insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date of
deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material agreement
or instrument (other than the Indenture) to which the Issuer or any of its
Subsidiaries is a party or by which the Issuer or any of its Subsidiaries is
bound; (vi) the Issuer must have delivered to the Trustee an opinion of
counsel to the effect that, subject to customary assumptions and exclusions
(which assumptions and exclusion must not relate to the operation of Section
547 of the United States Bankruptcy Code or any analogous New York State law
provision), after the 91st day following the deposit, the trust funds will not
be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (vii)
the Issuer must deliver to the Trustee an Officers' Certificate stating that
the deposit was not made by the Issuer with the intent of preferring holders
of New Notes over the other creditors of the Issuer with the intent of
defeating, hindering, delaying or defrauding creditors of the Issuer or
others; and (viii) the Issuer must deliver to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent provided for relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
TRANSFER AND EXCHANGE
A holder may transfer or exchange New Notes in accordance with the
Indenture. The Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Issuer may require a holder to pay any taxes and fees required by law or
permitted by the Indenture. The Issuer is not required to transfer or exchange
any New Note selected for redemption. Also, the Issuer is not required to
transfer or exchange any New Note for a period of 15 days before a selection
of New Notes to be redeemed.
The registered holder of a New Note will be treated as the owner of it for
all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture, the
Subsidiary Guarantees or the New Notes may be amended or supplemented with the
consent of holders of at least a majority in principal amount of the New Notes
then outstanding (including, without limitation, consents obtained in
connection with
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a purchase of, or tender offer or exchange offer for, New Notes), and any
existing default or compliance with any provision of the Indenture, the
Subsidiary Guarantees or the New Notes may be waived with the consent of
holders of a majority in principal amount of the then outstanding New Notes
(including consents obtained in connection with a purchase of, or tender offer
or exchange offer for, New Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any New Notes held by a non-consenting holder): (i) reduce
the principal amount of New Notes whose holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed
maturity of any Note or alter the provisions with respect to the redemption of
the New Notes (other than provisions relating to the covenants described above
under the caption "--Repurchase at the Option of Holders"), (iii) reduce the
rate of or change the time for payment of interest on any New Note, (iv) waive
a Default or Event of Default in the payment of principal of or premium, if
any, or interest on the New Notes (except a rescission of acceleration of the
New Notes by holders of at least a majority in aggregate principal amount of
the New Notes and a waiver of the payment default that resulted from such
acceleration), (v) make any New Note payable in money other than that stated
in the New Notes, (vi) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of holders of New Notes to
receive payments of principal of or premium, if any, or interest on the New
Notes, (vii) waive a redemption payment with respect to any New Note (other
than a payment required by one of the covenants described above under the
caption "--Repurchase at the Option of Holders"), (viii) except as otherwise
permitted by the Indenture release any Guarantor from any of its obligations
under its Subsidiary Guarantee or the Indenture, or amend the provisions of
the Indenture relating to the release of Guarantors, or (ix) make any change
in the foregoing amendment and waiver provisions. In addition, any amendment
to the provisions of Article 10 of the Indenture (which relate to
subordination) or the related definitions will require the consent of holders
of at least 75% in aggregate principal amount of the New Notes then
outstanding if such amendment would adversely affect the rights of holders of
New Notes.
Notwithstanding the foregoing, without the consent of any holder of New
Notes, the Issuer and the Trustee may amend or supplement the Indenture, the
Subsidiary Guarantees or the New Notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated New Notes in addition to or in
place of certificated New Notes, to provide for the assumption of the Issuer's
or a Guarantor's obligations to holders of New Notes in the case of a merger
or consolidation, to make any change that would provide any additional rights
or benefits to holders of New Notes or that does not adversely affect the
legal rights under the Indenture of any such holder, to comply with
requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act or to allow any
Restricted Subsidiary to guarantee the New Notes.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Issuer, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
Holders of a majority in principal amount of the then outstanding New Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
occurs (which are not cured), the Trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his
own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any holder of New Notes, unless such holder will have offered to
the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
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BOOK-ENTRY, DELIVERY AND FORM
New Notes will be issued in registered, global form in minimum denominations
of $1,000 and integral multiples of $1,000 in excess thereof.
Except as set forth below, the Global Notes may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for New
Notes in certificated form except in the limited circumstances described
below. See "--Exchange of Book-Entry New Notes for Certificated New Notes."
In addition, transfer of beneficial interests in the Global Notes will be
subject to the applicable rules and procedures of DTC and its direct or
indirect participants (including, if applicable, those of Euroclear and
CEDEL), which may change from time to time.
Initially, the Trustee will act as Paying Agent and Registrar. The New Notes
may be presented for registration of transfer and exchange at the offices of
the Registrar.
DEPOSITORY PROCEDURES
DTC has advised the Issuer that DTC is a limited-purpose trust Issuer
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic book-
entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the Initial Purchasers), banks,
trust companies, clearing corporations and certain other organizations. Access
to DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may
beneficially own securities held by or on behalf of DTC only through the
Participants or the Indirect Participants. The ownership interests and
transfer of ownership interests of each actual purchaser of each security held
by or on behalf of DTC are recorded on the records of the Participants and
Indirect Participants.
DTC has also advised the Issuer that, pursuant to procedures established by
it, (i) upon deposit of the Global Notes, DTC will credit the accounts of
Participants tendering Old Notes with portions of the principal amount of the
Global Notes and (ii) ownership of such interests in the Global Notes will be
shown on, and the transfer of ownership thereof will be effected only through,
records maintained by DTC (with respect to the Participants) or by the
Participants and the Indirect Participants (with respect to other owners of
beneficial interest in the Global Notes).
Investors in the Global Notes may hold their interests therein directly
through DTC, if they are participants in such system, or indirectly through
organizations (including Euroclear and CEDEL) which are participants in such
system. Euroclear and CEDEL would hold interests in the Global Notes on behalf
of their participants through customers' securities accounts in their
respective names on the books of their respective depositaries, which are
Morgan Guaranty Trust Company of New York, Brussels office, as operator of
Euroclear, and Citibank, N.A., as operator of CEDEL. The depositaries, in
turn, would hold such interests in the Global Notes in customers' securities
accounts in the depositaries' names on the books of DTC. All interests in a
Global Note, including those held through Euroclear or CEDEL, may be subject
to the procedures and requirements of DTC. Those interests held through
Euroclear or CEDEL may also be subject to the procedures and requirements of
such systems. The laws of some states require that certain persons take
physical delivery in definitive form of securities that they own.
Consequently, the ability to transfer beneficial interests in a Global Note to
such persons will be limited to that extent. Because DTC can act only on
behalf of Participants, which in turn act on behalf of Indirect Participants
and certain banks, the ability of a person having beneficial interests in a
Global Note to pledge such interests to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
interests, may be affected by the lack of a physical certificate evidencing
such interests. For
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certain other restrictions on the transferability of the New Notes, see "--
Exchange of Book-Entry New Notes for Certificated New Notes," "--Exchange of
Certificated New Notes for Book-Entry New Notes."
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NEW NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY
OF NEW NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED
OWNERS OR HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal of and premium and Liquidated Damages,
if any, and interest on a Global Note registered in the name of DTC or its
nominee will be payable by the Trustee to DTC in its capacity as the
registered holder under the Indenture. Under the terms of the Indenture, the
Issuer and the Trustee will treat the persons in whose names the New Notes,
including the Global Notes, are registered as the owners thereof for the
purpose of receiving such payments and for any and all other purposes
whatsoever. Consequently, neither the Issuer, the Trustee nor any agent of the
Issuer or the Trustee has or will have any responsibility or liability for (i)
any aspect of DTC's records or any Participant's or Indirect Participant's
records relating to or payments made on account of beneficial ownership
interest in the Global Notes, or for maintaining, supervising or reviewing any
of DTC's records or any Participant's or Indirect Participant's records
relating to the beneficial ownership interests in the Global Notes or (ii) any
other matter relating to the actions and practices of DTC or any of its
Participants or Indirect Participants. DTC has advised the Issuer that its
current practice, upon receipt of any payment in respect of securities such as
the New Notes (including principal and interest), is to credit the accounts of
the relevant Participants with the payment on the payment date, in amounts
proportionate to their respective holdings in the principal amount of
beneficial interest in the relevant security as shown on the records of DTC
unless DTC has reason to believe it will not receive payment on such payment
date. Payments by the Participants and the Indirect Participants to the
beneficial owners of New Notes will be governed by standing instructions and
customary practices and will be the responsibility of the Participants or the
Indirect Participants and will not be the responsibility of DTC, the Trustee
or the Issuer. Neither the Issuer nor the Trustee will be liable for any delay
by DTC or any of its Participants in identifying the beneficial owners of the
New Notes, and the Issuer and the Trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee for all purposes.
Except for trades involving only Euroclear and CEDEL participants, interest
in the Global Notes are expected to be eligible to trade in DTC's Same-Day
Funds Settlement System and secondary market trading activity in such
interests will therefore settle in immediately available funds, subject in all
cases to the rules and procedures of DTC and its participants. See "--Same-Day
Settlement and Payment."
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds, and transfers between
participants in Euroclear and CEDEL will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Cross-market transfers between the Participants in DTC, on the one hand, and
Euroclear or CEDEL participants, on the other hand, will be effected through
DTC in accordance with DTC's rules on behalf of Euroclear or CEDEL, as the
case may be, by its respective depositary; however, such cross-market
transactions will require delivery of instructions to Euroclear or CEDEL, as
the case may be, by the counterparty in such system in accordance with the
rules and procedures and within the established deadlines (Brussels time) of
such system. Euroclear or CEDEL, as the case may be, will, if the transaction
meets its settlement requirements, deliver instructions to its respective
depositary to take action to effect final settlement on its behalf by
delivering or receiving interests in the relevant Global Note in DTC, and
making or receiving payment in accordance with normal procedures for same-day
funds settlement applicable to DTC. Euroclear participants and CEDEL
participants may not deliver instructions directly to the depositaries for
Euroclear or CEDEL.
Because of time zone differences, the securities account of a Euroclear or
CEDEL participant purchasing an interest in a Global Note from a Participant
in DTC will be credited, and any such crediting will be reported to the
relevant Euroclear or CEDEL participant, during the securities settlement
processing day (which must be a business day for Euroclear and CEDEL)
immediately following the settlement date of DTC. DTC has advised
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the Issuer that cash received in Euroclear or CEDEL as a result of sales of
interests in a Global Note by or through a Euroclear or CEDEL participant to a
Participant in DTC will be received with value on the settlement date of DTC
but will be available in the relevant Euroclear or CEDEL cash account only as
of the business day for Euroclear or CEDEL following DTC's settlement date.
DTC has advised the Issuer that it will take any action permitted to be
taken by holders of New Notes only at the direction of one or more
Participants to whose account with DTC interests in the Global Notes are
credited and only in respect of such portion of the aggregate principal amount
of the New Notes as to which such Participant or Participants has or have
given such direction. However, if there is an Event of Default under the New
Notes, DTC reserves the right to exchange the Global Notes for legended New
Notes in certificated form, and to distribute such New Notes to its
Participants.
The information in this section concerning DTC, Euroclear and CEDEL and
their book-entry systems has been obtained from sources that the Issuer
believes to be reliable, but the Issuer takes no responsibility for the
accuracy thereof.
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures to
facilitate transfers of interests in the Global Notes among Participants in
DTC, Euroclear and CEDEL, they are under no obligation to perform or to
continue to perform such procedures, and such procedures may be discontinued
at any time. Neither the Issuer nor the Trustee will have any responsibility
for the performance by DTC, Euroclear or CEDEL or their respective
participants or indirect participants of their respective obligations under
the rules and procedures governing their operations.
EXCHANGE OF BOOK-ENTRY NEW NOTES FOR CERTIFICATED NEW NOTES
A Global Note is exchangeable for definitive New Notes in registered
certificated form if (i) DTC (x) notifies the Issuer that it is unwilling or
unable to continue as depositary for the Global Notes and the Issuer thereupon
fails to appoint a successor depositary or (y) has ceased to be a clearing
agency registered under the Exchange Act, (ii) the Issuer, at its option,
notifies the Trustee in writing that it elects to cause the issuance of the
New Notes in certificated form or (iii) there has occurred and be continuing
an Event of Default or any event which after notice or lapse of time or both
would be an Event of Default with respect to the New Notes. In addition,
beneficial interests in a Global Note may be exchanged for certificated New
Notes upon request but only upon at least 20 days prior written notice given
to the Trustee by or on behalf of DTC in accordance with its customary
procedures. In all cases, certificated New Notes delivered in exchange for any
Global Note or beneficial interests therein will be registered in the names,
and issued in any approved denominations, requested by or on behalf of the
depositary (in accordance with its customary procedures) and will bear the
applicable restrictive legend referred to in "Notice to Investors," unless the
Issuer determines otherwise in compliance with applicable law.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the New Notes represented
by the Global Notes (including principal, premium, if any, and interest and
Liquidated Damages, if any) be made by wire transfer of immediately available
funds to the accounts specified by the Global Note holder. With respect to New
Notes in certificated form, the Issuer will make all payments of principal,
premium, if any, interest and Liquidated Damages, if any, by wire transfer of
immediately available funds to the accounts specified by the holders thereof
or, if no such account is specified, by mailing a check to each such holder's
registered address. The New Notes represented by the Global Notes are expected
to be eligible to trade in the PORTAL market and to trade in the Depositary's
Same-Day Funds Settlement System, and any permitted secondary market trading
activity in such New Notes will, therefore, be required by the Depositary to
be settled in immediately available funds. The Issuer expects that secondary
trading in any certificated New Notes will also be settled in immediately
available funds.
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Because of time zone differences, the securities account of a Euroclear or
CEDEL participant purchasing an interest in a Global Note from a Participant
in DTC will be credited, and any such crediting will be reported to the
relevant Euroclear or CEDEL participant, during the securities settlement
processing day (which must be a business day for Euroclear and CEDEL)
immediately following the settlement date of DTC. DTC has advised the Issuer
that cash received in Euroclear or CEDEL as a result of sales of interests in
a Global Note by or through a Euroclear or CEDEL participant to a Participant
in DTC will be received with value on the settlement date of DTC but will be
available in the relevant Euroclear or CEDEL cash account only as of the
business day for Euroclear or CEDEL following DTC's settlement date.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Pursuant to the Registration Rights Agreement, the Issuer agreed to file
with the Commission the Exchange Offer Registration Statement on the
appropriate form under the Securities Act with respect to the New Notes. Upon
the effectiveness of the Exchange Offer Registration Statement, the Issuer
will offer to the holders of Transfer Restricted Securities (as defined
herein) pursuant to the Exchange Offer who are able to make certain
representations the opportunity to exchange their Transfer Restricted
Securities for New Notes. If (i) the Issuer is not required to file the
Exchange Offer Registration Statement or permitted to consummate the Exchange
Offer because the Exchange Offer is not permitted by applicable law or
Commission policy or (ii) any holder of Transfer Restricted Securities
notifies the Issuer within the specified time period that (A) it is prohibited
by law or Commission policy from participating in the Exchange Offer (other
than due solely to the status of such holder as an affiliate of the Issuer
within the meaning of the Securities Act) or (B) that it may not resell the
New Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus and the prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for such resales or (C)
that it is a broker-dealer and owns New Notes acquired directly from the
Issuer or an affiliate of the Issuer, the Issuer will file with the Commission
a Shelf Registration Statement to cover resales of the Transfer Restricted
Securities by the holders thereof who satisfy certain conditions relating to
the provision of information in connection with the Shelf Registration
Statement. The Issuer will use its best efforts to cause the applicable
registration statement to be declared effective as promptly as possible by the
Commission. For purposes of the foregoing, "Transfer Restricted Securities"
means each Note until (i) the date on which such Note has been exchanged by a
person other than a broker-dealer for a New Note in the Exchange Offer, (ii)
following the exchange by a broker-dealer in the Exchange Offer of a Note for
a New Note, the date on which such New Note is sold to a purchaser who
receives from such broker-dealer on or prior to the date of such sale a copy
of the prospectus contained in the Exchange Offer Registration Statement,
(iii) the date on which such Note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement or (iv) the date on which such Note is distributed to the public
pursuant to Rule 144 under the Securities Act.
The Registration Rights Agreement provides that (i) the Issuer will file an
Exchange Offer Registration Statement with the Commission on or prior to 75
days after the Closing, (ii) the Issuer will use its best efforts to have the
Exchange Offer Registration Statement declared effective by the Commission on
or prior to 150 days after the Closing, (iii) unless the Exchange Offer would
not be permitted by applicable law or Commission policy, the Issuer will
commence the Exchange Offer and use its best efforts to issue within 195 days
after the Issue Date New Notes in exchange for all Old Notes tendered prior
thereto in the Exchange Offer and (iv) if obligated to file the Shelf
Registration Statement, the Issuer will use its best efforts to file the Shelf
Registration Statement with the Commission on or prior to 75 days after such
filing obligation arises and to cause the Shelf Registration Statement to be
declared effective by the Commission on or prior to 150 days after such
obligation arises. If (a) the Issuer fails to file any of the Registration
Statements required by the Registration Rights Agreement on or before the date
specified for such filing, (b) any of such Registration Statement is not
declared effective by the Commission on or prior to the date specified for
such effectiveness (the "Effectiveness Target Date"), or (c) the Issuer fails
to consummate the Exchange Offer within 195 days after the Issue Date, or (d)
the Shelf Registration Statement or the Exchange Offer Registration Statement
is declared effective but thereafter ceases to be effective or usable in
connection with resales of Transfer Restricted Securities during the periods
specified in the Registration Rights Agreement (each such event referred to in
clauses (a) through (d) above a
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"Registration Default"), then the Issuer will pay Liquidated Damages
("Liquidated Damages") as follows: to each holder of Transfer Restricted
Securities, with respect to such 90-day period immediately following the
occurrence of the first Registration Default in an amount equal to $0.05 per
week per $1,000 principal amount of Transfer Restricted Securities held by
such holder. The amount of the Liquidated Damages will increase by an
additional $0.05 per week per $1,000 principal amount of Transfer Restricted
Securities with respect to each subsequent 90-day period until all
Registration Defaults have been cured, up to a maximum amount of Liquidated
Damages of $0.30 per week per $1,000 principal amount of Transfer Restricted
Securities. All accrued Liquidated Damages will be paid by the Issuer to the
Global Note holder by wire transfer of immediately available funds or by
federal funds check and to holders of Certificated Securities by wire transfer
to the accounts specified by them or by mailing checks to their registered
addresses if no such accounts have been specified. Following the cure of all
Registration Defaults, the accrual of Liquidated Damages will cease.
Holders of Transfer Restricted Securities will be required to make certain
representations to the Issuer (as described in the Registration Rights
Agreement) in order to participate in the Exchange Offer and will be required
to deliver information to be used in connection with the Shelf Registration
Statement and to provide comments on the Shelf Registration Statement within
the time periods set forth in the Registration Rights Agreement in order to
have their New Notes included in the Shelf Registration Statement and benefit
from the provisions regarding Liquidated Damages set forth above.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, and (ii)
Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person or assumed in connection with the acquisition of any asset
used or useful in a Permitted Business acquired by such specified Person;
provided that such Indebtedness was not incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, or such acquisition, as the case may be.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the voting securities of
a Person shall be deemed to be control.
"Asset Sale" means (i) the sale, lease (other than an operating lease
entered into in the ordinary course of business), conveyance or other
disposition of any assets or rights (including, without limitation, by way of
a sale and leaseback) other than sales of inventory in the ordinary course of
business consistent with past practices (provided that the sale, lease,
conveyance or other disposition of all or substantially all of the assets of
the Issuer and its Restricted Subsidiaries taken as a whole will be governed
by the provisions of the Indenture described above under the caption "--
Repurchase at the Option of Holders--Change of Control" and/or the provisions
described above under the caption "--Certain Covenants--Merger, Consolidation
or Sale of Assets" and not by the provisions of the covenant described under
the caption "--Certain Covenants--Asset Sales"), and (ii) the sale by the
Issuer and the issue or sale by any of the Restricted Subsidiaries of the
Issuer of Equity Interests of any of the Issuer's Subsidiaries, in the case of
either clause (i) or (ii), whether in a single transaction or a series of
related transactions that have a fair market value (as determined in good
faith by the Board of Directors) in excess of $1.0 million or for net cash
proceeds in excess of $1.0 million. Notwithstanding the foregoing, the
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following shall not be deemed to be Asset Sales: (i) a transfer of assets by
the Issuer to a Wholly Owned Restricted Subsidiary of the Issuer or by a
Wholly Owned Restricted Subsidiary of the Issuer to the Issuer or to a Wholly
Owned Restricted Subsidiary of the Issuer, (ii) an issuance of Equity
Interests by a Restricted Subsidiary of the Issuer to the Issuer or to a
Wholly Owned Restricted Subsidiary of the Issuer, (iii) a Restricted Payment
that is permitted by the covenant described above under the caption "--Certain
Covenants--Restricted Payments," (iv) the sale and leaseback of any assets
within 90 days of the acquisition of such assets, provided that the sale price
of such assets is not materially less than the acquisition price of such
assets, and (v) the periodic clearance of aged inventory.
"Bank Facilities" means that certain credit facility, dated as of April 21,
1998, by and among the Issuer, DLJ Capital Funding, as Syndication Agent, Wells
Fargo, as Administrative Agent, Morgan Stanley Senior Funding, as Documentation
Agent, the Lenders party thereto and Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ"), as Arranger, providing for up to $105.0 million of
borrowings, including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith, and in each case as
amended, extended, modified, renewed, refunded, replaced or refinanced in whole
or in part from time to time, including any agreement restructuring or adding
Subsidiaries of the Issuer as additional borrowers or guarantors thereunder and
whether by the same or any other agent, lender or group of lenders.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
the issuing Person.
"Cash Equivalents" means (i) securities issued or unconditionally and fully
guaranteed or insured by the full faith and credit of the United States
government or any agency or instrumentality thereof having maturities of not
more than one year from the date of acquisition, (ii) obligations issued or
fully guaranteed by any state of the United States of America or any political
subdivision of any such state or any public instrumentality thereof maturing
within one year from the date of acquisition thereof and, at the time of
acquisition, having one of the two highest ratings obtainable from either
Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc.
("Moody's"), (iii) certificates of deposit and eurodollar time deposits with
maturities of one year or less from the date of acquisition, bankers'
acceptances with maturities not exceeding one year and overnight bank
deposits, in each case with any lender party to the Bank Facilities or with
any domestic commercial bank having capital and surplus in excess of $250.0
million, (iv) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clauses (i) and (iii),
above entered into with any financial institution meeting the qualifications
specified in clause (iii) above, (v) commercial paper having one of the two of
the highest ratings obtainable from either Moody's or S&P and in each case
maturing within one year after the date of acquisition and (vi) investments in
funds investing exclusively in investments of the types described in clauses
(i) through (v) above.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Issuer and its Subsidiaries taken as
a whole to any "person" (as such term is used in Section 13(d)(3) of the
Exchange Act), other than the Principals and their Related Parties, (ii) the
adoption of a plan relating to the liquidation or dissolution of the Issuer,
(iii) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that (A) any "person" (as
defined above), other than the Principals and their Related Parties, becomes
the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5
under the Exchange Act), directly or indirectly, of 40% or more of the Voting
Stock of the Issuer (measured by voting power rather than number of shares)
and (B) the Principals
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and their Related Parties beneficially own, directly or indirectly, in the
aggregate a lesser percentage of the Voting Stock of the Issuer than such
other "person", (iv) the first day on which a majority of the members of the
Board of Directors of the Issuer are not Continuing Directors or (v) the
Issuer consolidates with, or merges with or into, any Person, or any Person
consolidates with, or merges with or into, the Issuer, in any such event
pursuant to a transaction in which any of the outstanding Voting Stock of the
Issuer is converted into or exchanged for cash, securities or other property,
other than any such transaction where (A) the Voting Stock of the Issuer
outstanding immediately prior to such transaction is converted into or
exchanged for Voting Stock (other than Disqualified Stock) of the surviving or
transferee Person and (B) either (1) the "beneficial owners" (as defined
above) of the Voting Stock of the Issuer immediately prior to such transaction
own, directly or indirectly through one or more subsidiaries, not less than a
majority of the total Voting Stock of the surviving or transferee corporation
immediately after such transaction or (2) if, immediately prior to such
transaction the Issuer is a direct or indirect subsidiary of any other Person
(such other Person, the "Holding Company"), then the "beneficial owners" (as
defined above) of the Voting Stock of such Holding Company immediately prior
to such transaction own, directly or indirectly through one or more
subsidiaries, not less than a majority of the Voting Stock of the surviving or
transferee corporation immediately after such transaction.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with
an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income of such Person and its Restricted Subsidiaries), plus
(ii) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such provision for
taxes was included in computing such Consolidated Net Income, plus (iii)
consolidated interest expense of such Person and its Restricted Subsidiaries
for such period, whether paid or accrued and whether or not capitalized
(including, without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other
fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations), to the extent that any such expense was deducted in computing
such Consolidated Net Income, plus (iv) depreciation and amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) and
other non-cash charges (excluding any such non-cash charge to the extent that
it represents an accrual of or reserve for cash charges in any future period
or amortization of a prepaid cash charge that was paid in a prior period) of
such Person and its Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash charges were deducted in
computing such Consolidated Net Income, minus (v) non-cash items increasing
such Consolidated Net Income for such period, in each case, on a consolidated
basis and determined in accordance with GAAP. Notwithstanding the foregoing,
the provision for taxes based on the income or profits of, and the
depreciation and amortization and other noncash charges of, a Restricted
Subsidiary of a Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in the same proportion) that
the Net Income of such Restricted Subsidiary was included in calculating the
Consolidated Net Income of such Person.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP, provided
that (i) the Net Income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting shall
be included only to the extent of the amount of dividends or distributions
paid in cash to the referent Person or a Restricted Subsidiary thereof, (ii)
the Net Income of any Restricted Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or similar distributions by that
Restricted Subsidiary of that Net Income is not at the date of determination
permitted without any prior governmental approval (that has not been obtained)
or, directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its stockholders, (iii)
the Net Income of any Person acquired in a pooling of interests transaction
for any period prior to the date of such acquisition shall be excluded, and
(iv) the cumulative effect of a change in accounting principles shall be
excluded.
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"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of the Issuer or Holdings who (i) was a member of such
Board of Directors on the date of the Indenture immediately after consummation
of the Recapitalization or (ii) was nominated for election or elected to such
Board of Directors with the approval of a majority of the Continuing Directors
who were either members of such Board at the time of such nomination or
election or are successor Continuing Directors appointed by such Continuing
Directors (or their successors).
"Credit Facilities" means, with respect to the Issuer, one or more debt
facilities (including, without limitation, the Bank Facilities) or commercial
paper facilities with banks or other institutional lenders providing for
revolving credit loans, term loans, receivables financing (including through
the sale of receivables to such lenders or to special purpose entities formed
to borrow from such lenders against such receivables) or letters of credit, in
each case, as amended, restated, modified, renewed, refunded, replaced or
refinanced in whole or in part from time to time. Indebtedness under Credit
Facilities outstanding on the Issue Date shall be deemed to have been incurred
on such date in reliance on the exceptions provided by clause (i) of the
definition of Permitted Debt.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means (i) any Senior Debt outstanding under the
Bank Facilities and (ii) any other Senior Debt permitted under the Indenture
the principal amount of which is $25.0 million or more and that has been
designated by the Issuer as "Designated Senior Debt."
"Disqualified Stock" means 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 at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the New Notes mature; provided, however, that a class of Capital Stock
shall not be Disqualified Stock hereunder solely as the result of any maturity
or redemption that is conditioned upon, and subject to, compliance with the
covenant described above under the caption "--Certain Covenants--Restricted
Payments"; and provided further, that Capital Stock issued to any plan for the
benefit of employees of the Issuer or its subsidiaries or by any such plan to
such employees shall not constitute Disqualified Stock solely because it may
be required to be repurchased by the Issuer in order to satisfy applicable
statutory or regulatory obligations.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means an offering of common stock (other than Disqualified
Stock) of the Issuer or Holdings, pursuant to an effective registration
statement filed with the Commission in accordance with the Securities Act,
other than an offering pursuant to Form S-8 (or any successor thereto)
provided that in the case of an Equity Offering by Holdings, Holdings
contributes to the common equity of the Issuer the portion of the net cash
proceeds thereof necessary to pay the aggregate redemption price of the Notes
to be redeemed in connection therewith.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person
and its Restricted Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other
fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations; provided, however, that in no event shall any amortization of
deferred financing costs incurred in connection with the Recapitalization be
included in Fixed Charges), (ii) the consolidated interest expense of such
Person and its Restricted Subsidiaries that was capitalized during such
period, and (iii) any interest expense on
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Indebtedness of another Person that is Guaranteed by such Person or one of its
Restricted Subsidiaries or secured by a Lien on assets of such Person or one
of its Restricted Subsidiaries (whether or not such Guarantee or Lien is
called upon) and (iv) the product of (a) (without duplication) (1) all
dividends paid or accrued in respect of Disqualified Stock which are not
treated as interest for tax purposes for such period and (2) all cash dividend
payments on any series of preferred stock of such Person or any of its
Restricted Subsidiaries, other than dividend payments on Equity Interests
payable solely in Equity Interests (other than Disqualified Stock) of the
Company, times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal, state and
local statutory tax rate of such Person, expressed as a decimal, in each case,
on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person
and its Restricted Subsidiaries for such period. In the event that the Issuer
or any of its Restricted Subsidiaries incurs, assumes, Guarantees, repays or
redeems any Indebtedness (other than revolving credit borrowings) or issues or
redeems preferred stock subsequent to the commencement of the period for which
the Fixed Charge Coverage Ratio is being calculated but prior to the date on
which the event for which the calculation of the Fixed Charge Coverage Ratio
is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall
be calculated giving pro forma effect to such incurrence, assumption,
Guarantee, repayment or redemption of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had occurred at the beginning of
the applicable four-quarter reference period. In addition, for purposes of
making the computation referred to above, (i) acquisitions that have been made
by the Issuer or any of its Restricted Subsidiaries, including through mergers
or consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first
day of the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated without giving effect to clause (iii) of
the proviso set forth in the definition of Consolidated Net Income and shall
reflect any pro forma expense and cost reductions attributable to such
acquisitions (to the extent such expense and cost reduction would be permitted
by the Commission to be reflected in pro forma financial statements included
in a registration statement filed with the Commission), and (ii) the
Consolidated Cash Flow attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded and Consolidated Cash Flow shall reflect
any pro forma expense or cost reductions relating to such discontinuance or
disposition (to the extent such expense or cost reductions would be permitted
by the Commission to be reflected in pro forma financial statements included
in a registration statement filed with the Commission), and (iii) the Fixed
Charges attributable to discontinued operations, as determined in accordance
with GAAP, and operations or businesses disposed of prior to the Calculation
Date, shall be excluded, but only to the extent that the obligations giving
rise to such Fixed Charges will not be obligations of the referent Person or
any of its Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture provided,
however, that all reports and other financial information provided by the
Company to the holders, the Trustee and/or the Commission shall be prepared in
accordance with GAAP, as in effect on the date of such report or other
financial information.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantors" means, initially, each Subsidiary of the Issuer on the Issue
Date and thereafter each of the Subsidiaries of the Issuer that executes a
Subsidiary Guarantee in accordance with the provisions of the Indenture, and
their respective successors and assigns.
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"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or the value of foreign currencies.
"Holdings" means Diamond Brands Incorporated, a Minnesota corporation, the
corporate parent of the Issuer, or its successors.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP, as well as all
indebtedness of others secured by a Lien on any asset of such Person (whether
or not such indebtedness is assumed by such Person) and, to the extent not
otherwise included, the Guarantee by such Person of any indebtedness of any
other Person. The amount of any Indebtedness outstanding as of any date shall
be (i) the accreted value thereof, in the case of any Indebtedness that does
not require current payments of interest, and (ii) the principal amount
thereof in the case of any other Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Issuer or any Restricted Subsidiary of the Issuer sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted
Subsidiary of the Issuer such that, after giving effect to any such sale or
disposition, such Person is no longer a Restricted Subsidiary of the Issuer,
the Issuer shall be deemed to have made an Investment on the date of any such
sale or disposition equal to the fair market value of the Equity Interests of
such Restricted Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of the covenant described above under the
caption "--Certain Covenants--Restricted Payments."
"Issue Date" means the date on which Notes are first issued and
authenticated under the Indenture.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, and any option or other agreement to sell or give a security
interest therein).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but
not loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b)
the extinguishment of any Indebtedness of such Person or any of its
Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not loss),
together with any related provision for taxes on such extraordinary or
nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Issuer or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of
any non-cash consideration received in any Asset Sale), net of the direct
costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions)
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and any relocation expenses incurred as a result thereof, taxes paid or
payable as a result thereof (after taking into account any available tax
credits or deductions and any tax sharing arrangements), amounts required to
be applied to the repayment of Indebtedness (other than Indebtedness under the
Credit Facilities) secured by a Lien on the asset or assets that were the
subject of such Asset Sale and any reserve for adjustment in respect of the
sale price of such asset or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Issuer
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), or (b) is directly or indirectly liable (as a guarantor or
otherwise) and (ii) as to which the lenders have been notified in writing that
they will not have any recourse to the stock or assets of the Issuer or any of
its Restricted Subsidiaries, including the stock of such Unrestricted
Subsidiary.
"Obligations" means, with respect to any Indebtedness, any principal,
interest, penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Pari Passu Indebtedness" means Indebtedness that ranks pari passu in right
of payment to the Notes.
"Permitted Business" means the design, manufacture, importing, exporting,
distribution, marketing, licensing and wholesale and retail sale of household
and consumer goods, molded plastic goods and woodenware, and businesses
reasonably related thereto.
"Permitted Investments" means (a) any Investment in the Issuer or in a
Restricted Subsidiary of the Issuer; (b) any Investment in Cash and Cash
Equivalents; (c) any Investment by the Issuer or any Restricted Subsidiary in
a Person, if as a result of such Investment (i) such Person becomes a
Restricted Subsidiary of the Issuer or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Issuer or a
Restricted Subsidiary of the Issuer; (d) any Restricted Investment made as a
result of the receipt of non-cash consideration from an Asset Sale that was
made pursuant to and in compliance with the covenant described above under the
caption "--Repurchase at the Option of Holders--Asset Sales" or any
transaction not constituting an Asset Sale by reason of the $1.0 million
threshold contained in the definition thereof; (e) any acquisition of assets
solely in exchange for the issuance of Equity Interests (other than
Disqualified Stock) of the Issuer; (f) Hedging Obligations entered into in the
ordinary course of the Issuer's or its Restricted Subsidiaries' Businesses and
otherwise in compliance with the Indenture; (g) loans and advances to
employees and officers of the Issuer and its Restricted Subsidiaries in the
ordinary course of business for bona fide business purposes not in excess of
$2.0 million at any one time outstanding; (h) additional Investments not to
exceed $8.0 million at any one time outstanding; and (i) Investments in
securities of trade creditors or customers received in settlement of
obligations or pursuant to any plan of reorganization or similar arrangement
upon the bankruptcy or insolvency of such trade creditors or customers.
"Permitted Junior Securities" means Equity Interests in the Issuer or debt
securities that are subordinated to all Senior Debt (and any debt securities
issued in exchange for Senior Debt) to substantially the same extent as, or to
a greater extent than, the Notes are subordinated to Senior Debt pursuant to
Article 10 of the Indenture, that have a final maturity date and a weighted
average life to maturity which is the same as or greater than the New Notes
and that are not secured by any collateral.
"Permitted Liens" means (i) Liens existing as of the Issue Date to the
extent and in the manner such Liens are in effect on the Issue Date (other
than Liens to be extinguished in connection with the Recapitalization); (ii)
Liens securing Senior Debt and Liens on assets of Restricted Subsidiaries
securing Guarantees of Senior Debt permitted to be incurred under the
Indenture; (iii) Liens securing the New Notes and the Subsidiary Guarantees;
(iv) Liens of the Issuer or a Wholly Owned Restricted Subsidiary on assets of
any Restricted Subsidiary of the Issuer; (v) Liens securing Permitted
Refinancing Indebtedness which is incurred to refinance any Indebtedness which
has been secured by a Lien permitted under the Indenture and which has been
incurred in accordance with the provisions of the Indenture; provided,
however, that such Liens (A) are not materially less favorable to
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holders and are not materially more favorable to the lienholders with respect
to such Liens than the Liens in respect of the Indebtedness being refinanced
and (B) do not extend to or cover any property or assets of the Issuer or any
of its Restricted Subsidiaries not securing the Indebtedness so refinanced;
(vi) Liens for taxes, assessments or governmental charges or claims that are
either (A) not delinquent or (B) being contested in good faith by appropriate
proceedings and as to which the Issuer or its Restricted Subsidiaries shall
have set aside on its books such reserves as may be required pursuant to GAAP;
(vii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, supplies, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent for a
period of more than 60 days or being contested in good faith, if such reserve
or other appropriate provision, if any, as shall be required by GAAP shall
have been made in respect thereof; (viii) Liens incurred or deposits made in
the ordinary course of business in connection with workers' compensation,
unemployment insurance an other types of social security or similar
obligations, including any Lien securing letters of credit issued in the
ordinary course of business consistent with past practice in connection
therewith, or to secure the performance of tenders, statutory obligations,
surety and appeal bonds, bids, leases, government contracts, performance and
return-of-money bonds and other similar obligations (exclusive of obligations
for the payment of borrowed money); (ix) judgment Liens not giving rise to an
Event of Default so long as such Lien is adequately bonded and any appropriate
legal proceedings which may have been duly initiated for the review of such
judgment shall not have been finally terminated or the period within which
such proceedings may be initiated shall not have expired; (x) easements,
rights-of-way, zoning restrictions and other similar charges or encumbrances
in respect of real property not interfering in any material respect with the
ordinary conduct of the business of the Issuer or any of its Restricted
Subsidiaries; (xi) any interest or title of a lessor under any lease, whether
or not characterized as capital or operating; provided that such Liens do not
extend to any property or assets which is not leased property subject to such
lease; (xii) Liens securing Capital Lease Obligations and purchase money
Indebtedness incurred in accordance with the covenant described under "--
Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock;" provided, however, that (A) the Indebtedness shall not exceed the cost
of such property or assets being acquired or constructed and shall not be
secured by any property or assets of the Issuer or any Restricted Subsidiary
of the Issuer other than the property or assets of the Issuer or any
Restricted Subsidiary of the Issuer other than the property and assets being
acquired or constructed and (B) the Lien securing such Indebtedness shall be
created within 90 days of such acquisition or construction; (xiii) Liens upon
specific items of inventory or other goods and proceeds of any Person securing
such Person's obligations in respect of bankers' acceptances issued or created
for the account of such Person to facilitate the purchase, shipment or storage
of such inventory or other goods; (xiv) Liens securing reimbursement
obligations with respect to letters of credit which encumber documents and
other property relating to such letters of credit and products and proceeds
thereof; (xv) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual, or warranty requirements of the
Issuer or any of its Restricted Subsidiaries, including rights of offset an
set-off; (xvi) Liens securing Hedging Obligations which Hedging Obligations
relate to Indebtedness that is otherwise permitted under the Indenture; (xvii)
Liens securing Acquired Debt incurred in accordance with the covenant
described under "--Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock"; provided that (A) such Liens secured such Acquired Debt
at the time of and prior to the incurrence of such Acquired Debt by the Issuer
or a Restricted Subsidiary of the Issuer and were not granted in connection
with, or in anticipation of, the incurrence of such Acquired Debt by the
Issuer or a Restricted Subsidiary of the Issuer and (B) such Liens do not
extend to or cover any property or assets of the Issuer or any of its
Restricted Subsidiaries other than the property or assets that secured the
Acquired Debt prior to the time such Indebtedness became Acquired Debt of the
Issuer or a Restricted Subsidiary of the Issuer and are not more favorable to
the lienholders than those securing the Acquired Debt prior to the incurrence
of such Acquired Debt by the Issuer or a Restricted Subsidiary of the Issuer;
and (xviii) leases or subleases granted to others not interfering in any
material respect with the business of the Issuer or its Restricted
Subsidiaries.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Issuer or
any of its Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, prepay, retire, renew, replace, defease or
refund Indebtedness of the Issuer or any of its Subsidiaries (other than such
Indebtedness described in clauses (i), (vi), (vii), (viii), (ix), (x), (xii)
and (xiii) of the covenant described above under the caption "--
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Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock"); provided that: (i) the principal amount (or accreted value, if
applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount of (or accreted value, if applicable), plus accrued interest
on, the Indebtedness so extended, refinanced, renewed, prepaid, retired,
replaced, defeased or refunded (plus the amount of reasonable expenses
incurred in connection therewith including premiums paid, if any, to the
holders thereof); (ii) such Permitted Refinancing Indebtedness has a final
maturity date at or later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed, prepaid,
retired, replaced, defeased or refunded; (iii) if the Indebtedness being
extended, refinanced, renewed, prepaid, retired, replaced, defeased or
refunded is subordinated in right of payment to the New Notes, such Permitted
Refinancing Indebtedness has a final maturity date later than the final
maturity date of, and is subordinated in right of payment to, the New Notes on
terms at least as favorable to the holders of New Notes as those contained in
the documentation governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; and (iv) such Indebtedness is
incurred either by the Issuer or by the Restricted Subsidiary who is the
obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"Person" means any individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture, or a
governmental agency or political subdivision thereof.
"Principals" means Seaver Kent--TPG Partners, L.P. and Seaver Kent I
Parallel, L.P.
"Qualified Proceeds" means any of the following or any combination of the
following: (i) cash, (ii) Cash Equivalents, (iii) long-term assets that are
used or useful in a Permitted Business and (iv) the Capital Stock of any
Person engaged primarily in a Permitted Business if, in connection with the
receipt by the Issuer or any Restricted Subsidiary of the Issuer of such
Capital Stock, (a) such Person becomes a Wholly Owned Restricted Subsidiary
and a Guarantor or (b) such Person is merged, consolidated or amalgamated with
or into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Issuer or any Wholly Owned Restricted Subsidiary of the
Issuer that is a Guarantor.
"Related Party" with respect to any Principal means (A) any controlling
stockholder or a majority of (or more) owned Subsidiary of such Principal or,
in the case of an individual, any spouse or immediate family member of such
Principal, or (B) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially holding
a majority (or more) controlling interest of which consist of such Principal
and/or such other Persons referred to in the immediately preceding clause (A).
Without limiting the generality of the foregoing, each of SKC GenPar LLC, TPG
Advisors II, Inc. and their respective Affiliates shall be deemed to be
Related Parties of the Principals.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any Subsidiary of the Issuer other than an
Unrestricted Subsidiary.
"Senior Debt" means (i) all Indebtedness of the Issuer or any Guarantor
outstanding under Credit Facilities and all Hedging Obligations with respect
thereto, (ii) other Indebtedness of the Issuer or any of its Guarantors
permitted to be incurred under the terms of the Indenture, unless the
instrument under which such Indebtedness is incurred expressly provides that
it is on a parity with or subordinated in right of payment to the New Notes
and (iii) all Obligations with respect to the foregoing. Notwithstanding
anything to the contrary in the foregoing, Senior Debt will not include (w)
any liability for federal, state, local or other taxes owed or owing by the
Issuer, (x) any Indebtedness of the Issuer to any of its Subsidiaries or other
Affiliates, (y) any trade payables or (z) any Indebtedness that is incurred in
violation of the Indenture.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date of the
Indenture.
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<PAGE>
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the
date originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
Voting Stock thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any combination
thereof).
"Tax Sharing Agreement" means, the tax sharing agreement among Holdings, the
Issuer and any one or more of Holdings' subsidiaries, as amended from time to
time, so long as the method of calculating the amount of the Issuer's (or any
Restricted Subsidiary's) payments, if any, to be made thereunder is not less
favorable to the Issuer than as provided in such agreement as in effect on the
Issue Date, as determined in good faith by the Board of Directors of the
Issuer.
"Unrestricted Subsidiary" means any Subsidiary (other than the Subsidiary
Guarantors as of the date of the Indenture or any successor to any of them) of
the Issuer that is designated by the Board of Directors as an Unrestricted
Subsidiary pursuant to a Board Resolution, but only to the extent that such
Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b) is not
party to any agreement, contract, arrangement or understanding with the Issuer
or any Restricted Subsidiary unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Issuer or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Issuer; (c) is a Person with respect to
which neither the Issuer nor any of its Restricted Subsidiaries has any direct
or indirect obligation (x) to subscribe for additional Equity Interests or (y)
to maintain or preserve such Person's financial condition or to cause such
Person to achieve any specified levels of operating results; (d) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of the Issuer or any of its Restricted Subsidiaries; and (e) has
at least one director on its board of directors that is not a director or
executive officer of the Issuer or any of its Restricted Subsidiaries and has
at least one executive officer that is not a director or executive officer of
the Issuer or any of its Restricted Subsidiaries. Any such designation by the
Board of Directors shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions and was permitted by the covenant
described above under the caption "--Certain Covenants--Restricted Payments."
If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of
such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of
the Issuer as of such date. The Board of Directors of the Issuer may at any
time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that such designation shall be deemed to be an incurrence of
Indebtedness and issuance of preferred stock by a Restricted Subsidiary of the
Issuer of any outstanding Indebtedness or outstanding issue of preferred stock
of such Unrestricted Subsidiary and such designation shall only be permitted
if (i) such Indebtedness and preferred stock is permitted under the covenant
described under the caption "--Certain Covenants--Incurrence of Indebtedness
and Issuance of Preferred Stock" calculated on a pro forma basis as if such
designation had occurred at the beginning of the four quarter reference
period, (ii) such Subsidiary becomes a Subsidiary Guarantor, and (iii) no
Default or Event of Default would exist following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment
95
<PAGE>
at final maturity, in respect thereof, by (b) the number of years (calculated
to the nearest one-twelfth) that will elapse between such date and the making
of such payment, by (ii) the then outstanding principal amount of such
Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall
at the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or by such Person and one or more "Wholly Owned
Restricted Subsidiaries of such Person."
96
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of certain United States federal income
tax consequences of the ownership and disposition of the New Notes and the
exchange of Old Notes for New Notes that may be relevant to a holder of an Old
Note or New Note. This summary is based on laws, regulations, rulings and
decisions now in effect, all of which are subject to change (possibly with
retroactive effect) and to differing interpretations. This summary deals only
with holders that will acquire their New Notes at original issuance and will
hold New Notes as capital assets, and does not address tax considerations
applicable to investors that may be subject to special tax rules, such as
banks, tax-exempt entities, insurance companies or dealers in securities or
currencies, persons that will hold New Notes as a position in a "straddle" or
conversion transaction, or as part of a "synthetic security" or other
integrated financial transaction or persons that have a "functional currency"
other than the U.S. dollar.
As used herein, the term "United States holder" means a beneficial owner of
a New Note that is a United States person or that otherwise is subject to
United States federal income taxation on a net income basis in respect of the
New Notes. The term "United States person" means a holder of a New Note who is
a citizen or resident of the United States, or that is a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, an estate the income of
which is subject to United States federal income taxation regardless of its
source or a trust if: (i) a U.S. court is able to exercise primary supervision
over the trust's administration and (ii) one or more United States persons
have the authority to control all of the trust's substantial decisions. The
term "United States" means the United States of America (including the States
and the District of Columbia), its possessions, territories and other areas
subject to its jurisdiction.
EXCHANGE OF OLD NOTES FOR NEW NOTES
The exchange of Old Notes for New Notes (the "Exchange") pursuant to the
Exchange Offer will not be a taxable event for U.S. federal income tax
purposes. As a result, no material U.S. federal income tax consequences will
result to United States holders exchanging Old Notes for New Notes. A
tendering holder's tax basis in the New Notes will be the same as such
holder's tax basis in its Old Notes. A tendering holder's holding period for
the New Notes received pursuant to the Exchange Offer will include its holding
period for the Old Notes surrendered therefor.
ALL HOLDERS OF OLD NOTES ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
EXCHANGE OF OLD NOTES FOR NEW NOTES AND OF THE OWNERSHIP AND DISPOSITION OF
NEW NOTES RECEIVED IN THE EXCHANGE OFFER IN VIEW OF THEIR OWN PARTICULAR
CIRCUMSTANCES.
UNITED STATES HOLDERS
PAYMENTS OF INTEREST
Payments of interest on a New Note will be taxable to a United States holder
as ordinary interest income at the time that such payments are accrued or are
received (in accordance with the United States holder's method of tax
accounting).
LIQUIDATED DAMAGES
Any Liquidated Damages (described herein under "Description of the New
Notes--Registration Rights; Liquidated Damages") will be taxable to a United
States holder as ordinary income in accordance with such United States
holder's method of tax accounting.
97
<PAGE>
PURCHASE, SALE AND RETIREMENT OF NEW NOTES
A United States holder's tax basis in a New Note received in the Exchange
for an Old Note generally will be equal to the United States holder's tax
basis in the Old Note.
Upon the sale, exchange, or retirement of a New Note, a United States holder
generally will recognize gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement (less any accrued interest, which
will be taxable as such) and the United States holder's tax basis in such New
Note. Gain or loss realized by a United States holder on the sale, exchange or
retirement of a New Note generally will be long-term capital gain or loss if, at
the time of the disposition, the United States holder's holding period for such
New Note is more than one year. Long-term capital gain realized by an individual
United States holder generally is subject to a maximum tax rate of 28 percent in
respect of property held for more than one year and to a maximum rate of 20
percent in respect of property held in excess of 18 months. Legislation
currently pending in Congress generally would, if enacted in its current form,
subject long-term capital gain recognized by an individual holder in respect of
New Notes with a holding period of more than one year at the time of disposition
to a maximum rate of 20 percent, effective for amounts properly taken into
account on or after January 1, 1998.
INFORMATION REPORTING AND BACKUP WITHHOLDING
A noncorporate United States holder may be subject to information reporting
and to backup withholding at a rate of 31 percent with respect to payments of
principal and interest made on a New Note, or on proceeds of disposition of a
New Note before maturity, unless such United States holder provides proof of
an applicable exemption or a correct taxpayer identification number, and
otherwise complies with applicable requirements of the information reporting
and backup withholding rules.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or credit against the United States person's United States income tax
liability provided that the required information is furnished to the Internal
Revenue Service ("IRS").
NON-UNITED STATES HOLDERS
Under current United States federal income tax law: (i) payment of interest
to a holder who is not a United States holder (a "non-United States holder")
will not be subject to withholding of United States federal income tax,
provided that (a) the holder does not actually or constructively own 10
percent or more of the combined voting power of all classes of stock of the
Company and is not a controlled foreign corporation related to the Company
through stock ownership and (b) the beneficial owner provides a statement
signed under penalties of perjury that includes its name and address and
certifies that it is a non-United States holder in compliance with applicable
requirements or, with respect to payments made after December 31, 1999,
satisfies certain documentary evidence requirements for establishing that it
is a non-United States holder; and (ii) a non-United States holder will not be
subject to United States federal income tax on gain realized on the
disposition of a New Note. Notwithstanding the above, a non-United States
holder that is subject to United States federal income taxation on a net
income basis with respect to its income from a New Note generally will be
subject to the same rules to which a United States holder is subject with
respect to the accrual of interest on a New Note and with respect to gain or
loss realized or recognized on the disposition of a New Note. Special rules
might also apply to a non-United States holder that is a qualified resident of
a country with which the United States has an income tax treaty. A New Note
held by an individual non-United States holder who at the time of death is a
nonresident alien will not be subject to United States federal estate tax,
provided that such holder did not at the time of death actually or
constructively own 10 percent or more of the combined voting power of all
classes of stock in the Company.
INFORMATION REPORTING AND BACKUP WITHHOLDING
United States information reporting requirements and backup withholding tax
will not apply to payments on, or proceeds from the disposition of, a New Note
if the beneficial owner certifies its non-United States status under penalties
of perjury (or, with respect to payments made after December 31, 1999,
satisfies certain documentary evidence requirements for establishing that it
is a non-United States holder) or otherwise establishes an exemption; provided
that neither the Company nor its payment agent has actual knowledge that the
person is a United States person or that the conditions of any other exemption
are not in fact satisfied.
98
<PAGE>
Any amounts withheld under the backup withholding rules will be allowed as a
refund or credit against the non-United States person's United States income
tax liability, provided that the required information is furnished to the IRS.
On October 7, 1997, the U.S. Treasury Department issued final Treasury
regulations (and subsequently released guidance regarding the effective date
of such Treasury regulations) (the "Treasury Regulations") governing
information reporting and the certification procedures regarding withholding
and backup withholding on certain amounts paid to non-United States persons
after December 31, 1999. Such regulations, among other things, may change the
certification procedures relating to the receipt by intermediaries of payments
on behalf of a beneficial owner of a New Note. Prospective investors should
consult their tax advisors regarding the effect, if any, of such new Treasury
Regulations on an investment in the New Notes.
With respect to payments made after December 31, 1999, for purposes of
applying the rules set forth in the four preceding paragraphs to an entity
that is treated as fiscally transparent (e.g., a partnership or certain
trusts) for United States federal income taxation purposes, the beneficial
owner means each of the ultimate beneficial owners of the entity.
99
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of such
New Notes. This Prospectus, as it may be amended or supplemented from time to
time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired as a
result of market-making activities or other trading activities. The Issuer and
the Guarantors have agreed that they will make this Prospectus available to
any Participating Broker-Dealer for a period of time not to exceed one year
after the date on which the Exchange Offer is consummated for use in
connection with any such resale. In addition, until such date, all broker-
dealers effecting transactions in the New Notes may be required to deliver a
prospectus.
Neither the Issuer nor the Guarantors will receive any proceeds from any
sale of New Notes by broker-dealers. New Notes received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Notes or a combination
of such methods of resale, at market prices prevailing at the time of resale,
at prices related to such prevailing market prices or negotiated prices. Any
such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such broker-dealer and/or the purchasers of any such New Notes. Any
broker-dealer that resells New Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
Starting on the Expiration Date, the Issuer and the Guarantors 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 Issuer has agreed to pay all expenses incident to
the Exchange Offer (including the expenses of one counsel for the holders of
the Old Notes) other than commissions or concessions of any brokers or dealers
and will indemnify the holders of the Old Notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Notes has been passed upon for the Issuer by Cleary,
Gottlieb, Steen & Hamilton, New York, New York.
EXPERTS
The audited consolidated financial statements and schedules of Diamond
Brands Incorporated and subsidiaries in this Prospectus and elsewhere in the
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 as experts in
accounting and auditing in giving said reports.
100
<PAGE>
DIAMOND BRANDS INCORPORATED AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND 1997 AND
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997:
Report of Independent Public Accountants .............................. F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997 .......... F-3
Consolidated Statements of Operations for the Years Ended December 31,
1995, 1996 and 1997 .................................................. F-4
Consolidated Statements of Stockholders' Equity ....................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997 .................................................. F-6
Notes to Consolidated Financial Statements ............................ F-7
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 AS OF
MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND
MARCH 31, 1998:
Unaudited Consolidated Balance Sheet as of December 31, 1997 and March
31, 1998 ............................................................. F-15
Unaudited Consolidated Statements of Operations for the Three Months
Ended March 31, 1997 and 1998 ........................................ F-16
Unaudited Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1997 and 1998 ........................................ F-17
Notes to Unaudited Consolidated Financial Statements .................. F-18
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Diamond Brands Incorporated:
We have audited the accompanying consolidated balance sheets of Diamond
Brands Incorporated (a Minnesota corporation) and Subsidiaries as of December
31, 1996 and 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Diamond
Brands Incorporated and Subsidiaries as of December 31, 1996 and 1997, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Minneapolis, Minnesota,
February 6, 1998, except
as to Note 8, which is as
of April 21, 1998
F-2
<PAGE>
DIAMOND BRANDS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS OF DECEMBER
31,
----------------
1996 1997
------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable, net of allowances of $639 and $1,195,
respectively.............................................. $ 9,868 $15,526
Inventories................................................ 11,790 20,744
Deferred income taxes...................................... 1,875 --
Prepaid expenses........................................... 303 406
------- -------
Total current assets..................................... 23,836 36,676
------- -------
PROPERTY, PLANT AND EQUIPMENT:
Land....................................................... 558 558
Buildings and improvements................................. 5,896 5,955
Machinery and equipment.................................... 22,344 27,664
------- -------
Property, plant and equipment............................ 28,798 34,177
Less--Accumulated depreciation........................... (13,528) (16,633)
------- -------
Property, plant and equipment, net....................... 15,270 17,544
GOODWILL..................................................... 26,540 39,454
DEFERRED FINANCING COSTS..................................... 857 876
------- -------
Total assets............................................. $66,503 $94,550
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt....................... $ 6,573 $ 7,892
Accounts payable........................................... 3,834 4,500
Accrued expenses........................................... 8,020 11,037
------- -------
Total current liabilities................................ 18,427 23,429
POSTRETIREMENT BENEFIT OBLIGATIONS........................... 1,551 1,586
DEFERRED INCOME TAXES........................................ 499 --
LONG-TERM DEBT, net of current maturities.................... 28,272 41,605
------- -------
Total liabilities........................................ 48,749 66,620
------- -------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value; 50,000,000 shares
authorized; 16,112,500 shares issued and outstanding...... 161 161
Additional paid-in capital................................. 774 774
Retained earnings.......................................... 16,819 26,995
------- -------
Total stockholders' equity............................... 17,754 27,930
------- -------
Total liabilities and stockholders' equity............... $66,503 $94,550
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
DIAMOND BRANDS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1996 1997
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
NET SALES............................................. $77,659 $90,201 $118,072
COST OF SALES......................................... 56,490 63,032 78,582
------- ------- --------
Gross profit........................................ 21,169 27,169 39,490
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.......... 10,152 9,148 11,414
GOODWILL AMORTIZATION................................. 600 720 1,521
------- ------- --------
Operating income.................................... 10,417 17,301 26,555
INTEREST EXPENSE...................................... 3,963 3,858 4,550
------- ------- --------
Income before provision for income taxes............ 6,454 13,443 22,005
PROVISION FOR INCOME TAXES (Note 5)................... 2,352 5,807 1,376
------- ------- --------
Net income.......................................... $ 4,102 $ 7,636 $ 20,629
======= ======= ========
UNAUDITED PRO FORMA NET INCOME:
Income before provision for income taxes............ $ 6,454 $13,443 $ 22,005
Pro forma income tax expense (Note 5)............... 2,700 5,807 9,000
------- ------- --------
Pro forma net income................................ $ 3,754 $ 7,636 $ 13,005
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
DIAMOND BRANDS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------
ADDITIONAL
NUMBER OF PAR PAID-IN RETAINED
SHARES VALUE CAPITAL EARNINGS TOTAL
--------- ----- ---------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994......... 16,133 $161 $782 $ 5,081 $ 6,024
Retirement of common stock....... (20) -- (8) -- (8)
Net income....................... -- -- -- 4,102 4,102
------ ---- ---- ------- -------
BALANCE, December 31, 1995......... 16,113 161 774 9,183 10,118
Net income....................... -- -- -- 7,636 7,636
------ ---- ---- ------- -------
BALANCE, December 31, 1996......... 16,113 161 774 16,819 17,754
Distribution to stockholders..... -- -- -- (10,453) (10,453)
------ ---- ---- ------- -------
Net income....................... -- -- -- 20,629 20,629
------ ---- ---- ------- -------
BALANCE, December 31, 1997......... 16,113 $161 $774 $26,995 $27,930
====== ==== ==== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
DIAMOND BRANDS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income........................................ $ 4,102 $ 7,636 $20,629
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization................... 4,073 4,553 5,008
Deferred income taxes........................... (611) 160 1,376
Change in operating assets and liabilities, net
of effects of acquisitions:
Accounts receivable........................... (1,798) 434 (2,773)
Inventories................................... 1,352 (555) (1,727)
Prepaid expenses.............................. 212 438 23
Accounts payable.............................. (1,413) (402) (594)
Accrued expenses.............................. (1,338) 1,533 (664)
Other liabilities............................. (126) 50 35
------- ------- -------
Net cash provided by operating activities..... 4,453 13,847 21,313
------- ------- -------
INVESTING ACTIVITIES:
Acquisitions, net of cash received................ (42,433) -- (24,696)
Purchases of property, plant and equipment........ (1,926) (1,979) (4,050)
------- ------- -------
Net cash used for investing activities........ (44,359) (1,979) (28,746)
------- ------- -------
FINANCING ACTIVITIES:
Borrowings under revolving line of credit......... 18,600 20,300 30,300
Repayments under revolving line of credit......... (9,600) (25,500) (29,100)
Long-term borrowings.............................. 32,000 -- 21,000
Repayments of long-term borrowings................ (3,010) (6,668) (7,548)
Distribution paid to stockholders................. -- -- (6,849)
Retirement of common stock........................ (8) -- --
Debt issuance costs............................... (1,420) -- (370)
------- ------- -------
Net cash provided by (used for) financing ac-
tivities..................................... 36,562 (11,868) 7,433
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVA-
LENTS.............................................. (3,344) -- --
CASH AND CASH EQUIVALENTS, beginning of year........ 3,344 -- --
------- ------- -------
CASH AND CASH EQUIVALENTS, end of year.............. $ -- $ -- $ --
======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for--
Interest........................................ $ 3,658 $ 3,882 $ 4,206
======= ======= =======
Income taxes.................................... $ 3,196 $ 4,504 $ 283
======= ======= =======
SUPPLEMENTAL NONCASH FINANCING ACTIVITIES:
Distribution to stockholders declared but not yet
paid............................................. $ -- $ -- $ 3,604
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
DIAMOND BRANDS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
1. BUSINESS DESCRIPTION
Diamond Brands Incorporated ("DBI") and its wholly-owned subsidiary,
Forster, Inc. ("Forster"), are engaged in the development, production and
distribution of household and consumer products throughout the United States
primarily to grocery stores and mass merchandisers. Their products include
plastic cutlery, wooden matches, toothpicks, clothespins and other wood
products. DBI's wholly-owned subsidiary, Empire Candle, Inc. ("Empire"),
formerly Empire Manufacturing Company, is a manufacturer of scented and
citronella candles which are distributed throughout the United States and
Canada. During 1995, 1996 and 1997, one customer accounted for 17%, 18% and
18% of net sales, respectively.
2. ACQUISITIONS
On March 5, 1995, DBI acquired all of the outstanding common shares of
Forster for $42,589,000 (the "Forster Acquisition"). The Company accounted for
the acquisition under the purchase method of accounting. Accordingly, the
purchase price has been allocated to the assets acquired and the liabilities
assumed based on their estimated fair values at the date of acquisition. The
excess of the purchase price over the prior carrying amount of Forster's net
assets as of March 5, 1995 of $25,200,000, was allocated as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Goodwill.................................................... $27,862
Deferred financing costs.................................... (603)
Accrued expenses............................................ (2,059)
-------
$25,200
=======
</TABLE>
Pro forma results of operations of the Company (unaudited) for the year
ended December 31, 1995 as though Forster had been acquired on January 1, 1995
were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Net sales................................................... $84,798
=======
Net income.................................................. $ 3,456
=======
</TABLE>
On February 28, 1997, DBI acquired Empire (the "Empire Acquisition").
Certain assets were acquired and liabilities assumed by DBI for $26,000,000,
subject to postclosing adjustments. The Company accounted for the acquisition
under the purchase method of accounting. The excess of the purchase price over
the prior carrying amount of Empire's net assets as of February 28, 1997 of
$14,819,000, was allocated as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Goodwill.................................................... $14,436
Property, plant and equipment............................... 383
-------
$14,819
=======
</TABLE>
Pro forma results of operations of the Company (unaudited) for the years
ended December 31, 1996 and 1997 as though Empire had been acquired on January
1, 1996 are as follows:
<TABLE>
<CAPTION>
1996 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net sales................................................ $113,926 $120,714
======== ========
Net income............................................... $ 10,050 $ 20,521
======== ========
</TABLE>
F-7
<PAGE>
DIAMOND BRANDS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1997
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Diamond Brands
Incorporated and its subsidiaries (the "Company"), all of which are wholly-
owned. All significant intercompany accounts and transactions have been
eliminated in consolidation.
RECLASSIFICATIONS
Certain reclassifications have been made in the 1995 and 1996 financial
statements to conform with the 1997 presentation. Such reclassifications had
no effect on previously reported results of operations or stockholders'
equity.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Ultimate results reporting could differ from those
estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures
About Segments of an Enterprise and Related Information," issued in June 1997
and effective for financial statements beginning after December 15, 1997,
redefines how operating segments are determined and requires expanded
quantitative and qualitative disclosures relating to a company's operating
segments. The Company anticipates that the effect of adopting SFAS No. 131
will not be significant.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets at December
31, 1997 and 1996 for accounts receivable and payable approximate fair value
because of the immediate or short-term maturity of these financial
instruments. As the interest rate on the term note and revolving line of
credit is reset monthly based on current market rates, the carrying value of
the term note and revolving line of credit approximates fair value. The fair
value of the stockholder notes payable, industrial development revenue bonds
and other debt as of December 31, 1996 and 1997, based on current market
rates, were $7,856,000 and $7,489,000, respectively.
INVENTORIES
Inventories are stated at the lower of first-in, first-out cost or market
and include materials, labor and overhead.
Inventories consisted of the following as of December 31:
<TABLE>
<CAPTION>
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials............................................ $ 3,777 $ 8,111
Work in process.......................................... 526 433
Finished goods........................................... 7,487 12,200
------- -------
Total.................................................. $11,790 $20,744
======= =======
</TABLE>
F-8
<PAGE>
DIAMOND BRANDS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1997
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation for financial
reporting purposes is provided on the straight-line method over estimated
useful lives of 5 to 29 years for buildings and improvements and 3 to 10 years
for machinery and equipment. Maintenance and repairs are charged to expense as
incurred.
GOODWILL
Goodwill represents the costs of acquisitions in excess of the fair value of
the net assets and is amortized using the straight-line method over periods of
15 to 40 years. Accumulated amortization as of December 31, 1996 and 1997 was
$1,320,000 and $2,841,000, respectively.
The Company periodically evaluates whether events and circumstances have
occurred that may affect the realizable nature of goodwill and other long-
lived assets. If such events or circumstances were to indicate that the
carrying amount of these assets would not be recoverable, an impairment loss
would be recognized. No such impairment has been recognized for the year ended
December 31, 1997.
DEFERRED FINANCING COSTS
Deferred financing costs consist of debt structuring costs and are being
amortized over the lives of the underlying debt agreements.
REVENUE RECOGNITION
Revenue for products sold is recognized at the time of shipment.
OTHER COMPREHENSIVE INCOME
The Company has no significant items of other comprehensive income.
4. LONG-TERM DEBT
Long-term debt consists of the following as of December 31:
<TABLE>
<CAPTION>
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Term note, interest at LIBOR (6.125% as of December 31,
1997) plus 2.00% through 2002.......................... $23,250 $37,075
Revolving line of credit, interest at LIBOR (6.125% as
of December 31, 1997) plus 2.00%....................... 3,800 5,000
Stockholder notes payable, interest at rates of 8.125%
to 11.125%............................................. 5,894 5,894
Industrial development revenue bonds, due in varying
amounts through 2002, interest at 7.5% to 9.0%......... 807 688
Other................................................... 1,094 840
------- -------
Total debt............................................ 34,845 49,497
Less-Current maturities................................. (6,573) (7,892)
------- -------
Total long-term debt.................................. $28,272 $41,605
======= =======
</TABLE>
In connection with the Forster Acquisition (see Note 2), the Company entered
into a bank credit agreement that provided for a $15,000,000 revolving credit
facility through March 1998 and a $32,000,000 term loan
F-9
<PAGE>
DIAMOND BRANDS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1997
through September 2000. This agreement replaced the existing $3,000,000
revolving credit facility which was due to expire in April 1995. In 1996, the
Issuer increased the revolving credit facility to $18,000,000.
In connection with the Empire Acquisition (see Note 2), the Company amended
its bank credit agreement to a $23,000,000 revolving credit facility through
February 2000 and a $44,250,000 term loan through December 2002. Borrowings
under the term note and revolving credit agreement are collateralized by all
assets of the Issuer. The Company's agreement contains covenants which, among
other matters, require the Company to maintain certain financial ratios and
prohibit principal payments on debt to stockholders until the credit
facilities are paid in full. As of December 31, 1997, the Company was in
compliance with these covenants.
Revolving line of credit (revolver) data is as follows for the years ended
December 31:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revolver borrowings at year-end.................. $ 9,000 $3,800 $ 5,000
Average daily revolver borrowings................ 8,152 6,011 7,015
Highest total revolver borrowings................ 12,800 9,900 10,700
Weighted average interest rates:
Based on average daily borrowings................ 8.78% 8.38% 8.14%
</TABLE>
Future maturities of long-term debt were as follows as of December 31, 1997:
<TABLE>
<CAPTION>
FISCAL YEAR (IN THOUSANDS)
----------- -------------
<S> <C>
1998................................... $ 7,892
1999................................... 7,930
2000................................... 12,941
2001................................... 7,627
2002................................... 13,107
-------
$49,497
=======
</TABLE>
5. INCOME TAXES:
Effective January 1, 1995, the Company converted from an S corporation to a
C corporation as a result of the Forster Acquisition (see Note 2) and began
accounting for income taxes using the liability method. Under this method,
deferred income taxes were recognized for temporary differences between the
tax and financial reporting bases of the Company's assets and liabilities
using enacted tax rates in effect for the year in which the differences are
expected to reverse.
Effective January 1, 1997, the Company elected S corporation status due to a
change in the tax laws allowing entities with subsidiaries to elect this
status. Deferred tax assets and liabilities as of December 31, 1996 are
reflected as a charge in the 1997 consolidated statement of operations. The
Company would be subject to a tax on built-in gains if certain assets are sold
within ten years of election of S corporation status.
The taxable income or loss of the Company for years ended after December 31,
1996 is included in the individual returns of stockholders for federal tax
purposes and, to the extent allowed and elected, for state tax purposes.
Accordingly, there is no provision for current income taxes in 1997.
F-10
<PAGE>
DIAMOND BRANDS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1997
The Company's income tax provision for the years ended December 31 consisted
of the following:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal........................................... $2,518 $4,703 $ --
State............................................. 445 944 --
Deferred............................................ (611) 160 1,376
------ ------ ------
$2,352 $5,807 $1,376
====== ====== ======
</TABLE>
A reconciliation from the federal statutory tax rate to the effective tax
rate is as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Federal statutory tax rate.................................... 34.0% 35.0%
Goodwill amortization......................................... 3.2 2.0
State income taxes, net of federal benefit.................... 4.6 4.7
Other items, net.............................................. (5.4) 1.5
---- ----
Effective income tax rate..................................... 36.4% 43.2%
==== ====
</TABLE>
Components of deferred income taxes are as follows as of December 31, 1996:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Net current deferred income tax asset:
Workers' compensation.................................... $ 535
Inventory reserves....................................... 480
Postretirement benefits.................................. 589
Allowances for doubtful accounts......................... 188
Other.................................................... 686
------
Net current deferred income tax asset.................. $2,478
======
Net noncurrent deferred income tax liability:
Depreciation............................................. $1,102
------
Net noncurrent deferred income tax liability........... $1,102
======
</TABLE>
The unaudited pro forma income tax expense is presented assuming the Company
had been a C corporation since January 1, 1995 using an effective income tax
rate of 42%, 43% and 41% for the years ended December 31, 1995, 1996 and 1997.
6. EMPLOYEE BENEFITS:
DEFINED BENEFIT PENSION PLAN AND DEFINED CONTRIBUTION RETIREMENT PLAN (THE
DEFINED PLANS)
The Company has a defined benefit pension plan to cover certain hourly
employees, which was suspended as of October 1, 1994. Participants will
continue to vest in nonvested benefits existing at October 1, 1994. The
Company will continue to pay accrued benefits and has no intention to
terminate the plan. Plan assets approximate the actuarially determined vested
and accumulated benefit obligation as of December 31, 1996 and 1997.
F-11
<PAGE>
DIAMOND BRANDS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1997
The Company also has a defined contribution retirement plan for certain
union employees. The Company makes contributions to the plan based on hours
worked. Total expense related to the Defined Plans was $294,000 in 1995,
$240,000 in 1996 and $267,000 in 1997.
401(K) SAVINGS AND PROFIT-SHARING PLANS (THE PLANS)
The Company has two 401(k) savings and profit-sharing plans for certain
nonunion employees. The Plans are qualified defined contribution plans in
accordance with Section 401(k) of the Internal Revenue Code. In 1997, the
Company changed the policy for Forster participants from a 35% match of the
first 2% and 15% of the second 2% of participants' contributions to be
consistent with the DBI and Empire plan participants. The Company's policy in
1997 for all eligible participants is to match 50% of employee contributions
up to a maximum of 3% of compensation. Additionally, the Company makes
discretionary profit-sharing contributions that are determined by the board of
directors. Total expense related to the Plans was $557,000 in 1995, $725,000
in 1996 and $736,000 in 1997.
POSTRETIREMENT MEDICAL BENEFITS (THE POSTRETIREMENT PLANS)
The Company provides certain postretirement health and life insurance
benefits for all DBI bargaining unit employees who retire with ten or more
years of service. The Company also provides certain postretirement life
insurance benefits to eligible Forster employees who retire and have attained
age 55 with 20 or more years of service. The cost of postretirement benefits
is accrued during an employee's active career. The Company does not fund these
benefits prior to the time they are paid. Postretirement data were computed
based on a discount rate of 7.0% to 7.5%, a rate of increase in future life
insurance premiums of 2.0%, and a rate of increase in life insurance benefits
of 2.5% for the years ended December 31, 1995, 1996 and 1997.
Components of the net periodic postretirement benefit cost for the years
ended December 31, 1995, 1996 and 1997 and the accumulated postretirement
benefit obligation as of December 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Net periodic postretirement benefit cost:
Service cost (benefits earned during the period)...... $ 36 $ 33 $ 39
Interest cost......................................... 85 96 110
---- ------ ------
Net periodic postretirement benefit cost.............. $121 $ 129 $ 149
==== ====== ======
Accumulated postretirement benefit obligation:
Retirees.............................................. $ 822 $ 928
Fully-eligible active plan participants............... 528 618
Other active plan participants........................ 201 40
------ ------
Accumulated postretirement benefit liability............ $1,551 $1,586
====== ======
</TABLE>
The accumulated postretirement benefit obligation was determined using a
discount rate of 7.5% and 7.0% for the years ended December 31, 1996 and 1997,
respectively.
STOCK OPTIONS
During 1997, the Company adopted a stock option plan (the "1997 Plan") that
authorized the grant of stock options to key executives. Options representing
90,000 common shares have been granted as of December 31,
F-12
<PAGE>
DIAMOND BRANDS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1997
1997 at an exercise price of $7.50 per share. Options generally expire 10
years from the date of grant or at an earlier date as determined by the board
of directors. Options granted under the plans are exercisable 33 1/3% each
year for three years from the date of grant. In the event of a change of
control, as defined in the 1997 Plan, the options become 100% exercisable.
Stock option activity was as follows for the year ended December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARE
SHARES PRICE
------ --------
<S> <C> <C>
Outstanding, January 1, 1997.............................. -- $ --
Granted................................................. 90,000 7.50
Exercised............................................... -- --
Cancelled............................................... -- --
------ -----
Outstanding, December 31, 1997............................ 90,000 $7.50
====== =====
Options exercisable at December 31, 1997.................. 30,000
======
Weighted average fair value of options granted during
1997..................................................... $ 1.23
======
</TABLE>
The Company follows Accounting Principles Board Opinion No. 25, under which
no compensation cost has been recognized in connection with stock option
grants pursuant to the stock option plans. Had compensation cost been
determined consistent with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's pro forma net income would have been as follows
for the year ended December 31, 1997:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Net income:
As reported........................... $20,629
Pro forma............................. 20,592
</TABLE>
In determining compensation cost pursuant to SFAS 123, the fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions used for
grants during 1997: a risk-free interest rate of 6.13%; expected life of three
years; and expected volatility of 0%.
7. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Company is subject to asserted and unasserted claims encountered in the
normal course of business. In the opinion of management and its legal counsel,
disposition of these matters will not have a material effect on the Company's
financial condition or results of operations.
F-13
<PAGE>
DIAMOND BRANDS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1997
OPERATING LEASES
The Company leases office space and equipment with various expiration dates
through 2002. Total rent expense was $226,000 in 1995, $340,000 in 1996 and
$664,000 in 1997. Future minimum payments for all operating leases with
initial or remaining terms of one year or more subsequent to December 31, 1997
are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR (IN THOUSANDS)
----------- -------------
<S> <C>
1998................................... $715
1999................................... 703
2000................................... 438
2001................................... 152
2002................................... 114
Thereafter............................. 79
</TABLE>
8. SUBSEQUENT EVENT:
On March 3, 1998, the stockholders of the Company entered into a
recapitalization agreement (the "Recapitalization Agreement") with Seaver
Kent-TPG Partners, L.P. and Seaver Kent I Parallel, L.P. (collectively, "the
Sponsors"), which provides for the recapitalization of the Company.
Pursuant to the Recapitalization Agreement, on April 21, 1998 the
Sponsors and other investors purchased $47.0 million of preferred stock with
warrants and the Company purchased from the existing stockholders certain
outstanding shares of the Company's common stock. Also, the Company issued
$100.0 million of senior subordinated notes and $45.1 million senior discount
debentures and entered into a bank credit agreement providing for (i) $80.0
million in term loan facilities and (ii) a $25.0 million revolving credit
facility. It is intended that the recapitalization will be accounted for as a
recapitalization transaction for accounting purposes. In connection with the
recapitalization, the Company converted from an S corporation to a C
corporation.
F-14
<PAGE>
DIAMOND BRANDS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable, net of allowances of $981 and
$1,195............................................... $15,050 $15,526
Inventories........................................... 23,020 20,744
Prepaid expenses...................................... 324 406
------- -------
Total current assets................................ 38,394 36,676
------- -------
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $17,366 and $16,715.................... 17,405 17,544
GOODWILL................................................ 39,033 39,454
DEFERRED FINANCING COSTS................................ 758 876
------- -------
Total assets........................................ $95,590 $94,550
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt.................. $ 7,897 $ 7,892
Accounts payable...................................... 5,567 4,500
Accrued expenses...................................... 8,401 11,037
------- -------
Total current liabilities............................. 21,865 23,429
------- -------
POSTRETIREMENT BENEFIT OBLIGATIONS.................... 1,586 1,586
LONG-TERM DEBT, net of current maturities............. 42,260 41,605
------- -------
Total liabilities..................................... 65,711 66,620
------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 50,000,000 shares
authorized; 16,112,500 shares issued
and outstanding...................................... 161 161
Additional paid in capital............................ 774 774
Retained earnings..................................... 28,944 26,995
------- -------
Total stockholders' equity............................ 29,879 27,930
------- -------
$95,590 $94,550
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-15
<PAGE>
DIAMOND BRANDS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------
1997 1998
------- -------
<S> <C> <C>
NET SALES...................................................... $22,560 $26,486
COST OF SALES.................................................. 15,675 18,277
------- -------
Gross Profit................................................. 6,885 8,209
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................... 2,368 2,980
GOODWILL AMORTIZATION.......................................... 260 420
------- -------
Operating income............................................. 4,257 4,809
INTEREST EXPENSE............................................... 952 1,047
------- -------
Income before provision for income taxes..................... 3,305 3,762
PROVISION FOR INCOME TAXES..................................... 1,376 --
------- -------
Net income................................................... $ 1,929 $ 3,762
======= =======
PRO FORMA NET INCOME:
Income before provision for income taxes...................... $ 3,305 $ 3,762
Pro forma income tax expense (Note 2)......................... 1,400 1,500
------- -------
Pro forma net income.......................................... $ 1,905 $ 2,262
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-16
<PAGE>
DIAMOND BRANDS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH
31,
---------------
1997 1998
------- ------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income.................................................. $ 1,929 $3,762
Adjustments to reconcile net income to cash provided by op-
erating activities
Depreciation and amortization............................. 1,112 1,150
Deferred income taxes..................................... 1,376 --
Change in operating assets and liabilities, net of effects
of acquisition
Accounts receivable..................................... (1,725) 476
Inventories............................................. (2,118) (2,276)
Prepaid expenses........................................ 122 82
Accounts payable........................................ (433) 1,067
Accrued expenses........................................ 520 (712)
------- ------
Net cash provided by operating activities............... 783 3,549
------- ------
INVESTING ACTIVITIES
Acquisition of Empire, net of cash received............... (24,696) --
Purchases of property, plant and equipment................ (602) (472)
------- ------
Net cash used for investing activities.................. (25,298) (472)
------- ------
FINANCING ACTIVITIES
Borrowings from bank revolving line of credit............... 13,800 12,250
Repayments to bank revolving line of credit................. (8,300) (9,650)
Proceeds from issuance of long-term debt.................... 21,000 --
Repayments of long-term debt................................ (1,615) (1,940)
Distributions to stockholders............................... -- (3,737)
Debt issuance costs......................................... (370) --
------- ------
Net cash provided by (used for) financing activities...... 24,515 (3,077)
------- ------
NET INCREASE IN CASH AND CASH EQUIVALENTS..................... -- --
CASH AND CASH EQUIVALENTS, beginning of year.................. -- --
------- ------
CASH AND CASH EQUIVALENTS, end of year........................ $ -- $ --
======= ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-17
<PAGE>
DIAMOND BRANDS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Diamond Brands Incorporated and its wholly owned subsidiaries, Forster Inc.
(Forster) and Empire Candle, Inc. (Empire) collectively referred to as "the
Company." All material intercompany accounts and transactions have been
eliminated in consolidation.
The accompanying interim consolidated financial statements of the Company
are unaudited; however, in the opinion of management, all adjustments
necessary for a fair presentation of such consolidated financial statements
have been reflected in the interim periods presented. Such adjustments
consisted only of normal recurring items. Interim results are not necessarily
indicative of results for a full year. The significant accounting policies and
certain financial information which are normally included in financial
statements prepared in accordance with generally accepted accounting
principles, but which are not required for interim reporting purposes, have
been condensed or omitted. The accompanying consolidated financial statements
of the Company should be read in conjunction with the consolidated financial
statements and related notes included in the Company's audited financial
statements as of and for the year ended December 31, 1997.
2. INCOME TAXES
Effective January 1, 1997, the Company converted from a C corporation to an
S corporation due to a change in the tax laws allowing entities with
subsidiaries to elect this status. Deferred tax assets and liabilities as of
December 31, 1996 are reflected as a charge in the consolidated statement of
operations for the three months ended March 31, 1997. The Company would be
subject to a tax on built-in gains if certain assets are sold within ten years
of election of S corporation status.
The taxable income or loss of the Company for the years ended after December
31, 1996 is included in the individual returns of stockholders for federal tax
purposes and, to the extent allowed and elected, for state tax purposes.
Accordingly there is no provision for current income taxes for the three
months ended March 31, 1998 and 1997.
The unaudited pro forma income tax expense is presented assuming the Company
had been a Corporation since January 1, 1997 using an effective income tax
rate of 40% and 42% for the three months ended March 31, 1998 and 1997.
3. RECAPITALIZATION
On March 3, 1998, the stockholders of the Company entered into a
recapitalization agreement (the "Recapitalization Agreement") with Seaver
Kent-TPG Partners, L.P. and Seaver Kent I Parallel, L.P. (collectively, "the
Sponsors"), which provides for the recapitalization of the Company.
Pursuant to the Recapitalization Agreement, in April 1998, the
Sponsors and other investors purchased $47.0 million of preferred stock with
warrants and the Company purchased from the existing stockholders certain
outstanding shares of the Company's common stock. Also, the Company issued
$100.0 million of senior subordinated notes and $45.1 million senior discount
debentures and entered into a bank credit agreement providing for (i) $80.0
million in term loan facilities and (ii) a $25.0 million revolving credit
facility. The recapitalization will be accounted for as a recapitalization
transaction for accounting purposes. In connection with the recapitalization,
the Company converted from an S corporation to a C corporation.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE EXCHANGE AGENT. NEITHER THIS PROSPECTUS
NOR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER, CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SECURITIES IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS, NOR THE ACCOMPANYING
LETTER OF TRANSMITTAL, OR BOTH TOGETHER, NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AT ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THEREOF. UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW DEBENTURES, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF THE DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 1
Prospectus Summary........................................................ 2
Risk Factors.............................................................. 16
The Recapitalization...................................................... 23
New Chief Executive Officer............................................... 24
The Sponsors.............................................................. 25
Use of Proceeds........................................................... 25
Capitalization............................................................ 26
Unaudited Pro Forma Consolidated Financial Data........................... 27
Selected Historical and Pro Forma Consolidated Financial Data............. 32
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 34
Business.................................................................. 40
Management................................................................ 48
Certain Relationships and Related Transactions............................ 52
Description of Holdings Indebtedness...................................... 53
Capital Stock of Holdings and the Issuer.................................. 54
Description of the Bank Facilities........................................ 56
The Exchange Offer........................................................ 58
Description of the New Notes.............................................. 66
Certain United States Federal Income Tax Considerations................... 97
Plan of Distribution...................................................... 100
Legal Matters............................................................. 100
Experts................................................................... 100
Index to Consolidated Financial Statements................................ F-1
</TABLE>
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DIAMOND BRANDS OPERATING CORP.
OFFER TO EXCHANGE
SERIES B 10 1/8% SENIOR SUBORDINATED NOTES DUE 2008, WHICH HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR ANY AND ALL
OUTSTANDING 10 1/8% SENIOR SUBORDINATED NOTES DUE 2008
---------------
PROSPECTUS
---------------
, 1998
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
REGISTRANTS INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
The Issuer's Certificate of Incorporation provides that a director of the
Issuer shall not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (ii)
under Section 174 of the Delaware General Corporation Law (the "DGCL"), as the
same exists or hereafter may be amended, or (iv) for any transaction from
which the director derived an improper personal benefit. If the DGCL hereafter
is amended to authorize the further elimination or limitation of the liability
of directors, then the liability of directors shall be eliminated or limited
to the full extent permitted by the DGCL.
The By-laws of the Issuer provide that each person who was or is a party or
is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"proceeding"), by reason of the fact that he, or a person of whom he is the
legal representative, is or was a director or officer of the corporation or is
or was a director or officer of the Issuer who is or was serving at the
request of the Issuer as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, shall be indemnified
and held harmless by the corporation to the full extent permitted by the DGCL
against all costs, charges, expenses, liabilities and losses (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such
person in connection therewith and such indemnification shall continue as to a
person who has ceased to be a director or officer and shall inure to the
benefit of his heirs, executors and administrators.
Section 145 of the DGCL provides:
145 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE.--(a) A corporation shall have power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation) by reason of the fact that the person is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by the person in
connection with such action, suit or proceeding if the person acted in good
faith and in a manner the person reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe the person's conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had reasonable cause to believe that the
person's conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred
by the person in connection with the defense or settlement of such action or
suit if the person acted in good faith and in a manner the person reasonably
believed to be in or
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not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, such person
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of
the present or former director, officer, employee or agent is proper in the
circumstances because the person has met the applicable standard of conduct
set forth in subsections (a) and (b) of this section. Such determination shall
be made, with respect to a person who is a director or officer at the time of
such determination, (1) by a majority vote of the directors who are not
parties to such action, suit or proceeding, even though less than a quorum, or
(2) by a committee of such directors designated by majority vote of such
directors, even though less than a quorum, or (3) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (4) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking
by or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that such person is not entitled to be indemnified by
the corporation as authorized in this section. Such expenses (including
attorneys' fees) incurred by former directors and officers or other employees
and agents may be so paid upon such terms and conditions, if any, as the
corporation deems appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in
such person's official capacity and as to action in another capacity while
holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against such person in any such capacity or arising out of such person's
status as such whether or not the corporation would have the power to
indemnify such person against such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power
and authority to indemnify its directors, officers, and employees or agents,
so that any person who is or was a director, officer, employee or agent of
such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall
stand in the same position under this section with respect to the resulting or
surviving corporation as such person would have with respect to such
constituent corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit
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<PAGE>
plan; and references to "serving at the request of the corporation" shall
include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner such person reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the corporation"
as referred to in this section.
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees).
REGISTRANTS INCORPORATED UNDER THE LAWS OF THE STATE OF KANSAS
The Articles of Incorporation of Empire Candle, Inc. provide that no
director or officer of the corporation will be personally liable to the
corporation or to its shareholders for monetary damages for any breach of
fiduciary duty as a director, except to the extent such exemption from
liability or limitation thereof is not permitted under the laws of the State
of Kansas. The Articles further provide that any person who at any time serves
or served as a director, officer, or employee of the corporation , or of any
other enterprise at the request of the corporation, and the heirs, executors
and administrators of such person, must be indemnified by the corporation in
accordance with, and to the fullest extent permitted by the General
Corporation Code of Kansas (the "GCCK").
The Bylaws of Empire Candle, Inc. provide that any person who at any time
serves or served as a director, officer, or employee of the corporation , or
of any other enterprise at the request of the corporation, and the heirs,
executors and administrators of such person, must be indemnified by the
corporation in accordance with, and to the fullest extent permitted by the
GCCK.
Section 17-6305 of the GCCK provides:
17-6305 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
ADVANCEMENT OF EXPENSES; INSURANCE; DEFINITIONS.--(a) A corporation shall have
power to indemnify any person who was or is a party, or is threatened to be
made a party, to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, other
than an action by or in the right of the corporation, by reason of the fact
that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses, judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding, including attorney fees,
if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the corporation;
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe such person's conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
such person reasonably believed to be or in or not opposed to the best
interests of the corporation, and, with respect to any criminal accent or
proceeding, had reasonable cause to believe that such person's conduct was
unlawful.
(b) A corporation shall have power to indemnify any person who was or is
party, or is threatened to be made a party, to any threatened, pending or
completed action or suit by or in the right of the corporation to
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<PAGE>
procure a judgment in its favor by reason of the fact that such person is or
was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit, including
attorney fees, if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b), or in
defense of any claim, issue or matter therein, such director, officer,
employee or agent shall be indemnified against expenses actually and
reasonably incurred by such person in connection therewith, including attorney
fees.
(d) Any indemnification under subsections (a) and (b), unless ordered by a
court, shall be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because such director,
officer, employee or agent has met the applicable standard of conduct set
forth in subsections (a) and (b). Such determination shall be made (1) by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (2) if such a quorum
is not obtainable, or even if obtainable, a quorum of disinterested directors
so directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
(e) Expenses incurred by a director or officer in defending a civil or
criminal action, suit or proceeding may be paid by the corporation in advance
of the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director or officer to repay such account
if it is ultimately determined that the director or officer is not entitled to
be indemnified by the corporation as authorized in this section. Such expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in a
person's official capacity and as to action in another capacity while holding
such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against such person and incurred by such person in any such capacity, or
arising out of such person's status as such, whether or not the corporation
would have the power to indemnify such person against such liability under the
provisions of this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power
and authority to indemnify its directors, officers and employees or agents, so
that any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, office, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall
stand in the same position under this section with respect to the resulting or
surviving corporation as such person would have with respect to such
constituent corporation if its separate existence had continued.
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(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee
or agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner such
person reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to
in this section.
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
REGISTRANTS INCORPORATED UNDER THE LAWS OF THE STATE OF MAINE
The Bylaws of Forster Inc. provide that a person who is or was a director,
officer, employee or agent of the corporation, or who is or was serving in
another capacity at the request of the corporation shall be indemnified by the
corporation to the full extent provided by the Maine Business Corporation Act
(the "MBCA").
Section 719 of the MBCA provides:
719 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE.--1. A corporation shall have the power to indemnify or, if so
provided in the bylaw, shall in all cases indemnify, any person who was or is
a party or is threatened to be made party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that that person is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, trustee, partner,
fiduciary, employee or agent of another corporation, partnership, joint
venture, trust, pension or other employee benefit plan or other enterprise,
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by that person in connection
with such action, suit or proceeding; provided that no indemnification may be
provided for any person with respect to any matter as to which that person
shall have been finally adjudicated;
A. Not to have acted honestly or in the reasonable belief that that person's
action was in or not opposed to the best interests of the corporation or its
shareholders or, in the case of a person serving as a fiduciary of an employee
benefit plan or trust, in or not opposed to the best interests of that plan or
trust, or its participants or beneficiaries; or
B. With respect to any criminal action or proceeding, to have had reasonable
cause to believe that that person's conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order or
conviction adverse to that person, or by settlement or plea of nolo contendere
or its equivalent, shall not of itself create a presumption that that person
did not act honestly or in the reasonable belief that that person's action was
in or not opposed to the best interests of the corporation or its shareholders
or, in the case of a person serving as a fiduciary of an employee benefit plan
or trust, in or not opposed to the best interests of that plan or trust or its
participants or beneficiaries and, with respect to any criminal action or
proceeding, had reasonable cause to believe that that person's conduct was
unlawful.
1-A. Notwithstanding any provision of subsection 1, a corporation shall not
have the power to indemnify any person with respect to any claim, issue or
matter asserted by or in the right of the corporation as to which that person
is finally adjudicated to be liable to the corporation unless the court in
which the action, suit or proceeding was brought shall determine that, in view
of all the circumstances of the case, that person is fairly and reasonably
entitled to indemnify for such amounts as the court shall deem reasonable.
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2. Any provision of subsection 1, 1-A or 3 to the contrary notwithstanding,
to the extent that a director, officer, employee or agent of a corporation has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsection 1 or 1-A, or in defense of any claim,
issue or matter therein, that director, officer, employee or agent shall be
indemnified against expenses, including attorneys' fees, actually and
reasonably incurred by that director, officer, employee or agent in connection
therewith. The right to indemnification granted by this subsection may be
enforced by a separate action against the corporation, if an order for
indemnification is not entered by a court in the action, suit or proceeding
wherein that director, officer, employee or agent was successful on the merits
or otherwise.
3. Any indemnification under subsection 1, unless ordered by a court or
required by the bylaws, shall be made by the corporation only as authorized in
the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances and in the best
interests of the corporation. That determination shall be made by the board of
directors by a majority vote of a quorum consisting of directors who were not
parities to that action, suit or proceeding, or if such a quorum is not
obtainable, or even if obtainable, if a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or by the
shareholders. Such a determination once made may not be revoked and, upon the
making of that determination, the director, officer, employee or agent may
enforce the indemnification against the corporation by a separate action
notwithstanding any attempted or actual subsequent action by the board of
directors.
4. Expenses incurred in defending a civil, criminal, administrative or
investigative action, suit or proceeding may be authorized and paid by the
corporation in advance of the final disposition of that action, suit or
proceeding upon a determination made in accordance with the procedure
established in subsection 3 that, based solely on the facts then known to
those making the determination and without further investigation, the person
seeking indemnification satisfied the standard of conduct prescribed by
subsection 1, or if so provided in the bylaws, these expenses shall in all
cases be authorized and paid by the corporation in advance of the final
disposition of that action, suit or proceeding upon receipt by the corporation
of:
A. A written undertaking by or on behalf of the officer, director,
employee or agent to repay that amount if that person is finally
adjudicated:
(1) Not to have acted honestly or in the reasonable belief that that
person's action was in or not opposed to the best interests of the
corporation or its shareholders or, in the case of a person serving as
a fiduciary of an employee benefit plan or trust, in or not opposed to
the best interests of such plan or trust or its participants or
beneficiaries;
(2) With respect to any criminal action or proceeding, to have had
reasonable cause to believe that the person's conduct was unlawful; or
(3) With respect to any claim, issue or matter asserted in any
action, suit or proceeding brought by or in the right of the
corporation, to be liable to the corporation, unless the court in which
that action, suit or proceeding was brought permits indemnification in
accordance within subsection 2; and
B. A written affirmation by the officer, director, employee or agent that
the person has met the standard of conduct necessary for indemnification by
the corporation as authorized in this section.
The undertaking required by paragraph A shall be an unlimited general
obligation of the person seeking the advance, but need not be secured and may
be accepted without reference to financial ability to make the repayment.
5. The indemnification and entitlement to advances of expenses provided by
this section shall not be deemed exclusive of any other rights which those
indemnified may be entitled under any bylaw, agreement, vote of stockholders
or disinterested directors or otherwise, both as to action in that person's
official capacity and as to action in another capacity while holding such
office, and shall constitute as to a person who has ceased to be a director,
officer, employee , agent, trustee, partner or fiduciary and shall inure to
the benefit of the heirs, executors and administrators of such a person. A
right to indemnification required by the bylaws may be enforced by a
II-6
<PAGE>
separate action against the corporation, if an order for indemnification has
not been entered by a court in any action, suit or proceeding in respect to
which indemnification is sought.
6. A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, trustee, partner, fiduciary, employee or agent of another
corporation, partnership, joint venture, trust, pension or other employee
benefit plan or other enterprise against any liability asserted against that
person and incurred by that person in any such capacity, or arising out of
that person's status as such, whether or not the corporation would have the
power to indemnify that person against such liability under this section.
7. For purposes of this section, references to the "corporation" shall
include, in addition to the surviving corporation or new corporation, any
participating corporation in a consolidation or merger.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. A list of exhibits included as part of this Registration
Statement is set forth in the Exhibit Index which immediately precedes such
exhibits and is hereby incorporated by reference herein.
(b) Financial Statement Schedules. Schedules, other than Schedule II set
forth below, have been omitted since the required information is not present,
or not present in amounts sufficient to require submission of the schedule, or
because the information is included in the financial statements or notes
thereto.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
---------------------------------------------------------
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS- BALANCE
BEGINNING COSTS AND OTHER ACCOUNTS- DESCRIBE END OF
OF PERIOD EXPENSES DESCRIBE (A) (B) PERIOD
---------- ---------- --------------- ----------- -------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts............... $341 97 248 (80) $606
===== ===== ===== ===== =====
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
---------------------------------------------------------
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS- BALANCE
BEGINNING COSTS AND OTHER ACCOUNTS- DESCRIBE END OF
OF PERIOD EXPENSES DESCRIBE (A) (B) PERIOD
---------- ---------- --------------- ----------- -------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts............... $606 116 -- (83) ($)639
===== ===== ===== ===== =====
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
---------------------------------------------------------
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS- BALANCE
BEGINNING COSTS AND OTHER ACCOUNTS- DESCRIBE END OF
OF PERIOD EXPENSES DESCRIBE (A) (B) PERIOD
---------- ---------- --------------- ----------- -------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts............... $639 758 225 (427) $1,195
===== ===== ===== ===== =====
</TABLE>
- --------
(a) Incurred in conjunction with acquisitions of companies.
(b) Write off of account balances during the year.
ITEM 22. UNDERTAKINGS.
The undersigned registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of any
registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plans annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
II-7
<PAGE>
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
registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 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 any of the registrants in the successful defense of
any action, suit or proceeding) is asserted by any such director, officer or
controlling person in connection with the securities being registered, such
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 of whether or not such indemnification is against
public policy as expressed in the Securities Act of 1933 and will be governed
by the final adjudication of such issue.
The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrants hereby undertake to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the registration statement when it became effective.
The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-8
<PAGE>
Pursuant to the requirements of the Securities Act, each registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Cloquet, State of
Minnesota, on June 30, 1998.
Diamond Brands Operating Corp.
/s/ Naresh K. Nakra
By: _________________________________
Name:Naresh K. Nakra
Title:President, CEO
Empire Candle, Inc.
/s/ Naresh K. Nakra
By: _________________________________
Name:Naresh K. Nakra
Title:President, CEO
Forster Inc.
/s/ Naresh K. Nakra
By: _________________________________
Name:Naresh K. Nakra
Title:President, CEO
S-1
<PAGE>
Pursuant to the requirement of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on
the dates indicated, on June 30, 1998.
SIGNATURES TITLE
/s/Naresh K. Nakra Director: Diamond Brands Operating
------------------------------------- Corp.; Empire Candle,Inc; Forster Inc.
NARESH K. NAKRA President and Chief Executive
Officer: Diamond Brands Operating
Corp.; Empire Candle, Inc;
Forster Inc.
/s/ Alexander M. Seaver Director: Diamond Brands Operating
------------------------------------- Corp.; Empire Candle, Inc.;
ALEXANDER M. SEAVER Forster Inc.
/s/ Bradley R. Kent Director: Diamond Brands Operating
------------------------------------- Corp.; Empire Candle, Inc.;
BRADLEY R. KENT Forster Inc.
/s/ Richard S. Campbell Vice President of Supply Chain:
------------------------------------- Diamond Brands Operating Corp.;
RICHARD S. CAMPBELL Empire Candle, Inc.; Forster Inc.
/s/ Thomas W. Knuesel Vice President of Finance and Chief
------------------------------------- Financial Officer: Diamond Brands
THOMAS W. KNUESEL Operating Corp.; Empire Candle, Inc.;
Forster Inc.
/s/ Christopher A. Mathews Vice President of Manufacturing:
------------------------------------- Diamond Brands Operating
CHRISTOPHER A. MATHEWS Corp.; Empire Candle, Inc.;
Forster Inc.
/s/ John F. Young Vice President of Sales and
------------------------------------- Marketing; Diamond Brands Operating
JOHN F. YOUNG Corp.; Empire Candle, Inc.;
Forster Inc.
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NO. DESCRIPTION
---- -----------
<C> <S>
2.1 Recapitalization Agreement, dated as of March 3, 1998 between Seaver
Kent-TPG Partners, L.P., Seaver Kent I Parallel, L.P. and Diamond Brands
Incorporated (the "Recapitalization Agreement")
NOTE: Pursuant to the provision of paragraph (b)(2) of Item 601 of
Regulation S-K, the Registrant hereby undertakes to furnish to the
Commission upon request copies of any schedule to the Recapitalization
Agreement
3.1 Certificate of Incorporation of Diamond Brands Operating Corp.
3.2 Certificate of Incorporation of Empire Candle, Inc.
3.3 Certificate of Incorporation of Forster Inc.
3.4 By-laws of Diamond Brands Operating Corp.
3.5 By-laws of Empire Candle, Inc.
3.6 By-laws of Forster Inc.
4.1 Indenture dated April 21, 1998, among Diamond Brands Operating Corp., the
subsidiary guarantors of Diamond Brands Operating Corp. that are
signatories thereto and State Street Bank and Trust Company, as trustee,
relating to the Notes (the "Indenture")
4.2 Form of Series B 10-1/8% Senior Subordinated Notes due 2008 of Diamond
Brands Operating Corp. (the "New Notes") (included as Exhibit A of the
Indenture filed as Exhibit 4.1)
4.3 Credit Agreement, dated as of April 21, 1998, among Diamond Brands
Operating Corp., the Lenders Party thereto, Wells Fargo Bank, N.A., as
Administrative Agent, DLJ Capital Funding, Inc., as Syndication Agent,
and Morgan Stanley Senior Funding, Inc., as Documentation Agent
4.4 Subsidiary Guarantee Agreement dated as of April 21, 1998, among the
subsidiary guarantors of Diamond Brands Operating Corp. that are
signatories thereto and Wells Fargo Bank, N.A.
4.5 Subsidiary Pledge Agreement, dated as of April 21, 1998, among the
subsidiary guarantors of Diamond Brands Operating Corp. that are
signatories thereto and Wells Fargo Bank, N.A.
4.6 Subsidiary Security Agreement, dated as of April 21, 1998, among the
subsidiary guarantors of Diamond Brands Operating Corp. that are
signatories thereto and Wells Fargo Bank, N.A.
4.7 Subsidiary Copyright Security Agreement, dated as of April 21, 1998,
among the subsidiary guarantors of Diamond Brands Operating Corp. that
are signatories thereto and Wells Fargo Bank, N.A.
4.8 Subsidiary Trademark Security Agreement, dated as of April 21, 1998,
among the subsidiary guarantors of Diamond Brands Operating Corp. that
are signatories thereto and Wells Fargo Bank, N.A.
4.9 Subsidiary Patent Collateral Assignment and Security Agreement, dated as
of April 21, 1998, among the subsidiary guarantors of Diamond Brands
Operating Corp. that are signatories thereto and Wells Fargo Bank, N.A.
4.10 Holdings Pledge Agreement, dated as of April 21, 1998, among Diamond
Brands Incorporated and Wells Fargo Bank, N.A.
4.11 Holdings Guaranty Agreement, dated as of April 21, 1998, among Diamond
Brands Incorporated and Wells Fargo Bank, N.A.
4.12 Registration Rights Agreement, dated as of April 21, 1998, by and among
Diamond Brands Operating Corp., the subsidiary guarantors of Diamond
Brands Operating Corp. that are signatories thereto, Donaldson, Lufkin &
Jenrette Securities Corporation and Morgan Stanley & Co. Incorporated
NOTE: Pursuant to the provisions of paragraph (b)(4)(iii) of Item 601 of
Regulation S-K, the Registrant hereby undertakes to furnish to the
Commission upon request copies of the instruments pursuant to which
various entities hold long-term debt of the Company or its parent or
subsidiaries, none of which instruments govern indebtedness exceeding 10
percent of the total assets of the Company and its parent or subsidiaries
on a consolidated basis
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NO. DESCRIPTION
----- -----------
<C> <S>
5.1 Opinion of Cleary, Gottlieb, Steen & Hamilton regarding legality of the
New Notes and the guarantees of the New Notes
10.1 Employment Agreement, dated April 21, 1998, by and between Diamond
Brands Incorporated and Naresh K. Nakra
10.2 Employment Agreement, dated November 1, 1997, by and between Diamond
Brands Incorporated and Thomas W. Knuesel
10.3 Amendment to the Employment Agreement, dated April 21, 1998, by and
between Diamond Brands Incorporated and Thomas W. Knuesel
10.4 Employment Agreement, dated November 1, 1997, by and between Diamond
Brands Incorporated and John F. Young
10.5 Amendment to the Employment Agreement, dated April 21, 1998, by and
between Diamond Brands Incorporated and John F. Young
10.6 Employment Agreement, dated November 1, 1997, by and between Diamond
Brands Incorporated and Christopher A. Mathews
10.7 Amendment to the Employment Agreement, dated April 21, 1998, by and
between Diamond Brands Incorporated and Christopher A. Mathews
10.8 Employment, Non-competition, and Confidentiality Agreement, dated as
of May 26, 1992, by and between Forster Mfg. Co., Inc. and Richard S.
Campbell
10.9 Collective bargaining agreement, dated May 1, 1997, by and between Di-
amond Brands Incorporated and Matchmaker Local 970
10.10 Non-Qualified Stock Option Agreement, made as of January 1, 1997, be-
tween Diamond Brands Incorporated and Thomas W. Knuesel
10.11 Non-Qualified Stock Option Agreement, made as of January 1, 1997, be-
tween Diamond Brands Incorporated and John F. Young
10.12 Non-Qualified Stock Option Agreement, made as of January 1, 1997, be-
tween Diamond Brands Incorporated and Christopher A. Mathews
10.13 Non-Qualified Stock Option Agreement, made as of January 1, 1997, be-
tween Diamond Brands Incorporated and Richard S. Campbell
10.14 Non-Qualified Stock Option Agreement, made as of January 1, 1997, be-
tween Diamond Brands Incorporated and John Beach
10.15 Diamond Brands Incorporated 1997 Non-Qualified Stock Option Plan
10.16 Non-Qualified Stock Option Agreement, made as of April 21, 1998, be-
tween Diamond Brands Incorporated and Naresh K. Nakra
10.17 Non-Qualified Stock Option Agreement, made as of April 21, 1998 be-
tween Diamond Brands Incorporated and Naresh K. Nakra
10.18 Non-Qualified Stock Option Agreement, made as of April 21, 1998 be-
tween Diamond Brands Incorporated and Thomas W. Knuesel
10.19 Non-Qualified Stock Option Agreement, made as of April 21, 1998, be-
tween Diamond Brands Incorporated and John F. Young
</TABLE>
<TABLE>
<C> <S>
10.20 Non-Qualified Stock Option Agreement, made as of April 21, 1998, be-
tween Diamond Brands Incorporated and Christopher A. Mathews
10.21 Non-Qualified Stock Option Agreement, made as of April 21, 1998, be-
tween Diamond Brands Incorporated and Richard S. Campbell
10.22 Non-Qualified Stock Option Agreement, made as of April 21,1998, be-
tween Diamond Brands Incorporated and John Beach
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NO. DESCRIPTION
----- -----------
<C> <S>
10.23 Term Lease agreements between IBM Credit Corporation and Diamond
Brands Incorporated
10.24 Lease Agreement dated as of November 22, 1996 between Meridian Leasing
Corporation and Diamond Brands Incorporated
10.25 Lease Agreement dated as of June 23, 1997 between LNPJ, L.L.C. and Em-
pire Candle, Inc.
10.26 Lease Agreement dated as of March 17, 1995 between MEPC American Prop-
erties Inc. and Diamond Brands Incorporated.
10.27 Supply Agreement dated as of January 1, 1997 between Ohio Valley Plas-
tics and Forster Inc.
12.1 Computation Ratio of Earnings to Fixed Charges
21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Cleary Gottlieb Steen & Hamilton (included in its legality
opinion filed as Exhibit 5.1)
25.1 Form T-1 with respect to the eligibility of State Street Bank and
Trust Company with respect to the Indenture
27.1 Financial Data Schedule
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and other Nominees
99.4 Form of Letter to Client
</TABLE>
EXECUTION COPY
--------------
RECAPITALIZATION AGREEMENT
This Recapitalization Agreement (this "Agreement"), is made and entered
into on March 3, 1998, among Seaver Kent--TPG Partners L.P. and Seaver Kent I
Parallel, L.P. (collectively, the "Buyer"), Diamond Brands Incorporated, a
Minnesota corporation ("DBI"), and each of the owners of equity interests or
options to purchase equity interests in DBI, all of which are listed on Exhibit
A hereto (collectively, the "Shareholders").
DBI and its wholly-owned subsidiaries, Forster Inc., a Maine corporation
("Forster"), and Empire Candle, Inc., a Kansas corporation ("Empire") (each such
subsidiary a "Subsidiary" and, collectively, the "Subsidiaries") are engaged in
the business of manufacturing, selling and distributing various consumer goods,
including, without limitation, toothpicks, candles, matches, clothes pins and
plastic cutlery (the "Business").
DBI and the Shareholders desire to have Buyer invest in preferred stock of
DBI and to use the proceeds of such investment, along with the proceeds of
borrowing by DBI, to (i) refinance outstanding funded debt of DBI, (ii)
repurchase a majority of the outstanding Common Stock of DBI, (iii) purchase
outstanding stock options of DBI, and (iv) pay related transactional expenses.
Buyer desires to make such investment on the terms set forth in this Agreement.
Certain capitalized terms used in this Agreement have the meanings given
those terms in Section 14.
The parties agree as follows:
1. The Investment.
--------------
1.1 Authorization. DBI shall authorize the issuance and sale to Buyer of
-------------
that number of shares of Series A Cumulative Preferred Stock of DBI, which will
have the terms outlined on Exhibit B hereto, equal to the Purchase Price
(determined in accordance with Section 1.3) (the "Preferred Shares") divided by
the Liquidation Preference (as defined in Exhibit B). The terms of the related
warrants to be issued to Buyer (the "Warrants") are also outlined on Exhibit B
hereto. At Closing, and prior to any exercise as required in Section 1.2, the
Warrants shall represent the right to purchase 77.5% of the common equity of DBI
on a fully diluted basis, assuming the repurchase of shares and DBI Options
pursuant to Sections 2.1 and 2.2 has been completed.
1.2 Purchase and Sale. Subject to the terms and conditions set forth
-----------------
herein, at the Closing (as defined herein), DBI shall sell to Buyer and Buyer
shall purchase the Preferred Shares in consideration for the Purchase Price as
determined in accordance with Section 1.3 hereof. In addition, at the Closing,
Buyer shall exercise Warrants to purchase that number of shares of DBI Common
Stock (as defined herein) as equals 28% of the total outstanding DBI
<PAGE>
Common Stock after such exercise and after the repurchase of shares pursuant to
Section 2.1 and shall pay the exercise price related thereto. For all purposes,
the Warrants shall be deemed issued and exercised prior to the repurchase of
shares pursuant to Section 2.1.
1.3 Purchase Price.
--------------
(A) The Purchase Price to be paid by Buyer for the Preferred Shares
(the "Purchase Price") will be an amount equal to:
(1) the amount that would be necessary to satisfy in full all of
DBI's funded debt immediately prior to the Closing ("Debt"), including
without limitation, any line of credit, capital lease obligations,
notes to shareholders and long-term debt, including the current
portion thereof (the "Debt Amount"); plus
(2) an amount equal to (A) $276,000,000 (the "Enterprise
Value"), minus (B) the Debt Amount, plus (C) the Working Capital
Adjustment (as defined below) (the amount equal to (A) minus (B) plus
(C) is herein referred to as the "Equity Value"; the amount equal to
the Equity Value plus the exercise price of all unexercised options to
purchase DBI Common Stock ("DBI Options") immediately prior to the
Closing divided by the aggregate of (x) the number of outstanding
shares of DBI Common Stock, $.01 par value, of DBI ("DBI Common
Stock") immediately prior to the Closing plus (y) the number of shares
of DBI Common Stock which could be purchased pursuant to all
unexercised DBI Options immediately prior to the Closing, is herein
referred to as the "Per Share Equity Value"); plus
(3) the sum of $12,000,000 [estimated fees and expenses]; minus
(4) the sum of $15,000,000 [Retained Stock value]; minus
(5) approximately $227,000,000, which will be borrowed by DBI
from Buyer and/or other sources at or before the Closing.
(B) The Working Capital Adjustment will be the amount (which may be a
negative amount) equal to (i) the "Closing Date Working Capital Amount"
minus (ii) the average monthly working capital for the last full 12 months
prior to the Closing Date minus $1,600,000 (the "Baseline Working
Capital"). The "Closing Date Working Capital" will be equal to the
difference as of the close of business on the day immediately preceding the
Closing Date of (x) the book value of DBI's current assets minus (y) the
book value of DBI's current liabilities (other than the current portion of
funded debt), including accruals for all brokers' fees, employee bonuses
and expenses related to the transactions contemplated hereby (other than
fees and expenses related to the funding of
2
<PAGE>
the transactions contemplated hereby or to the funding of the Business on
or after the Closing), all determined in accordance with GAAP, except if
the Closing is prior to May 7, 1998 by reason of the giving of the
Shareholders' Notice (as defined in Section 3.2), the take down fees (but
not the commitment fees) plus the legal and accounting costs primarily
related to the take down of the subordinated indebtedness required to fund
the transactions contemplated hereby, shall be accrued as a liability. In
addition, for purposes of determining Closing Date Working Capital, (i) the
employee bonuses accrued as a liability will reflect the net effect of the
expense deduction for income tax purposes which DBI will realize after the
Closing; and (ii) the Closing Date Working Capital will reflect the tax
benefit to be realized by DBI after the Closing from the payment of the
Option Value. The Closing Date Working Capital will not be reduced for any
inventory reduction pursuant to the terms of Section 7.5.
1.4 Payment of Purchase Price.
-------------------------
(A) At the Closing, Buyer will pay to DBI, as consideration for the
issuance of the Preferred Shares, an estimate of the Purchase Price (the
"Estimated Purchase Price"), determined by estimating the Working Capital
Adjustment based upon DBI's records.
(B) Within sixty days after the Closing, DBI shall deliver to Buyer
and Shareholders Representative (as defined herein), a calculation of the
Purchase Price using the actual Working Capital Adjustment but no other
changes to the Estimated Purchase Price. Within thirty days after delivery
of such calculation, Buyer or Shareholders Representative may assert that
the calculations delivered by DBI are inaccurate and specify the amount of
and the basis for the inaccuracy (the "Disputed Amount") in a written
notice delivered to DBI and the other party. During such thirty-day period,
and thereafter until the Closing Statement (as defined below) is
acknowledged by Buyer and Shareholders Representative, Shareholders
Representative and Buyer and their respective agents and advisors shall
have full access to all records applicable to the determination of the
Working Capital Adjustment. If neither Buyer nor Shareholders
Representative delivers such written assertion to DBI within such thirty
days, Buyer and Shareholders shall be conclusively presumed to agree to
DBI's calculation.
(C) If either Buyer or Shareholders Representative delivers such
written assertion to DBI within such thirty day period, Buyer and
Shareholders Representative shall negotiate in good faith with respect to
the Disputed Amount and if they are unable to reach agreement within thirty
days after delivery of Buyer's or Shareholders Representative's assertion,
the dispute shall be settled by submitting such dispute to Ernst & Young
LLP (the "Accountants"), with a direction to deliver Accountant's
determination within thirty days of such submission. The decision of
Accountants as to the Purchase Price shall be final and binding on the
parties. Buyer and the Shareholders shall each pay one-half of the costs of
Accountants. The final Purchase Price as adjusted
3
<PAGE>
in accordance with this Section, will be reflected on a final statement
acknowledged by Buyer and Shareholders Representative (the "Closing
Statement").
(D) Within ten (10) business days following the final determination
of the Working Capital Adjustment in accordance with the provisions of this
Section:
(1) if the actual Purchase Price exceeds the Estimated Purchase
Price, DBI will pay the amount of such excess in cash to the
Shareholders from whom DBI Common Stock was purchased pursuant to
Section 2.1 or DBI Options were canceled pursuant to Section 2.2, in
accordance with his or her Percentage Interest (as set forth opposite
his or her name on Exhibit C); or
(2) if the actual Purchase Price is less than the estimated
Purchase Price, then each Shareholder from whom DBI Common Stock was
purchased pursuant to Section 2.1 or DBI Options were canceled
pursuant to Section 2.2 shall refund to DBI his or her Percentage
Interest (as set forth opposite his or her name on Exhibit C) of such
deficit from the escrowed funds under the Price Adjustment Escrow
Agreement (as defined herein).
All payments required to be made by DBI or the Shareholders pursuant
to Section 1.4(D) shall bear interest from the Closing Date through the
date of payment at the rate of 8% per annum.
1. Equity Repurchases and Refinancing.
----------------------------------
2.1 Common Stock Repurchases. Assuming receipt of the necessary funds, at
------------------------
the Closing DBI will repurchase from the Shareholders and the Shareholders will
sell, pro rata in accordance with their interests, outstanding DBI Common Stock
with an aggregate value (the "Common Stock Repurchase Amount") equal to the
estimated Equity Value minus $15,000,000 minus the Option Value. The purchase
price per share shall be equal to the estimated Per Share Equity Value,
determined by estimating the Working Capital Adjustment based upon DBI's
records. Such purchase price will be paid in cash to each Shareholder upon the
surrender of the certificate(s) representing the DBI Common Stock owned by such
Shareholder. The Per Share Equity Value will be subject to adjustment as
provided in Section 1.4(D). The Common Stock Repurchase Amount, less the amount
required to be placed in escrow under the terms of Section 3.3(A)(1), shall be
paid by DBI to the Shareholders by wire transfer of immediately available funds
to such accounts designated by the Shareholders prior to Closing.
2.2 Cancellation of Options. Assuming receipt of the necessary funds, at
-----------------------
the Closing DBI will purchase and cancel all of the DBI Options for a price
determined for each option by multiplying (i) the amount by which the Per Share
Equity Value exceeds the applicable exercise price of such option by (ii) the
number of shares of DBI Common Stock as to which the Option
4
<PAGE>
is then exercisable (the "Option Value"). The Option Value, less the amount
required to be placed in escrow under the terms of Section 3.3(A)(1), will be
paid in cash to each holder of a DBI Option, upon the surrender of the DBI
Option accompanied by a duly executed Assignment and Termination Agreement,
which each holder of a DBI Option agrees to deliver at Closing. The Option Value
will be subject to adjustment as provided in Section 1.4(D).
2.3 Retained Stock. The Shareholders will, as of the Closing, continue to
--------------
hold the outstanding DBI Common Stock (the "Retained Stock") not repurchased
under the terms of Section 2.1 above. At the Closing, the Retained Stock shall
represent 22.5% of the common equity of DBI on a fully diluted basis (including
the Warrants), subject to the issuance of management options, which shall dilute
the ownership of the Shareholders and Buyer proportionately.
2.4 Financing. Assuming receipt of the necessary funds, at Closing DBI
---------
will refinance the Debt.
2.5 Indemnification Escrow. At the Closing, the Shareholders will deposit
----------------------
a portion of the Retained Stock into an escrow in accordance with Section 10.5.
1. The Closing.
-----------
3.1 Closing. The purchase and sale of the Preferred Shares and the
-------
consummation of the transactions contemplated by this Agreement (the "Closing")
shall occur at the offices of Lindquist & Vennum P.L.L.P. in Minneapolis,
Minnesota at 10:00 a.m. on May 7, 1998, or such earlier or later time (or such
other location) which is agreed upon by Buyer and DBI in writing or as provided
in Section 3.2 (the "Closing Date"). All transactions at the Closing shall be
deemed to take place simultaneously as of the opening of business on the Closing
Date.
3.2 Early Closing. Upon written notice by the Shareholders Representative
-------------
to the Buyer (the "Shareholders' Notice"), the Shareholders may demand that
Buyer take down the funds pursuant to the commitments attached as Schedule 6.9
to fund the transactions contemplated by this Agreement. In the event a
Shareholders' Notice is given, the Closing shall occur on the later of (i)
fifteen calendar days after delivery of the Shareholders' Notice to Buyer; or
(ii) the date which is three business days after receipt by Buyer and DBI of
necessary approvals under the HSR Act, but in any event, not prior to twenty-
eight days after the date of this Agreement, or on such earlier date agreed upon
by Buyer and DBI.
3.3 Deliveries by Buyer. At the Closing, Buyer shall deliver the
-------------------
following:
(A) An amount equal to the Estimated Purchase Price, in immediately
available funds, by wire transfer to:
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<PAGE>
(1) an account designated by the Escrow Agent under the Escrow
Agreement (as defined herein) of the amount of $500,000 (a pro rata
reduction of the Common Stock Repurchase Amount and Option Value in
accordance with each Shareholder's Percentage Interest) to be held for
a period of up to 150 days under the Escrow Agreement in substantially
the form of Exhibit D hereto (the "Price Adjustment Escrow
Agreement"), to support the obligations of the Shareholders pursuant
to Section 1.4(D)(2) of this Agreement; and
(2) an account designated by DBI prior to the Closing, the
balance of the Estimated Purchase Price.
(B) An Officer's Certificate as to the accuracy at Closing of all of
Buyer's representations and warranties as if made at and as of Closing, the
fulfillment of all of Buyer's agreements and covenants and the satisfaction
of all Closing conditions to be performed by Buyer;
(C) An opinion of legal counsel to Buyer dated as of the Closing
Date, in form reasonably satisfactory to DBI, which opinion is to the
effect that:
(1) Each Buyer is a limited partnership validly existing under
the laws of Delaware and has all requisite company power and authority
to conduct its business as, to such counsel's knowledge, such business
is now conducted;
(2) Buyer has all requisite power and authority to permit it to
execute and deliver this Agreement and perform its obligations
hereunder;
(3) The execution, delivery and performance of this Agreement by
Buyer and each of the documents delivered by Buyer hereunder have been
duly authorized and approved by all necessary partnership action. This
Agreement and each of the documents delivered by Buyer hereunder have
been duly executed and delivered and constitute legal, valid and
binding obligations of Buyer, enforceable in accordance with their
respective terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, rearrangement, reorganization and other debtor
relief legislation and to the application of general equity
principles; and
(4) Neither the execution and delivery of this Agreement nor
consummation of the transactions contemplated hereby will, except as
identified in such opinion, (a) require Buyer to file, register with
or obtain any approval or action of any governmental entity or agency,
(b) conflict with, result in a breach of, violate or constitute a
default under the governing documents of Buyer or any applicable law
or regulation.
6
<PAGE>
(D) A Stockholders Agreement in the form of Exhibit E;
(E) The Escrow Agreement in substantially the form of Exhibit F (the
"Indemnification Escrow Agreement");
(F) Such other instruments or documents as may be reasonably
requested by DBI to carry out the transactions contemplated hereby.
3.4 Deliveries by DBI. At the Closing, DBI shall deliver the following to
-----------------
Buyer; provided DBI shall have fulfilled its obligations under Section 3.3(D) if
it uses all reasonable efforts to deliver the agreements described therein:
(A) Stock certificates for the Preferred Shares;
(B) Evidence of the repurchase of DBI Common Stock in accordance with
Section 2.1, in form reasonably acceptable to Buyer;
(C) Duly executed Assignments and Termination Agreements with respect
to all DBI Options, in form reasonably acceptable to Buyer;
(D) Employment agreements between DBI and the members of its
management listed on Schedule 3.3(D), in form reasonably acceptable to
Buyer;
(E) Resignations of all of the directors of DBI and the Subsidiaries
as are requested by Buyer prior to the Closing.
(F) Evidence of the appointment or election to the Board of Directors
of DBI of the directors designated by Buyer;
(G) A copy of DBI's Articles of Incorporation, certified by the
Secretary of State of Minnesota;
(H) A certificate of the secretary of DBI certifying as to (i) the
bylaws of DBI, (ii) the resolutions of the Board of Directors of DBI
authorizing the consummation of the transactions contemplated hereby and
that such resolutions have not been amended or rescinded and remain in full
force and effect, and (iii) the incumbency of the signatories on behalf of
DBI to this Agreement and the other documents delivered hereunder.
(I) A Certificate from the Secretary of State of Minnesota, dated as
of a date within thirty days prior to the Closing Date, to the effect that
DBI is in existence and in good standing;
7
<PAGE>
(J) An opinion of legal counsel to DBI dated as of the Closing Date,
in form reasonably satisfactory to Buyer, which opinion is to the effect
that:
(1) DBI is a corporation validly existing under the laws of
Minnesota and has all requisite corporate power and authority to
conduct its business as, to such counsel's knowledge, such business is
now conducted;
(2) DBI has all requisite corporate power and authority to
permit it to execute and deliver this Agreement and to perform its
obligations hereunder;
(3) The execution, delivery and performance of this Agreement
and each of the documents delivered by DBI hereunder have been duly
authorized and approved by all necessary corporate action. This
Agreement and each of the documents delivered by DBI hereunder have
been duly executed and delivered and constitute legal, valid and
binding obligations of DBI, enforceable in accordance with their
respective terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, rearrangement, reorganization and other debtor
relief legislation and to the application of general equity
principles;
(4) The authorized Capital Stock of DBI consists of (i) ______
shares of Common Stock, of which there are ________ shares issued and
outstanding of record; and (ii) _______ shares of Series A Cumulative
Preferred Stock, of which there are ______ shares issued and
outstanding of record. Schedule 5.5 to this Agreement contains a
complete list of record shareholders of DBI as well as the number of
shares of DBI Common Stock held of record by each such shareholder, in
each case as registered on the books and records of DBI. Schedule 5.5
to this Agreement lists the record owners of the DBI Options. All such
issued and outstanding shares are validly issued and (assuming receipt
by DBI of the consideration called for by the minutes authorizing the
issuance of each shares) are fully paid and nonassessable and issued
without violation of any preemptive or other right to purchase granted
by statute or the applicable organizational documents. Except as set
forth in such Schedule 5.5, to such counsel's knowledge, there are no
other shares of capital stock of DBI, or securities convertible into
or exchangeable or exercisable for shares of capital stock
outstanding. Upon issuance at the Closing and payment therefor in
accordance with the terms of this Agreement, the Preferred Shares will
be duly authorized, validly issued, fully paid and nonassessable
shares of DBI, issued without violation of any preemptive or other
right to purchase granted by statute or DBI's organizational
documents; and
(5) Neither the execution and delivery of this Agreement, nor
consummation of the transactions contemplated hereby, will, except as
identified in such opinion, (A) require DBI to file, register with or
obtain any approval or
8
<PAGE>
action of any governmental entity or agency, (B) conflict with, result
in a breach of, violate or constitute a default under the
organizational documents of DBI or any Subsidiary or any applicable
law or regulation;
(K) All consents of third parties required pursuant to Section 4.1(D);
(L) The Purchase Price Escrow Agreement; and
(M) Such other instruments or documents as may be reasonably requested
by Buyer to carry out the transactions contemplated hereby.
3.5 Deliveries by the Shareholders. At the Closing, the Shareholders will
------------------------------
deliver:
(A) Certificates representing the DBI Common Stock to be repurchased
in accordance with Section 2.1;
(B) The Price Adjustment Escrow Agreement;
(C) The Stockholders Agreement; and
(D) The Indemnification Escrow Agreement and certificates representing
the shares of DBI Common Stock to be deposited thereunder in accordance
with Section 10.5 accompanied by stock powers duly executed in blank.
1. Closing Conditions.
------------------
4.1 Buyer's Conditions. The obligation of Buyer to consummate the
------------------
purchase and sale of the Preferred Shares is subject to the satisfaction, or
written waiver by Buyer, of all of the following conditions as of the Closing
Date, except that the condition in Sections 4.1(D) may not be waived:
(A) Representations and Warranties. The representations and
------------------------------
warranties made by DBI and the Shareholders in this Agreement must be true
and correct in all material respects as of the date of this Agreement and,
except as specifically contemplated by this Agreement, on and as of the
Closing Date, except to the extent of changes caused by the transactions
expressly contemplated by this Agreement; provided this condition shall not
apply with respect to any matter properly and specifically reflected in the
Working Capital Adjustment or which would not be a material adverse change
as described in Section 4.1(C). DBI and the Shareholders must have
performed or complied, in all material respects, with all obligations and
covenants required by this Agreement to be performed or complied with by
DBI or the Shareholders by the Closing Date.
9
<PAGE>
(B) No Pending Action. No action or proceeding before any court or
-----------------
governmental body shall be pending or threatened wherein an unfavorable
judgment, decree or order would prevent the carrying out of this Agreement
or any of the transactions contemplated hereby, declare unlawful the
transactions contemplated by this Agreement or cause such transactions to
be rescinded or affect the right of Buyer to own the Preferred Shares or of
DBI to own or use its assets or conduct the Business.
(C) No Material Adverse Change. Since December 31, 1997, there
--------------------------
shall not have been any material adverse change in the business,
properties, financial condition, results of operations, assets, prospects
of the current Business during the successive twelve months, or liabilities
of DBI and its Subsidiaries, taken as a whole; provided this condition
shall not apply with respect to any matter not reasonably likely to result
in a net cost to DBI in excess of $5,000,000 following Closing (excluding
any cost reflected in the Working Capital Adjustment) and in a material
impairment of the operations of DBI as currently conducted or the right or
ability of DBI to issue the Preferred Stock and Warrants containing the
terms set forth on Exhibit B.
(D) Governmental Authorizations. DBI shall have received all
---------------------------
required authorizations, consents and approvals of governments and
governmental agencies and third parties with respect to the consummation by
DBI of the transactions contemplated hereby, except where the failure to
obtain such third party consents would not reasonably be expected to result
in a material liability to DBI or its Subsidiaries or materially interfere
with the Business, create a lien on any assets of DBI or any of its
Subsidiaries, or affect the right or ability of DBI to issue the Preferred
Shares and Warrants containing the terms set forth on Exhibit B.
4.2 DBI's and Shareholders' Conditions. The obligations of DBI and the
----------------------------------
Shareholders to consummate the transactions contemplated hereby are subject to
the satisfaction or written waiver by DBI of all of the following conditions as
of the Closing Date, except that the condition in Section 4.2(C) may not be
waived:
(A) Representations and Warranties. The representations and
------------------------------
warranties of Buyer made in this Agreement must be true and correct in all
material respects as of the date of this Agreement and on and as of the
Closing Date, and Buyer must have performed or complied, in all material
respects, with the obligations (including those specified in Section 12.4)
and covenants required by this Agreement to be performed or complied with
by Buyer by the Closing Date;
(B) No Adverse Actions. There must be no injunction or order of any
------------------
court or administrative agency of competent jurisdiction in effect as of
the Closing Date which restrains or prohibits the transactions contemplated
hereby; and
10
<PAGE>
(C) Governmental Authorizations. Buyer shall have received all
---------------------------
required authorizations, consents and approvals of governments and
governmental agencies and third parties with respect to the consummation by
Buyer of the transactions contemplated hereby, except where the failure to
obtain such third party consents would not reasonably be expected to result
in a material liability to DBI or its Subsidiaries or materially interfere
with the Business, create a Lien on the assets of DBI or its Subsidiaries
or the DBI Common Stock or the ability of DBI to issue the Preferred Shares
or the Warrants.
5. Representations and Warranties of DBI. DBI represents and warrants to
-------------------------------------
Buyer as follows:
5.1 Organization and Authority. DBI is a corporation duly organized,
--------------------------
validly existing and in good standing under the laws of the state of Minnesota.
Forster is a corporation duly organized, validly existing and in good standing
under the laws of the state of Maine. Empire is a corporation duly organized,
validly existing and in good standing under the laws of the state of Kansas.
DBI and each of the Subsidiaries is duly qualified as a foreign corporation in
every jurisdiction where failure to so qualify would result in a Material
Adverse Effect. DBI and each of the Subsidiaries has the corporate power and
authority to carry on its business as now conducted and to consummate the
transactions contemplated hereby. All corporate acts and proceedings required
to be taken by DBI and each of the Subsidiaries to authorize the execution,
delivery and performance of, and the consummation of the transactions
contemplated by, this Agreement have been duly and properly taken. DBI has
delivered to Buyer complete and correct copies of the charter and bylaws of DBI
and each Subsidiary.
5.2 Due Execution. This Agreement has been duly executed and delivered by
-------------
DBI and constitutes a valid and binding obligation of DBI, enforceable against
DBI in accordance with its terms, except that
(A) such enforceability may be subject to bankruptcy, insolvency,
reorganization, moratorium or other laws, decisions or equitable principles
now or hereafter in effect relating to or affecting the enforcement of
creditors' rights or debtors' obligations generally, and
(B) the remedy of specific performance and injunctive and other forms
of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefore may be
brought.
5.3 No Conflicts. Except as disclosed on Schedule 5.3, the execution and
------------
delivery of this Agreement does not, and the consummation of the transactions
contemplated by, and the compliance with the terms of, this Agreement will not,
conflict with, or result in any violation of or default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to loss of a benefit or to a
lien, encumbrance, penalty or payment under, or require any consent,
authorization or approval under
11
<PAGE>
(A) any provision of the articles of incorporation or bylaws of DBI
or any of the Subsidiaries;
(B) any Material Contract; or
(C) any judgment, order or decree or any statute, law, ordinance,
rule, regulation, material license or permit applicable to DBI, any
Subsidiary or the Business, other than:
(1) compliance with and filings under the HSR Act and any
applicable foreign laws; and
(2) those that may be required solely by reason of Buyer's (as
opposed to any other party's) participation in the transactions
contemplated by this Agreement.
5.4 Governmental Consents. Based, in part, upon the representations and
---------------------
warranties of Buyer in Section 6.7, no consent, approval, license, permit, order
or authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, is required to be obtained or made by or
with respect to DBI or any of the Subsidiaries in connection with the execution
and delivery of this Agreement, or the consummation by DBI of the transactions
contemplated by this Agreement, other than:
(A) compliance with and filings under the HSR Act and any applicable
foreign laws;
(B) qualification under applicable state securities laws; and
(C) filing of a Certificate of Rights and Preferences with the
Secretary of State of Minnesota with respect to the Preferred Shares; and
(D) those that may be required solely by reason of Buyer's (as opposed
to any other party's) participation in the transactions contemplated by
this Agreement.
5.5 Capitalization.
--------------
(A) Schedule 5.5 accurately identifies all of the authorized capital
stock of DBI and each of the Subsidiaries and the number of shares of such
capital stock outstanding and the record holders of that stock. The DBI
Common Stock constitutes 100% of the issued and outstanding capital stock
of DBI. All of the issued and
12
<PAGE>
outstanding DBI Common Stock is validly issued, fully paid and
nonassessable and issued without violation of any preemptive right. Except
for the DBI Options, as disclosed on Schedule 5.5, there are no outstanding
subscriptions, options, warrants, calls, rights, convertible securities or
other agreements or commitments of any character relating to ownership
interests in DBI, or any other securities of DBI or of any of the
Subsidiaries or otherwise obligating DBI or any of the Subsidiaries to
issue, transfer, register or sell any such securities, except Warrants and
Preferred Shares hereunder. DBI owns 100% of the issued and outstanding
capital stock of the Subsidiaries. Except for the Subsidiaries, DBI holds,
directly or indirectly, no beneficial interests in any corporation or other
entity except as set forth on Schedule 5.5.
(B) As of the Closing, the Preferred Shares will be duly authorized
and validly issued, fully paid and nonassessable and issued without
violation of any preemptive right.
5.6 No Restrictions. To the Knowledge of DBI, other than transfer
---------------
restrictions imposed by applicable state or federal securities laws, or by
contracts which will be terminated on or prior to the Closing Date which are
listed on Schedule 5.6, there are no transfer restrictions, subscriptions,
options, warrants, rights, calls, contracts, voting trusts, irrevocable proxies,
voting arrangements, commitments, understandings or agreements relating to the
sale, voting or transfer of any of the DBI Common Stock.
5.7 Financial Statements. DBI has delivered to Buyer, true and correct
--------------------
copies of the Financial Statements. The Financial Statements have been prepared
in accordance with the applicable books and records of DBI and the Subsidiaries
and the audited Financial Statements have been prepared in conformity with
generally accepted accounting principles, consistently applied during the
related periods (except as expressly noted in the notes to the Financial
Statements). The balance sheet contained in each of the Financial Statements
fairly presents, in all material respects, the financial condition of DBI, on a
consolidated basis, as of the respective dates set forth in those balance
sheets, and each income statement and statement of cash flows included in each
of the Financial statements fairly presents, in all material respects, the
results of operations and the cash flows of DBI, on a consolidated basis, for
the respective periods set forth therein.
5.8 Undisclosed Liabilities. Neither DBI nor any of the Subsidiaries has
-----------------------
any material liabilities or obligations, except for (i) those reflected on or
reserved against in the Financial Statements; (ii) those incurred in the
ordinary course of business since the date of the latest Financial Statements;
or (iii) those set forth on Schedule 5.8.
5.9 Absence of Certain Changes. Except as disclosed on Schedule 5.9,
--------------------------
since December 31, 1997, neither DBI nor any Subsidiary has incurred any debts,
obligations or liabilities, absolute, accrued or contingent and whether due or
to become due, except in the ordinary course of business, none of which would
have a Material Adverse Effect; paid any
13
<PAGE>
obligation or liability, or discharged or satisfied any Liens other than in the
usual and ordinary course of business; entered into any Material Contract other
than in the ordinary course of business; declared or made any payment to or
distribution to its shareholders as such, or purchased or redeemed any of its
shares of capital stock or obligated itself to do so; mortgaged, pledged or
subjected to Lien any material asset of DBI or any Subsidiary; sold, transferred
or leased any material asset except for the sale of inventory in the ordinary
course of business; suffered any material physical damage, destruction or loss
not covered by insurance; encountered any strike or labor union organizing
activities, or issued or sold any shares of capital stock or other securities or
granted any options with respect thereto; nor has DBI or any Subsidiary agreed
to do any of the foregoing, except the Warrants and Preferred Shares hereunder.
5.10 Title to Properties and Encumbrances. Except as disclosed on
------------------------------------
Schedule 5.10, DBI and its Subsidiaries have good and valid title, subject to no
Lien, to all of their respective properties and assets, including without
limitation the properties and assets reflected in the most recently dated
Financial Statements, except for properties disposed of in the ordinary course
of business since the date of the most recently dated Financial Statements.
5.11 Property, Plant and Equipment. The property, plant and equipment of
-----------------------------
DBI and its Subsidiaries are in operating condition adequate to permit the
conduct of the Business in substantially the manner in which the Business is
currently conducted. Except as disclosed on Schedule 5.10, DBI or a Subsidiary
has good title to, or a valid leasehold interest in, all of the assets used in
the conduct of the Business.
5.12 Contracts. Schedule 5.12 identifies all of the Material Contracts.
---------
Except as disclosed on Schedule 5.12:
(A) each Material Contract is a valid and binding obligation of DBI or
the Subsidiary as the case may be, and, to the Knowledge of DBI, is in full
force and effect and enforceable, subject to applicable insolvency,
fraudulent transfer, reorganization, other laws affecting creditors' rights
generally from time to time in effect and subject to general principles of
equity; and
(B) DBI and each Subsidiary have performed, as of the date of this
Agreement, all of their respective obligations required to be performed to
date under the Material Contracts and are not (with or without the lapse of
time, the giving of notice, or both) in breach or default under any of the
Material Contracts.
5.13 Intellectual Property. Except as disclosed on Schedule 5.13, either
---------------------
DBI or one of the Subsidiaries owns all of the Intellectual Property free and
clear of all Liens. Schedule 5.13 identifies all letters patent and patent
applications, registered trademarks, and copyright registrations and
applications owned by DBI or the Subsidiaries. Except as disclosed on Schedule
5.13, neither the Business nor any products sold by the Business infringes on
the
14
<PAGE>
intellectual property rights of any Person. Except as disclosed on Schedule
5.13, no claims are pending or, to the Knowledge of DBI, threatened in writing
against DBI or any of the Subsidiaries by any Person with respect to the
ownership, validity, enforceability or use of any of the Intellectual Property
or, to the Knowledge of DBI, otherwise challenging or questioning the validity
or effectiveness of any of the Intellectual Property.
5.14 Litigation.
----------
(A) Schedule 5.14(A) identifies all of the lawsuits, claims, actions,
suits, proceedings and, to the Knowledge of DBI, investigations pending,
or, to the Knowledge of DBI, threatened which relate to the Business, DBI
or any of the Subsidiaries; and
(B) Except as disclosed on Schedule 5.14(B), neither DBI nor any of
the Subsidiaries is subject to any judgment, order or decree of any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign.
5.15 Compliance with Applicable Laws.
-------------------------------
(A) Except as disclosed on Schedule 5.15(A), DBI, each Subsidiary and
the Business are in compliance with all applicable statutes, laws,
ordinances, rules, orders and regulations and all conditions of applicable
licenses and permits and any past non-compliance with such laws has been
remedied to the extent required by such laws or to the satisfaction of
applicable governmental agencies.
(B) Except as disclosed on Schedule 5.15(A), neither DBI nor any of
the Subsidiaries has received any written, or, to the Knowledge of DBI,
oral communication from a governmental authority that alleges that DBI, a
Subsidiary or the Business is not currently in compliance, in all material
respects, with any Environmental Laws, including the rules and regulations
relating thereto, or any other applicable statute, law, ordinance, rule,
order, regulation, license or permit.
(C) Schedule 5.15(B) identifies all material permits, licenses and
governmental authorizations obtained by DBI or any of the Subsidiaries
relating to the current conduct of the Business. Except as disclosed on
Schedule 5.15(B), the Business is in compliance with the provisions of
such permits, licenses and governmental authorizations.
5.16 Taxes. DBI and each Subsidiary have each timely filed all tax or
-----
assessment reports and tax returns that are required by any law or regulation to
be filed by DBI or any Subsidiary, and all those reports and returns are
accurate and complete. DBI and each Subsidiary have duly paid or deposited all
taxes due and payable, or which have been assessed against DBI
15
<PAGE>
or any Subsidiary or which DBI or any Subsidiary is obligated to withhold from
amounts owing to any employee. All taxes relating to the current year operations
through the end of the most recently concluded fiscal month of DBI prior to the
Closing Date have been accrued or reflected in the books and records of DBI and
each Subsidiary. Except as disclosed on Schedule 5.16, no taxing or assessment
authority has indicated to DBI in writing any intent to conduct an audit or
other investigation or asserted any unresolved deficiencies with respect to tax
liabilities of DBI or any Subsidiary for any period and DBI has no Knowledge of
any facts or circumstances which would give rise thereto.
5.17 Labor Relations. Except as disclosed on Schedule 5.17, neither DBI
---------------
nor any Subsidiary has any:
(A) unfair labor practice charge or complaint or other proceeding
pending or, to its Knowledge, threatened against DBI or any of the
Subsidiaries before the National Labor Relations Board;
(B) labor strike, slowdown or stoppage pending or, to the Knowledge
of DBI, threatened against or affecting DBI or any of the Subsidiaries;
(C) pending collective bargaining negotiations relating to the
employees of DBI or any of the Subsidiaries;
(D) pending petitions for recognition of a labor union or association
as the exclusive bargaining agent for any or all of the employees of DBI or
any of the Subsidiaries, and, to the Knowledge of DBI, there has not been
any general solicitation of representation cards by any union seeking to
represent the employees of DBI or any of the Subsidiaries as their
exclusive bargaining agent;
(E) collective bargaining agreements; or
(F) material arbitrations, grievances, suits or administrative
proceedings before any government entity relating to labor or employment
matters involving any employees of DBI or any of the Subsidiaries.
5.18 ERISA.
-----
(A) Schedule 5.18 accurately identifies all Plans. DBI has delivered
or caused to be delivered to Buyer a copy of each Plan. Except as disclosed
on Schedule 5.18, (i) no Plan has been terminated within the past twenty-
four months; and (ii) there is no investigation, action, suit, arbitration
or other legal, administrative or other proceeding pending, or to the
Knowledge of DBI, threatened, against any Plan or any assets of any Plan.
16
<PAGE>
(B) Except as provided in Schedule 5.18, each Plan is in compliance
with all applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and the Internal Revenue Code of 1986,
as amended (the "Code"), as well as each Plan's terms and conditions.
Except as provided in Schedule 5.18, there have been no "prohibited
transactions" and no "reportable events" within the meaning of the ERISA
and the Code within the last twenty-four months with respect to any Plan.
Neither DBI nor any of the Subsidiaries have incurred any "accumulated
funding deficiency" within the meaning of ERISA or incurred any liability
to the Pension Benefit Guaranty Corporation in connection with a Plan (or
other class of benefit that the Pension Benefit Guaranty Corporation has
elected to insure).
5.19 Brokers or Finders. DBI has not engaged the services of any broker
------------------
or finder with respect to the transactions contemplated by this Agreement, and
no Person has, or will have, as a result of the consummation of the transactions
contemplated by this Agreement, any right, interest or valid claim against or
upon DBI for any commission, fee or other compensation as a finder or broker
thereof, except that Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ")
has been retained by DBI in connection with the transactions contemplated by
this Agreement, as described on Schedule 5.19.
5.20 Transactions With Affiliates. Except as disclosed on Schedule 5.20,
----------------------------
no director or officer of DBI or any Subsidiary (i) has any contractual
relationship or arrangements with, or commitments to, DBI or any Subsidiary;
(ii) has any direct or indirect interest in any right, property or assets which
are used by DBI or any Subsidiary in the conduct of its business; or (iii) owns
any securities of, or has any direct or indirect interest in, any entity which
conducts a material amount of business with DBI or any Subsidiary, other than
ownership of not more than 1% of a public company.
5.21 Customers and Suppliers. Schedule 5.21 contains a list of the sales
-----------------------
to the twenty largest customers of DBI within the twelve months ended December
31, 1997 and of purchases from and the identity of the ten largest suppliers to
DBI during such period. Except as set forth in Schedule 5.21, since January 1,
1997: (a) DBI has not received from any of the top five customers listed on
Schedule 5.21 notice that such customer intends to discontinue all or
substantially all of its purchasing from DBI, and (b) DBI has not received from
any of the major suppliers of DBI notice that any significant supplier intends
to discontinue delivery of supplies to DBI.
5.22 Improper Payments. Neither DBI or any Subsidiary, nor any officer,
-----------------
agent or employee of DBI, nor, to the Knowledge of DBI or any Subsidiary, any
distributor, licensee or any other person acting on behalf of DBI or any
Subsidiary, (a) has made any unlawful domestic or foreign political
contributions; (b) has made any payment or provided services which were not
legal to make or provide or which DBI or any Subsidiary or any such officer,
employee or other
17
<PAGE>
person should have known were not legal for the payee or the recipient of such
services to receive; (c) has received any payments, services or gratitudes which
were not legal to receive or which DBI or any Subsidiary or such person should
have known were not legal for the payor or the provider to make or provide; (d)
has had any transactions or payments required to be reflected in its financial
statements which are not recorded in its accounting books and records or
disclosed in its financial statements; (e) has had any off-book bank or cash
accounts or "slush funds"; (f) has made any payments to governmental officials
in their individual capacities for the purpose of affecting their action or the
action of the government they represent to obtain special occasions; or (g) has
made illegal payments to obtain or retain business. Neither DBI or any
Subsidiary nor, to the Knowledge of DBI, any of the employees, have received or
paid a "kickback" or any improper or illegal rebate, commission or other payment
in connection with the Business.
5.23 Insurance. Schedule 5.23 contains a complete and correct list and
---------
summary description (including the name of the insurer, coverage, premium,
deductible and expiration date) of all policies of insurance which are in force,
including the amounts thereof, maintained by DBI or any Subsidiary or in which
DBI or any Subsidiary is a named insured or on which DBI or any Subsidiary is
paying premiums. Subject to the deductibles set forth in Schedule 5.23, such
policies are in full force and effect and, based on the past experience of DBI,
are adequate to provide coverage against risks of a material nature to which DBI
or any Subsidiary would normally be exposed in the operation of its business.
5.24 Product Claims. Schedule 5.24 contains an accurate and complete
--------------
statement of all written warranties, warranty policies, service and maintenance
agreements of DBI or any Subsidiary. A summary of the customer claims for
defective products or poor performance related to the Business since January 1,
1996 is included in Schedule 5.24.
5.25 Product Liability. Schedule 5.25 contains an accurate and complete
-----------------
list and summary description of all existing liabilities, claims or obligations
arising from or alleged to arise from any injury to persons or property as a
result of the ownership, consumption, possession or use of any product sold by
DBI or any Subsidiary, or service rendered by DBI or any Subsidiary, or any
failure on the part of DBI or any Subsidiary to deliver product or render
service, on or prior to the Closing Date. All such claims are fully covered by
product liability insurance, subject to any applicable deductibles on Schedule
5.23. There are no recalls, threatened or pending, of any product of DBI or any
Subsidiary.
5.26 Software and Information Systems. Schedule 5.26 identifies or
--------------------------------
describes all material computer software, programs and information systems
("Software") used by the Company or any Subsidiary, all of which is licensed
from third parties. Schedule 5.26 describes the procedures and actions to be
taken by DBI with respect to the continued effective use of its software and
information systems after December 31, 1999. Neither DBI nor its Subsidiaries
is in violation of any third party software license.
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5.27 Environmental Matters.
---------------------
(A) Except as identified in Schedule 5.27, DBI and each Subsidiary
has previously and is currently complying with its obligations under all
Environmental Laws in connection with the operation of the Business, its
occupancy of facilities and otherwise, except for such non-compliance which
has been remedied to the extent required by the Environmental Laws or to
the satisfaction of applicable governmental agencies. Except as identified
in Schedule 5.27, neither DBI nor any Subsidiary has received any written
or, to the Knowledge of DBI, any oral notice alleging any potential non-
compliance with or potential liability pursuant to any Environmental Laws
or with respect to any Materials of Environmental Concern.
(B) Except as identified in Schedule 5.27, no Materials of
Environmental Concern have ever been unlawfully generated, treated, stored,
or disposed of by DBI or any Subsidiary at any facility owned, leased,
operated or utilized by DBI or any Subsidiary (a "Facility"). No
underground storage tanks, as defined in RCRA or under applicable state
law, are present at any Facility or are operated by DBI or any Subsidiary
at any Facility, and, to the Knowledge of DBI, no such tanks were
previously abandoned or removed, except as identified in Schedule 5.27.
Except as identified on Schedule 5.27, there are no Materials of
Environmental Concern or other condition or use of any Facility, whether
natural or man-made, which poses a significant threat of damage to the
health of persons, to property, to natural resources, or to the
environment.
(C) Except as identified in Schedule 5.27, with respect to the
Business, each Facility and its assets, neither DBI or any Subsidiary nor
the Business has any liability or unfulfilled obligation, whether fixed,
unliquidated, absolute, contingent or otherwise, under any Environmental
Laws, including any liability, responsibility or obligation for fines or
penalties, or for investigation, expense, removal, or remedial action to
effect compliance with or discharge any duty, obligation or claim under any
such laws or regulations, and, to the Knowledge of DBI, no such claims,
actions, suits, proceedings or investigations under such laws or
regulations exist or may be brought or threatened. Except as identified in
Schedule 5.27, (i) there has not been, and is not occurring at any
Facility, or any location to which DBI or any Subsidiary ever sent any
materials, or its current or former operations, any release or threatened
release, as those terms are defined in CERCLA, of any Materials of
Environmental Concern resulting from the operations of DBI or any
Subsidiary; and (ii) to the Knowledge of DBI, such a release is not
occurring and has not occurred at any time in the past. Except as
identified in Schedule 5.27, neither DBI nor any Subsidiary has ever
arranged for disposal or treatment, arranged with a transporter to or
accepted for transport any Materials of Environmental Concern, to a
facility, site or location, which, pursuant to CERCLA or any similar state
or local law, (i) has been placed or has been publicly proposed by
authorities having jurisdiction to be
19
<PAGE>
placed, on the National Priorities List or its state equivalent; or (ii)
which is subject to a claim, administrative order or other request to take
removal or remedial action by any person having jurisdiction and authority
in the matter.
(D) Schedule 5.27 identifies all environmental audits or assessments
or occupational health studies undertaken by or on behalf of DBI or any
Subsidiary or legal counsel therefor or, to the Knowledge of DBI,
governmental agencies with respect to each Facility and the Business, in
the past five years.
(E) For purposes of this Agreement, the following terms shall have
the meanings set forth below:
(1) "Environmental Laws" (A) means all federal, state and local
------------------
laws, statutes, decisions, rules, ordinances, regulations, moratoria,
orders and requirements ("Laws") relating to (i) pollution or the
protection of the environment (including air, surface water, ground
water, soil, land surface or subsurface strata), or (ii) disposal,
emissions, discharges, spills, releases or threatened releases of
Materials of Environmental Concern, or otherwise relating to the
manufacture, processing, distribution, use, import, export, treatment,
storage, disposal, transport or handling of Materials of Environmental
Concern, and (B) shall include the Resource Conservation and Recovery
Act, as amended ("RCRA"); the Comprehensive Environmental Response
Compensation and Liability Act, as amended ("CERCLA"); the Federal
Water Pollution Control Act, as amended; the Occupational Safety and
Health Act, as amended; the Clean Air Act, as amended; the Safe
Drinking Water Act, as amended; the Toxic Substances Control Act, as
amended; the Emergency Planning and Community Right-to-Know Act; the
Hazardous Materials Transportation Act, as amended; all Laws related
thereto, all implementing Laws and all similar state and local Laws
with respect to each of the foregoing acts.
(2) "Materials of Environmental Concern" means any and all
----------------------------------
hazardous chemicals and materials, and any and all hazardous
substances as defined in CERCLA, hazardous wastes as defined in RCRA,
petroleum and petroleum products, radioactive materials, and any and
all other hazardous chemicals, materials, constituents, pollutants or
contaminants regulated under any Environmental Laws.
5.28 Receivables. All of the accounts receivable of DBI and each
-----------
Subsidiary as of the Closing will be valid claims against customers for goods or
services delivered or rendered in the ordinary course of business.
20
<PAGE>
5.29 Disclosure. The representations and warranties made by DBI in this
----------
Agreement, or in any certificate, statement or other document furnished to Buyer
by DBI pursuant to this Agreement, and the written information and documents
provided by DBI to Buyer on or before the date hereof, excluding specifically
the memorandum prepared by DLJ, all as modified by the Schedules to this
Agreement and all as taken as a whole, in light of the circumstances made, do
not contain untrue statements of material facts and do not omit to state
material facts necessary to make the statements therein in light of the
circumstances under which they were made, not misleading. DBI makes no
representation or warranty with respect to any forecasts, plans, estimates,
budgets or projections contained in any of the foregoing except that such
prospective information prepared by DBI was prepared in good faith. To the
Knowledge of DBI, DBI is not aware of any facts pertaining to DBI, any
Subsidiary or the Business which are reasonably likely to have a Material
Adverse Effect.
6. Representations and Warranties of Buyer. Buyer represents and warrants to
---------------------------------------
DBI and the Shareholders as follows:
6.1 Organization and Authority. Buyer is a limited liability company duly
--------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. All company acts and proceedings required to be taken by Buyer to
authorize the execution, delivery and performance of, and the consummation of
the transactions contemplated by, this Agreement have been duly and properly
taken.
6.2 Due Execution. This Agreement has been duly executed and delivered by
-------------
Buyer and constitutes a valid and binding obligation of Buyer, enforceable
against it in accordance with its terms, except that
(A) such enforceability may be subject to bankruptcy, insolvency,
reorganization, moratorium or other laws, decisions or equitable principles
now or hereafter in effect relating to or affecting the enforcement of
creditors' rights or debtors' obligations generally; and
(B) the remedy of specific performance and injunctive and other forms
of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefore may be
brought.
6.3 No Conflicts. The execution and delivery of this Agreement does not,
------------
and the consummation of the transactions contemplated by, and the compliance
with the terms of, this Agreement will not, conflict with, or result in any
violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to loss of a benefit under, or result in the creation of any
Lien upon any of the properties or assets of, Buyer under any provision of, or
require any consent, authorization or approval under
21
<PAGE>
(A) any provision of the governing documents of Buyer;
(B) any contract, agreement, instrument or other document to which
Buyer is a party or by which any of its properties or assets are bound; or
(C) any material judgment, order or decree or any material statute,
law, ordinance, rule or regulation applicable to Buyer or its assets, other
than
(1) compliance with and filings under the HSR Act and any
applicable foreign laws; and
(2) those that may be required solely by reason of DBI's (as
opposed to any other party's) participation in the transactions
contemplated by this Agreement.
6.4 Governmental Consents. No consent, approval, license, permit, order
---------------------
or authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, is required to be obtained or made by or
with respect to Buyer in connection with the execution and delivery of this
Agreement, or the consummation by Buyer of the transactions contemplated by this
Agreement, other than
(A) compliance with and filings under the HSR Act and any applicable
foreign laws; and
(B) those that may be required solely by reason of DBI's (as opposed
to any other party's) participation in the transactions contemplated by
this Agreement.
6.5 Actions and Proceedings. There are no:
-----------------------
(A) outstanding judgments, orders, writs, injunctions or decrees of
any court, governmental agency or arbitration tribunal against Buyer which
may have a materially adverse effect on the ability of Buyer to consummate
the transactions contemplated by this Agreement; or
(B) actions, suits, claims or legal, administrative or arbitration
proceedings or investigations pending or, to the knowledge of Buyer,
threatened against Buyer, which have or could have a material adverse
effect on the ability of Buyer to consummate the transactions contemplated
hereby.
22
<PAGE>
6.6 Brokers or Finders. Buyer has not engaged the services of any broker
------------------
or finder with respect to the transactions contemplated by this Agreement, and
no Person has, or will have, as a result of the consummation of the transactions
contemplated by this Agreement, any right, interest or valid claim against or
upon Buyer for any commission, fee or other compensation as a finder or broker
thereof.
6.7 Investment Intent; Experience. Buyer has sufficient knowledge and
-----------------------------
experience in financial and business matters to enable it to evaluate the merits
and risks of the transactions contemplated by this Agreement and has so
evaluated the merits and risks of the transactions contemplated by this
Agreement to its satisfaction. Buyer is acquiring the Preferred Shares and
Warrants for its own account, for investment purposes and not with a present
view for resale or for distribution of all or any portion of the Preferred
Shares or Warrants. The Buyer understands that the Preferred Shares and
Warrants have not been, and will not be, registered under the Securities Act of
1933, as amended, as of the Closing or under any state securities laws. The
Preferred Shares and Warrants are being offered and sold in reliance upon
federal and state exemptions for transactions not involving any public offering,
and such certificates will bear a legend restricting the transfer thereof.
Buyer is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (4)
under the Securities Act of 1933. Buyer is able to bear the economic risks
inherent in holding the Preferred Shares and Warrants.
6.8 Principal Office. The state in which Buyer's principal office is
----------------
located is the State of California.
6.9 Financing. Buyer has the financing commitments attached hereto as
---------
Schedule 6.9. As of the date hereof, such commitments are in full force and
effect and contain the complete understanding of the parties thereto with
respect to the matters described therein. Buyer will not terminate such
commitments unless it has secured substitute commitments sufficient to provide
the financing under Section 12.4
7. Covenants of DBI and the Shareholders. DBI and the Shareholders covenant
-------------------------------------
and agree as follows:
7.1 Access. Prior to the Closing, DBI must give Buyer, and Buyer's
------
representatives, employees, counsel and accountants, reasonable access, during
normal business hours and upon reasonable notice to Andrew M. Hunter, III or
Edward A. Michael, to the books and records of DBI and the Subsidiaries, such
access will not unreasonably interfere with the normal operations of DBI or the
Business and all requests for access to management personnel must be approved in
advance by Edward A. Michael or Andrew M. Hunter, III. Access to management
personnel will not be unreasonably withheld and may only be requested to the
extent necessary to facilitate financing or the consummation of the transactions
contemplated by this Agreement and will, in any event, require the participation
of Edward A. Michael who will be reasonably available.
23
<PAGE>
7.2 Ordinary Conduct. Except as permitted by the terms of this Agreement,
----------------
from the date of this Agreement to the Closing Date, DBI shall and shall cause
the Subsidiaries to conduct the Business in the ordinary course consistent with
past practice. Without the prior written consent of Buyer, neither DBI nor any
Subsidiary will do any of the following:
(A) sell, lease, license or otherwise dispose of, or agree to sell,
lease, license or otherwise dispose of, any interest in any of its assets
that are material, individually or in the aggregate, to the Business,
except for the sales of inventory in the ordinary course of business
consistent with past practice;
(B) create, incur, assume or guarantee any indebtedness for money
borrowed or increase the amount of any indebtedness outstanding under any
line of credit, loan agreement, mortgage, or other borrowing arrangement in
existence on the date of this Agreement, except in the ordinary course of
business consistent with past practice;
(C) amend any existing Material Contract, or enter into any new
contract that would constitute a Material Contract, other than purchase and
sale orders in the ordinary course of business or necessary for the
maintenance of property relating to the Business;
(D) except as provided in Section 8.5 or, in connection with the
exercise of outstanding stock options, declare or pay any dividend or other
distribution on its capital stock, issue or agree to issue any such stock
or other securities or redeem or repurchase any of its securities;
(E) fail to maintain its assets in operating condition sufficient for
operations of the Business as currently operated;
(F) fail to comply with any obligation under any Material Contracts;
(G) except as otherwise provided herein, fail to use reasonable
efforts to keep available the services of the present employees of the
Business and preserve the goodwill of customers, suppliers and others
having business relationships with the Business;
(H) fail to maintain its books, accounts and records in the usual,
regular and ordinary manner on a basis consistent with past practice;
(I) enter into, amend or terminate employment, bonus, severance or
retirement contract, plan or arrangement, or increase or agree to increase
any salary or other form of compensation or benefits payable or to become
payable to any executive employee, except, with respect to non-executive
employees, in the ordinary course of business consistent with past
practice;
24
<PAGE>
(J) except as provided in DBI's 1998 Capital Budget, including a
software operating lease described on Schedule 5.26 (which will include
installation and consulting costs), purchase, acquire or lease, or agree or
commit to purchase, acquire or lease any asset in an individual amount in
excess of $25,000, other than purchases of raw materials and supplies in
the ordinary course of business, consistent with past practices; or
(K) enter into any agreement to do any of the foregoing.
From the date of this Agreement to the Closing Date, each Shareholder and
DBI shall not (and DBI shall instruct its officers, representatives, agents and
advisors not to) solicit, encourage or negotiate any proposal from or with, or
supply information to, persons other than Buyer or its representatives with
respect to, or in connection with, the acquisition of DBI or any Subsidiary or
its business or material assets or ownership interests therein, and will
promptly advise Buyer of any acquisition proposal or inquiry with respect to
such a proposal that DBI receives.
7.3 Non-Disclosure. Except as required by law or court order, no
--------------
Shareholder will disclose, or use directly or indirectly, to or for the benefit
of any person or entity other than DBI, and each Shareholder will use all
reasonable efforts to prevent any affiliate from disclosing, any confidential or
proprietary information, data or materials of DBI or any Subsidiary, except to
the extent such information is in the public domain through no fault of the
Shareholder. Each Shareholder may disclose such information to his or her
auditors, attorneys, financial advisors, bankers and other consultants and
advisors. Each Shareholder agrees that any breach of this Section 7.3 will
result in irreparable damage to DBI for which DBI will have no adequate remedy
at law, and, therefore if such a breach should occur, hereby consents to any
temporary or permanent injunction or decree of specific performance by any court
of competent jurisdiction in favor of DBI enjoining any such breach, without
prejudice to any other right or remedy to which DBI shall be entitled.
7.4 Non-Competition. During the period commencing on the Closing Date and
---------------
continuing for five (5) years, each Shareholder designated on Exhibit C as being
bound by this Section 7.4 shall not, directly or indirectly, anywhere in the
United States, Canada or Mexico, (a) engage in any activities, as an owner,
investor (except for an investment of less than five percent in a publicly held
company), partner, consultant or otherwise, in competition with the Business, as
currently conducted by DBI; or (b) induce or attempt to persuade any employee,
agent or customer of DBI or any Subsidiary to terminate such employment agency
or business relationship.
If this covenant is determined by any court of competent jurisdiction to be
invalid or unenforceable for any reason, including, without limitation, by
reason of such agreement extending for too great a period of time or over too
great a geographical area, or by reason of its being too extensive in any other
respect, such agreement, to the specific extent that it is
25
<PAGE>
unenforceable, this covenant shall be deemed automatically modified and shall be
interpreted to extend only over the maximum extent as to which it is valid and
enforceable in order to effectuate the parties' intent to the greatest extent
possible. Any such modification or interpretation shall have no effect on the
validity or enforceability of any remaining provisions of this Agreement.
Each Shareholder agrees that any breach of this Section 7.4 will result in
irreparable damage to DBI for which DBI will have no adequate remedy at law,
and, therefore if such a breach should occur, hereby consents to any temporary
or permanent injunction or decree of specific performance by any court of
competent jurisdiction in favor of DBI enjoining any such breach, without
prejudice to any other right or remedy to which DBI shall be entitled.
7.5 Empire Inventory. On the first anniversary of the Closing Date or
----------------
such earlier date as the Empire Inventory is liquidated, DBI shall pay to the
Shareholders in the manner provided in Section 1.4(D) an amount equal to the
amount recovered by DBI or Empire Candle ("Recovered Amount") with respect to
the inventory purchased by Empire Candle from Empire Manufacturing Company in
February 1997 (the "Empire Inventory") including any recovered fees and expenses
of collection incurred after the Closing less any amount by which DBI's net
proceeds (not required to be paid to any person) from the liquidation of the
Empire Inventory (assuming for such purposes that the net proceeds from
liquidation of any Empire Inventory still held by DBI on the date of such
payment to the Shareholders is zero) is less than $1,000,000. In no event shall
the Shareholders receive more than $1,000,000 of the Recovered Amount plus
recovered fees and expenses of collection incurred after the Closing. If such
recovery is received prior to Closing, any inventory written off as a result of
such recovery will remain as an asset for purposes of the Closing Date Working
Capital. The Shareholders shall be entitled to control the claim and settlement
with respect to such Empire Inventory; provided that any such settlement does
not obligate DBI except as to delivery of any proceeds from the liquidation of
the Empire Inventory. DBI will provide such assistance as may be reasonably
requested by the Shareholders in this matter. All fees and expenses of
collection will be borne by the Shareholders, except to the extent in the
Recovered Amount. DBI will use all reasonable efforts to liquidate the Empire
Inventory as soon as reasonably practicable.
8. Covenants of Buyer. Buyer covenants as follows:
------------------
8.1 Non-Disclosure. Prior to the Closing Date, Buyer may not disclose,
--------------
and must take all necessary action to prevent all Recipients from disclosing,
any Confidential Information to any Person and Buyer may not use, and Buyer must
take all reasonable action to prevent any Recipient from using (other than in
connection with the transactions contemplated by this Agreement), any
Confidential Information, without the prior written consent of an officer of
DBI, except disclosures made exclusively:
26
<PAGE>
(A) to Buyer's employees, agents and representatives who have a need
to know such Confidential Information for the performance of their duties
as employees, agents or representatives;
(B) to enforce Buyer's rights and remedies under this Agreement; or
(C) to the extent required by law, but only if Buyer first notifies
Edward A. Michael in writing of that required disclosure and uses Buyer's
best efforts to cooperate with Edward A. Michael to obtain a protective
order or other similar determination with respect to such Confidential
Information.
8.2 Return of Information. If the transactions contemplated by this
---------------------
Agreement are not consummated by May 7, 1998, Buyer must promptly return, and
use reasonable efforts to cause all other Recipients to return, to DBI all
Confidential Information and any copies of, and notes and extracts regarding,
Confidential Information, and all documents and other information supplied to
Buyer or any other Recipient by DBI.
8.3 Survival. Notwithstanding any other provision in this Agreement to
--------
the contrary, the obligations of confidentiality contained in Sections 8.1 and
8.2 will survive the termination of this Agreement for a period of five years.
8.4 Director and Officer Liability. For six years after the Closing Date,
------------------------------
Buyer will not take any action to cause DBI not to, and DBI will not fail to,
indemnify and hold harmless the present and former officers and directors of DBI
in respect of acts or omissions occurring prior to the Closing to the extent
provided under DBI's Articles of Incorporation, Bylaws and any Indemnification
Agreements in effect on the date of this Agreement true and complete copies of
which have been delivered to Buyer. But, if any claim or claims are asserted or
made within that six-year period, all rights to indemnification in respect of
any such claim or claims will continue until final disposition of any and all
such claims.
8.5 Tax Matters. In the event that any taxing authority conducts an audit
-----------
to determine the amount of any taxes of DBI or any Subsidiary for any period
ending on or before the Closing Date, during which period an S election was in
effect with respect to DBI, or asserts any tax liability for such period, the
Shareholders Representative shall have the exclusive authority to direct,
compromise or contest such audit or asserted tax liabilities as he shall, in his
sole discretion, deem proper. In such event, Buyer and DBI shall cause DBI or
the respective Subsidiary to empower (by power of attorney or such other
documentation as may be appropriate) Shareholders Representative or his designee
to represent DBI or the Subsidiary in any audit or administrative or judicial
proceeding insofar as such audit or proceeding involves any asserted liability
for taxes for the period specified above. Notwithstanding the foregoing, the
Shareholders Representative shall keep DBI fully informed regarding the audit or
asserted tax liability described above. Without the prior written consent of the
Shareholders Representative,
27
<PAGE>
DBI will not, except as required by law, regulation or order, amend any foreign,
federal, state or local income tax return where such amendment is made after the
Closing Date and the effect of which is to increase any income taxes payable by
shareholders of DBI for any period on or before the Closing Date. Where such
amendment is required by law, DBI shall provide adequate notice to the
Shareholders Representative to allow review of such amendment prior to filing.
DBI will prepare the final income tax return for DBI, and the related forms K-1
through the Closing Date. Notwithstanding any provision in this Agreement to the
contrary, DBI may make cash distributions to its shareholders for the estimated
tax liability of those shareholders for income earned by DBI through the Closing
Date, as mutually determined in good faith by DBI and Buyer. In addition, DBI
may distribute an additional amount equal to the Shareholders' Accumulated
Adjustment Account prior to Closing, provided such distribution is reflected in
the calculation of Equity Value by a corresponding increase in the Debt Amount.
8.6 Fees. At the Closing, DBI must pay all fees of DLJ and all legal and
----
accounting fees incurred by DBI, whether incurred on behalf of DBI or any of the
holders of the Shares and the DBI Options, which relate to the transactions
contemplated in this Agreement, accrual for which will be reflected in the
Closing Date Working Capital Amount.
9. Mutual Covenants. The parties covenant and agree as follows:
----------------
9.1 Publicity. DBI, Buyer and the Shareholders agree that no public
---------
release or announcement concerning the transactions contemplated by this
Agreement may be issued by DBI, on the one hand, or Buyer, on the other, without
the prior written consent of the other parties (which consent may not be
unreasonably withheld), except as such release or announcement may be required
by the applicable laws, rules or regulations of any United States or foreign
securities exchange, in which case the party required to make the release or
announcement must allow the other party reasonable time to comment on such
release or announcement in advance of such issuance. Any consent required by the
Shareholders shall be made by the Shareholders Representative. Notwithstanding
the foregoing, DBI and Buyer agree to hold in confidence and not disclose the
information set forth on Exhibit A or C with respect to one or more Shareholders
without the written consent of such Shareholder, except as may be required by
law or necessary for Buyer to consummate the transactions contemplated hereby,
to prosecute claims against any Shareholder or to defend against any claim.
9.2 Best Efforts. Subject to the terms of this Agreement, each party will
------------
use its best efforts to cause the closing of the transactions contemplated in
this Agreement to occur by the Closing Date, it being acknowledged that time is
of the essence. Buyer and DBI will use their best efforts to obtain any
consents required under Section 4.1(D).
9.3 Record Retention. DBI will retain its records existing on the Closing
----------------
Date for a period of five years from the Closing Date, or for any longer period
as may be required by any
28
<PAGE>
government agency or ongoing litigation, and will make such records available to
the former shareholders of DBI as may be reasonably required by the Shareholder
Representative.
9.4 Antitrust Notification. If required, DBI and Buyer shall, as promptly
----------------------
as practicable following the execution and delivery of this Agreement, file with
the United States Federal Trade Commission (the "FTC") and the United States
Department of Justice (the "DOJ") the notification and report forms (the "HSR
Filing") required for the transactions contemplated by this Agreement and any
supplemental information requested in connection therewith pursuant to the HSR
Act. Those notification and report forms and any supplemental information will
be in substantial compliance with the requirements of the HSR Act. Each of DBI
and Buyer shall furnish to the other such necessary information and reasonable
assistance as the other may request in connection with its preparation of any
filing or submission which is necessary under the HSR Act. DBI and Buyer shall
keep each other apprised of the status of any communications with, and inquiries
or requests for additional information from, the FTC and the DOJ and must
promptly comply with any such inquiry or request. Each of DBI and Buyer shall
use its best efforts to obtain as promptly as possible any clearance required
under the HSR Act for the transactions contemplated hereby.
10. Survival and Indemnity.
----------------------
10.1 Survival. All representations, warranties, covenants and agreements
--------
contained in this Agreement shall be deemed to be material and to have been
relied upon by the parties hereto, and all of the representations and warranties
herein shall survive the Closing and the consummation of the transactions
contemplated in this Agreement for a period of fifteen (15) months after the
Closing Date, except that the representations and warranties in Section 5.16
(taxes) shall survive until the expiration of the statutes of limitation
applicable to claims of such types related to any period ending on or before the
Closing Date and the representations and warranties in Section 5.27
(environmental) and the indemnities in Section 10.2(iii) - (vi) shall survive
for thirty (30) months after the Closing Date. All such representations and
warranties shall expire upon the expiration of the survival period specified in
this Section 10.1. All covenants contained in this Agreement shall survive the
Closing indefinitely or until satisfied, except those which by their terms have
a different effective period. No claim for the recovery of any indemnifiable
Loss or Expense for a breach of a representation or warranty may be asserted by
the Buyer against Shareholders after such representation or warranty shall have
expired, provided, however, that claims first asserted in writing within the
pre-expiration period shall survive until resolved.
10.2 Indemnity.
---------
(A) Shareholders, severally in proportion to their ownership of
Retained Stock, shall indemnify, defend and hold harmless Buyer and its
affiliates (including, after the Closing, DBI and the Subsidiaries),
directors, officers and employees (each an
29
<PAGE>
"Indemnified Party") from and against and pay (a) any and all liabilities,
losses, costs and damages (including, without limitation, direct damages,
interest, fines, penalties, monetary sanctions or other relief)
(collectively, "Loss"), and (b) any and all attorneys' and accountants'
fees and expenses, court costs and other out-of-pocket expenses
(collectively, "Expense"), incurred or suffered by any such Indemnified
Party arising from or relating to (i) any breach of any warranty, or the
inaccuracy of any representation, made by DBI in this Agreement; (ii) the
failure by DBI or any Shareholder to perform any of the covenants or
agreements made by it in this Agreement (excluding any covenant to be
performed by DBI on or after the Closing); or (iii) whether or not
disclosed by DBI as of the Closing Date, the use, treatment, or storage at,
or release from, any of the premises owned or used by DBI or any Subsidiary
("Premises") prior to the Closing, of any Materials of Environmental
Concern, (iv) any of DBI or any Subsidiary or any agent, representative, or
other person or entity acting for or on behalf of DBI or any Subsidiary
having at any time prior to the Closing engaged in or restrained from
engaging in any activity, or holding, exercising, or failing to exercise
any power or authority such as to, at any time, subject DBI or any
Subsidiary in any manner to any liability (including, but not limited to
costs of investigation, remediation, property damage, personal injury
damage, punitive awards, penalties, or fines) arising from any ownership,
possession, use, storage, transportation, disposal, or release of any
Materials of Environmental Concern from or at any location prior to the
Closing, (v) the existence or maintenance of any fuel or other storage tank
on or under the Premises at any time prior the Closing; (vi) the presence
prior to the Closing of any hazardous substance, asbestos containing
materials, or polychlorinated biphenyl substance in, under or upon any of
the Premises, the presence of which is, at the Closing, in violation of any
Environmental Law; (vii) the litigation matters identified as items 1, 2
and 3 of Schedule 5.14(A), except to the extent of any reserve for
litigation on the Closing Date Working Capital, other than such portion of
the reserve specifically attributable to other litigation; or (viii)
related to any restrictions on the use by Forster of the names "Woodsies"
or "Forster" in the Business, other than a restriction on the use of the
name "Forster" for lawn games.
(B) Buyer shall indemnify, defend and hold harmless the Shareholders
from and against and pay any Loss or Expense incurred or suffered by any
Shareholder arising from or relating to (i) any breach of any warranty or
the inaccuracy of any representation made by Buyer in this Agreement; or
(ii) the failure by Buyer to perform any of the covenants or agreements
made by it in this Agreement.
10.3 Defense of Third Party Claims. In the event that after the Closing,
-----------------------------
an Indemnified Party becomes involved in any litigation (hereinafter in this
Section 10.3 called "Litigation") in which an adverse result may give rise to
Shareholders' obligation to indemnify hereunder, Buyer will give prompt written
notice to Shareholders Representative of the pendency of any such Litigation,
and the following provisions shall be applicable: (i) Shareholders
Representative
30
<PAGE>
shall have the right to participate in and control the contest and defense of
such Litigation at the Shareholders' own cost and expense, including the cost
and expense of attorneys' fees in connection therewith, and (ii) in the event
that Shareholders Representative does not assume control of the contest and
defense of the Litigation, then Buyer may use, but shall not be obligated to
use, its efforts to contest and defend such Litigation at its cost and expense
(but subject to its rights to indemnification hereunder), and in such case
Shareholders will assist Buyer to such extent as it reasonable in its contest
and defense of such Litigation. No settlement of any claim for which
indemnification is sought hereunder shall be made without the written consent of
other party hereto, which consent shall not be unreasonably withheld.
10.4 Limitations.
-----------
(A) If the Closing occurs, the liability of the Shareholders under
Section 10.2 shall be limited as follows: (i) the Shareholders shall have
no liability under Section 10.2 until the aggregate Loss and Expense
arising out of the matters as set forth in Section 10.2 in the aggregate
exceed $1,000,000 (the "Threshold Amount") and then only to the extent of
such excess; (ii) except as provided in Section 10.5, any recovery by an
Indemnified Party for Loss or Expense under Section 10.2 shall be sought
solely from the Retained Stock in the Escrow described in Section 10.5,
which shall be valued at the Per Share Equity Value, as adjusted pursuant
to Section 1.4(D); (iii) except as provided in Section 10.5, the
Shareholders shall have no liability under Section 10.2 for aggregate
Losses and Expenses which exceed $10,000,000 (the "Liability Cap"); (iv)
any proceeds from insurance paid to DBI or Buyer which relate to any fact,
event or circumstance requiring indemnity pursuant to Section 10.2 shall
constitute a credit which shall be offset against the total Losses and
Expenses (before the application of the Threshold Amount); (v) any Loss or
Expense calculated for purposes of Section 10.2 shall be calculated taking
into account any offsetting federal, state, local or foreign tax benefits
that are realized because of such Loss or Expense to an Indemnified Party;
and (vi) the Shareholders shall have no liability under Section 10.2 with
respect to any costs or expenses of any remediation or environmental
equipment repair, upgrade or addition undertaken by DBI unless (x) ordered
or demanded by a court, governmental body or agency; or (y) such
remediation, repair, upgrade or addition is required to be undertaken by
applicable Environmental Law; or (z) necessary in order for DBI to be in
compliance with applicable Environmental Laws and resulting from an
investigation (if there is an investigation) and remediation or
environmental equipment repair, upgrade or addition which would be
voluntarily undertaken under customary business practices in the industry.
In addition, Shareholders shall not be obligated to indemnify Buyer
pursuant to Section 10.2 for any loss or expense resulting from and related
to the violation of any applicable Environmental Law by DBI or any
Subsidiary after the Closing or, to the extent of the accrual therefor set
forth in the Closing Date Working Capital, for any current ongoing
monitoring or closure plan costs of DBI and its Subsidiaries.
31
<PAGE>
(B) If the Closing occurs, the liability of Buyer under Section 10.2
shall be limited as follows: (i) Buyer shall have no liability under
Section 10.2 until the aggregate Loss and Expense arising out of the
matters as set forth in Section 10.2 in the aggregate exceed $1,000,000 and
then only to the extent of the excess; and (ii) Buyer shall have no
liability under Section 10.2 for aggregate Losses and Expenses which exceed
$10,000,000.
10.5 Escrow Matters. For purposes of administering claims by Buyer under
--------------
this Section 10, at Closing each Shareholder shall place in escrow, under the
terms of the Indemnification Escrow Agreement attached as Exhibit F, two-thirds
of the number of shares of Retained Stock held by such Shareholder at the
Closing. Except as provided below, the Retained Stock shall be held in escrow
for a period of thirty (30) months after the Closing Date. After DBI completes a
public offering of its Common Stock, or an event under 3.2.1 or 3.2.2 of the
Stockholders Agreement occurs, the entire balance of the Retained Stock (or, if
an event under 3.2.1 or 3.2.2 of the Stockholders Agreement, up to the amount
removed to comply with such provisions) may be removed from the escrow and
replaced by the amount of cash received from the sale of such shares, but not in
excess of $20,000,000, in which case the Liability Cap shall be adjusted upward
by the amount by which the cash received upon sale, up to $20,000,000, exceeds
the Liability Cap. After the Retained Stock is released from escrow, the
Shareholders shall be free to sell such Retained Stock without lien or other
encumbrance of Buyer arising under the terms of this Agreement.
10.6 Exclusive Remedy. Buyer acknowledges and agrees that, from and after
----------------
the Closing, its sole and exclusive remedy with respect to any and all claims
related to the subject matter of this Agreement (other than claims of fraud)
shall be pursuant to the indemnification provisions set forth in this Section
10.
11. Further Assurances. From time to time, as and when requested by any party,
------------------
any other party shall execute and deliver, or cause to be executed and
delivered, all such documents and instruments and shall take, or cause to be
taken, all such further or other actions, as such other party may reasonably
deem necessary to consummate the transactions contemplated by this Agreement.
12. Termination.
-----------
12.1 Notwithstanding any provision in this Agreement contrary, this
Agreement may be terminated, and the transactions contemplated by this Agreement
abandoned, at any time on or prior to the Closing Date
(A) by mutual written consent of DBI and Buyer;
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<PAGE>
(B) by DBI if any of the conditions set forth in Section 4.2 have
not been satisfied, through no fault of DBI, or waived in writing by DBI,
on the Closing Date;
(C) by Buyer if any of the conditions set forth in Section 4.1 have
not been satisfied, through no fault of Buyer, or waived in writing by
Buyer, on the Closing Date; or
(D) by either DBI or Buyer if the Closing does not occur on or prior
to May 8, 1998, but only if, prior to that date, the party requesting
termination used all reasonable efforts and acted in good faith to close
the transactions contemplated by this Agreement and to satisfy all
conditions precedent to the closing of these transactions.
12.2 If DBI or Buyer desires to terminate this Agreement pursuant to
Section 12.1, that party must give written notice to the other parties. Upon
receipt of that notice, this Agreement will be terminated without further action
by any party.
12.3 If this Agreement is terminated as provided in this Section 12, this
Agreement will become void and of no further force and effect, except for the
provisions of:
(A) Sections 8.1, 8.2 and 8.3;
(B) Section 9.1;
(C) this Section 12; and
(D) Sections 13.1, 13.2, 13.3 and 13.4.
12.4 Nothing contained in this Section 12 will release any party from any
liability for any breach by such party of any of the terms or provisions of this
Agreement or impair the right of any party to compel specific performance by
another party of its obligations under this Agreement. Without limiting the
foregoing, Buyer agrees that if all of the conditions in Section 4.1 are
satisfied, DBI and the Shareholders are able and willing to effect the Closing
and Buyer is required to effect the Closing hereunder, but is unable to do so
due to Buyer's failure to secure financing necessary to allow DBI to refinance
the Debt and to pay the Common Stock Repurchase Amount, the Option Value and the
Purchase Price at the Closing, which Buyer acknowledges is, in each case, its
obligations to secure (and is a condition precedent to DBI's and the
Shareholders' obligations hereunder), Buyer will be in breach of this Agreement
and DBI and the Shareholders will have all remedies provided by law with respect
to the failure to consummate the transactions contemplated hereby,
notwithstanding any limitations in Schedule 10.4(B) which shall apply from and
after Closing.
13. General Provisions.
------------------
33
<PAGE>
13.1 Certain Expenses. Except as otherwise provided in this Agreement,
----------------
all costs and expenses incurred in connection with this Agreement and the
transactions contemplated by this Agreement must be paid by the party incurring
those costs or expenses.
13.2 Attorneys' Fees. Should any litigation be commenced concerning this
---------------
Agreement, or the rights and duties of any party with respect to it, the party
prevailing will be entitled, in addition to such other relief as may be granted,
to a reasonable sum for such party's attorneys' fees and expenses determined by
the court in such litigation or in a separate action brought for that purpose.
This Section 13.2 will survive indefinitely.
13.3 Notices. All notices, and replies to such notices, required under
-------
this Agreement must be in writing, properly addressed to the other party, signed
by the party giving notice, and may be delivered by hand, sent by facsimile
transaction, sent by a nationally-recognized overnight delivery service, or sent
by certified mail, return receipt requested. Notices are effective upon receipt.
Notices sent by mail are deemed to be received on the date of receipt indicated
by the return verification provided by the U.S. Postal Service. Notice sent by a
nationally-recognized overnight delivery service are deeded to be received on
the next business day after date of sending. Notices sent by facsimile
transaction are deemed to be received the date on which sent and are
conclusively presumed to have been received if the sender's copy of the
facsimile transaction contains the "answer back" of the other party's facsimile
transaction. Notice must be given, mailed or sent to the parties at the
following addresses, or at such other address as may be given by proper notice.
This Section 13.3 will survive indefinitely.
If to DBI (pre-closing) or Shareholders Representative, addressed to:
Hunter Keith Industries, Inc.
5100 IDS Center
80 South Eighth Street
Minneapolis, MN 55402
Attn: Andrew M. Hunter, III
Fax No.: 612-338-7079
with a copy to (which copy does not constitute notice):
Lindquist & Vennum P.L.L.P.
4200 IDS Center
80 South Eighth Street
Minneapolis, MN 55402
Attn: Charles P. Moorse
Fax No.: 612-371-3207
34
<PAGE>
If to Buyer or (DBI post-closing), addressed to:
c/o Seaver Kent & Company LLC
3000 Sand Hill Road
Building 1-230
Menlo Park, CA 94025
Attn: Alexander M. Seaver & Bradley R. Kent
Fax No.: (650) 233-9130
with a copy to (which copy does not constitute notice):
McDermott, Will & Emery
227 West Monroe Street
Chicago, IL 60606
Attn: Helen R. Friedli, P.C.
Fax No.: (312) 984-7700
13.4 Miscellaneous. No amendment to this Agreement is effective unless it
-------------
is in writing and signed by each party. The headings contained in this
Agreement, or in any Schedule or Exhibit, are for reference purposes only and do
not affect in any way the meaning or interpretation of this Agreement. This
Agreement may be executed in one or more counterparts, all of which are
considered one and the same agreement, and are effective when one or more of
those counterparts have been signed by each of the parties and delivered to the
other parties. This Agreement constitutes the entire agreement and understanding
between the parties with respect to the subject matter of this Agreement and
supersedes all prior agreements and understandings relating to that subject
matter. The parties agree that neither has made any representations, warranties,
covenants or undertakings other than as expressly provided for in this Agreement
and the Schedules and Exhibits attached hereto. If any provision of this
Agreement, or the application of any such provision to any Person or
circumstance, is held invalid, illegal or unenforceable in any respect by a
court of competent jurisdiction, such invalidity, illegality or unenforceability
will not affect any other provision of this Agreement. No party may assign or
otherwise transfer any of its rights or obligations under this Agreement without
the prior written consent of each of the other parties, except that Buyer may
assign its rights hereunder to another entity or individual and may designate
additional "accredited investors" to purchase the Preferred Shares and/or
Warrants, provided such purchasers make the same representation as is in Section
6.7 and do not otherwise, solely by their participation, adversely affect DBI's
ability under the federal and state securities laws to issue such securities.
This Agreement is for the sole benefit of the parties and their permitted
assigns and nothing in this Agreement is intended to give to any Person, other
than such parties and persons, any legal or equitable rights under this
Agreement. This Agreement is governed in accordance with the internal laws of
the state of Minnesota, without regard to the conflict of laws statutes or
provisions of any jurisdiction. This Section 13.4 will survive the Closing Date
indefinitely.
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<PAGE>
14. Shareholders Representative.
---------------------------
(A) Each of the Shareholders hereby irrevocably constitutes and
appoints Andrew M. Hunter, III, and Mr. Hunter hereby accepts such
appointment, as their agent and attorney-in-fact with full power of
substitution and revocation to do any and all things and execute any and
all documents on his or her behalf which may be necessary, convenient or
appropriate with respect to: (i) amendments to this Agreement, provided
that no amendment shall materially adversely affect the rights of any one
Shareholder relative to any other Shareholders; (ii) the execution of
documents and certificates pursuant to this Agreement; (iii) determination
of the Working Capital Adjustment; (iv) receipt and forwarding of notices
and communications pursuant to this Agreement; and (v) negotiation and
compromise of any indemnity claims made by Buyer hereunder. The
Shareholders Representative is authorized (i) to take all actions which the
Shareholders Representative considers necessary or desirable in connection
with the defense, pursuit or settlement of any determinations relating to
the matters described above, including to sue, defend, negotiate, settle
and compromise any such claims for indemnification made by Buyer pursuant
to this Agreement or any of the agreements or transactions contemplated
hereby; (ii) to engage and employ agents and representatives (including
accoutants, legal counsel and other professionals) and to incur such other
expenses as he shall deem necessary or prudent in connection with the
administration of the foregoing; and (iii) to take all other actions and
exercise all other rights which the Shareholders Representative (in his
sole discretion) considers necessary or appropriate in connection with the
foregoing. Notwithstanding anything to the contrary contained in this
Agreement, the Shareholders Representative shall have no duties or
responsibilities except as expressly set forth herein, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities
on behalf of any Shareholder shall otherwise exist against the Shareholders
Representative.
(B) The Buyer and DBI shall be fully protected in dealing with Mr.
Hunter under this Agreement and may rely upon the authority of Mr. Hunter
to act as the Shareholders Representative. The Shareholders Representative
is authorized to act on the Shareholders' behalf notwithstanding any
dispute or disagreement among the Shareholders. The appointment of Mr.
Hunter is coupled with an interest and is irrevocable by any Shareholder in
any manner or for any reason, unless written revocation is personally
delivered to Mr. Hunter and the Buyer on or prior to the time that action
on behalf of the Shareholders is taken or payments or deliveries are made,
in which case such revocation shall only apply to actions taken or proposed
to be taken after receipt of such notice. This power of attorney shall not
be affected by the death, disability or incapacity of any Shareholder.
36
<PAGE>
(C) If at any time there is no person acting as Shareholders
Representative for any reason, the Shareholders holding a majority interest
in the Retained Stock shall choose a person to act as Shareholders
Representative under this Agreement.
(D) Neither the Shareholders Representative nor any agent employed by
him shall be liable to any Shareholder relating to the performance of his
duties under this Agreement for any errors in judgment, negligence,
oversight, breach of duty or otherwise except to the extent it is finally
determined in a court of competent jurisdiction by clear and convincing
evidence that the actions taken or not taken by the Shareholders
Representative constituted fraud or were taken or not taken in bad faith.
The Shareholders Representative shall be indemnified and held harmless by
the Shareholders against all costs, expenses and damages paid or incurred
in connection with any action, suit, proceeding or claim to which the
Shareholders Representative is made a party by reason of the fact that he
was acting as the Shareholders Representative pursuant to this Agreement;
provided, however, that the Shareholders Representative shall not be
entitled to indemnification hereunder to the extent it is finally
determined in a court of competent jurisdiction by clear and convincing
evidence that the actions taken or not taken by the Shareholders
Representative constituted fraud or were taken or not taken in bad faith.
The Shareholders Representative shall be protected in acting upon any
notice, statement or certificate believed by him to be genuine and to have
been furnished by the appropriate person and in acting or refusing to act
in good faith on any matter.
15. Certain Definitions.
-------------------
15.1 "Confidential Information"
(A) "Confidential Information" means:
(1) with respect to DBI, all financial, technical, commercial or
other information disclosed by DBI to Buyer or Buyer's respective
directors, officers, employees, advisors or affiliates (such Person a
"Recipient") in connection with the transactions contemplated by this
Agreement;
(2) the fact of the transactions contemplated by this Agreement;
and
(3) each of the terms, conditions and other provisions contained
in this Agreement and the agreements or documents delivered pursuant
to this Agreement.
(B) Notwithstanding Section 15.1(A), Confidential Information does
not include any information that:
37
<PAGE>
(1) is in the public domain at the time of disclosure to the
Recipient or becomes part of the public domain after such disclosure
through no action or fault of any Recipient;
(2) is already know by Recipient from independent sources at the
time of disclosure to such Recipient other than
(a) as a result of a breach of any provision of this
Agreement; or
(b) from any source who, after reasonable investigation by
Recipient, is not bound by any confidentiality agreement with, or
other contractual, legal or fiduciary duty of confidentiality to,
DBI or either of the Subsidiaries; or
(3) is subsequently disclosed to a Recipient by any Person who
is not a party to this Agreement (but only if that Recipient does not
have actual knowledge after reasonable investigation that such Person
is prohibited from disclosing such information, either by reason of
contract or legal or fiduciary obligation) and who has a legal right
to transmit that information.
15.2 "Financial Statements" means the audited consolidated financial
statements of DBI for the fiscal years ended December 31, 1995, 1996 and 1997,
and unaudited consolidated financial statements of DBI for the one-month interim
period ended January 31, 1997, including the consolidated balance sheet
statements, income statements, statements of shareholders equity and statements
of cash flows of DBI for each of the periods then ended.
15.3 "GAAP" means United States generally accepted accounting principles,
applied on a consistent basis.
15.4 "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976.
15.5 "Intellectual Property" means, with respect to DBI, and the
Subsidiaries all of the following (and all amendments, modifications, and
improvements thereto):
(A) letters patent and patent applications;
(B) tradenames, trademarks or service marks, and all registrations
and applications related thereto, common law trademarks, and all goodwill
associated therewith;
(C) copyrights and copyright registrations and applications; and
38
<PAGE>
(D) discoveries, ideas, technology, know-how, trade secrets,
processes, formulas, drawings and designs, computer programs or software.
15.6 "Knowledge" means, with respect to DBI or any Subsidiary, the
knowledge of any officer or director of DBI or any Subsidiary.
15.7 "Lien" means any lien, encumbrance, security interest, pledge,
mortgage, option, charge or similar restriction.
15.8 "Material Contracts" means those contracts and agreements (all of
which are identified on Schedule 5.12) to which DBI or any of the Subsidiaries
is a party that:
(A) relates to the borrowing of money or the guaranty of any
obligation for the borrowing of money;
(B) involves the receipt or payment of more than $25,000 in any one
year and is not terminable on 30 or fewer days' notice at any time without
a penalty;
(C) prohibits or limits the ability of DBI or any of the
Subsidiaries to engage in any business or compete with any Person; or
(D) obligates DBI or any of the Subsidiaries to purchase goods or
services for consideration in excess of $25,000.
15.9 "Material Adverse Effect" means any effect on DBI or any of the
Subsidiaries that is in the aggregate materially adverse to the Business or the
operations or financial condition of DBI and the Subsidiaries taken as a whole.
15.10 "Person" means any natural person or entity.
15.11 "Plan" means any "employee benefit plan," "employee pension benefit
plan," "defined benefit plan" or "multiemployer benefit plan" which DBI or any
Subsidiary maintains, contributes to, or is required to maintain or contribute
to. As used in this Agreement, the terms "employee benefit plan," "employee
pension benefit plan," "defined benefit plan," and "multiemployer benefit plan"
have the respective meanings assigned to each of them in Section 3 of ERISA and
any applicable rules and regulations promulgated under ERISA.
39
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
SEAVER KENT--TPG PARTNERS L.P.
By________________________________
Its_______________________________
SEAVER KENT I PARALLEL, L.P.
By________________________________
Its_______________________________
DIAMOND BRANDS INCORPORATED
By________________________________
Its_______________________________
40
<PAGE>
EXHIBITS
Exhibit A Shareholders
Exhibit B Terms of Preferred Shares and Warrants
Exhibit C Shareholder Information
Exhibit D Price Adjustment Escrow Agreement
Exhibit E Stockholders Agreement
Exhibit F Indemnification Escrow Agreement
SCHEDULES
Schedule 3.3(D) Key Employees
Schedule 5.3 Conflicts
Schedule 5.5 Capitalization
Schedule 5.6 Restrictions
Schedule 5.8 Undisclosed Liabilities
Schedule 5.9 Certain Changes
Schedule 5.10 Encumbrances
Schedule 5.12 Material Contracts
Schedule 5.13 Intellectual Property
Schedule 5.14(A) Litigation
Schedule 5.14(B) Consent Decrees; Orders
Schedule 5.15(A) Compliance With Laws
Schedule 5.15(B) Permits
Schedule 5.16 Tax Matters
Schedule 5.17 Labor Relations
Schedule 5.18 ERISA
Schedule 5.19 Brokers
Schedule 5.20 Transactions with Affiliates
Schedule 5.21 Customers and Suppliers
Schedule 5.23 Insurance
Schedule 5.24 Product Warranty; Claims
Schedule 5.25 Product Liability
Schedule 5.26 Software Licenses
Schedule 5.27 Environmental Matters
Schedule 6.9 Financing Commitments
41
<PAGE>
CERTIFICATE OF INCORPORATION
OF
DIAMOND BRANDS OPERATING CORP.
__________________________
FIRST: The name of the corporation is Diamond Brands Operating Corp.
SECOND: The registered office of the corporation in the State of Delaware
shall be located at Corporation Trust Center, 1209 Orange Street, Wilmington,
Delaware 19801, County of New Castle. The name of its registered agent shall be
The Corporation Trust Company.
THIRD: The purposes of the corporation are to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of all classes of stock which the
corporation shall have authority to issue is 1,000 shares of Common Stock, par
value $.01 per share.
FIFTH: The name and mailing address of the sole incorporator is as
follows:
Thomas Beehler 227 West Monroe Street
Suite 3100
Chicago, IL 60606
SIXTH: In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the Board of Directors is expressly authorized
and empowered, in the manner provided in the By-Laws of the corporation, to
make, alter, amend and repeal the By-Laws of the corporation in any respect not
inconsistent with the laws of the State of Delaware or with this Certificate of
Incorporation.
In addition to the powers and authorities hereinbefore or by statute
expressly conferred upon it, the Board of Directors may exercise all such powers
and do all such acts as may be exercised or done by the corporation, subject,
nevertheless, to the provisions of the laws of the State of Delaware, this
Certificate of Incorporation and the By-Laws of the corporation.
<PAGE>
Any contract, transaction or act of the corporation or of the directors or
of any committee which shall be ratified by the holders of a majority of the
shares of stock of the corporation present in person or by proxy and voting at
any annual meeting, or at any special meeting called for such purpose, shall,
insofar as permitted by law or by this Certificate of Incorporation, be as valid
and as binding as though ratified by every stockholder of the corporation.
SEVENTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code, or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation as the case may be,
and also on this corporation.
EIGHTH: A director of the corporation shall not be personally liable to
the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, as the same exists or hereafter may be amended, or (iv) for any transaction
from which the director derived an improper personal benefit.
2
<PAGE>
If the Delaware General Corporation Law hereafter is amended to authorize
the further elimination or limitation of the liability of directors, then the
liability of directors shall be eliminated or limited to the full extent
authorized by the General Corporation Law of the State of Delaware, as so
amended.
Any repeal or modification of this Article shall not adversely affect any
right or protection of a director of the corporation existing at the time of
such repeal or modification.
NINTH: The books of the corporation may be kept (subject to any provision
contained in the statutes) outside the State of Delaware at such place or places
as may be designated from time to time by the Board of Directors or in the By-
Laws of the corporation. Election of directors need not be by ballot unless the
By-Laws of the corporation shall so provide.
TENTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
I, THE UNDERSIGNED, being the sole incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, hereby declaring and certifying
that the facts stated are true, and accordingly, have hereunto set my hand this
8/th/ day of April, 1998.
___________________________________
Thomas Beehler
3
<PAGE>
ARTICLES OF INCORPORATION
OF
EMPIRE CANDLE, INC.
The undersigned incorporator, a natural person of full age, in order to
form a corporation FOR profit under the laws of the State of Kansas, hereby
adopts the following Articles of Incorporation:
ARTICLE I
The name of this corporation is Empire Candle, Inc.
ARTICLE II
The registered office of this corporation in Kansas is c/o The Corporation
Company, Inc., 515 South Kansas Avenue, Topeka, Shawnee County, Kansas 66603.
The name of the registered agent at above address is The Corporation Company,
Inc.
ARTICLE III
The nature of the corporation business or purposes to be conducted or
promoted is the manufacturing and distribution of candles and related products
and to conduct such other activities as may be permitted by law.
ARTICLE IV
The corporation is authorized to issue an aggregate total of 1,000 shares
of common stock with a stated par value of $0.01 per share. All shares are of
one class and one series, except that the Board of Directors, by its action, may
establish more than one class or series.
ARTICLE V
No shareholder of this corporation is entitled to any cumulative voting
rights.
ARTICLE VI
No shareholder of this corporation has any preferential, preemptive or
other rights to subscribe for, purchase or acquire any shares of the corporation
of any class, whether unissued or now or hereafter authorized, or any
obligations or other securities convertible into or exchangeable for any such
shares.
<PAGE>
ARTICLE VII
Any action required or permitted to be taken at a meeting of the Board of
Directors of this corporation, or any committee thereof, may be taken by written
action signed by all of the directors.
ARTICLE VIII
The name and mailing address of each person who is to serve as a director
until the first annual meeting of the stockholders or until a successor is
elected and qualified are:
Name Address
---- -------
Edward A. Michael Parkdale Plaza, Suite 340, 1660 South Highway 100
Minneapolis, MN 55416
Andrew M. Hunter, III 5100 IDS Center, 80 South 8th Street
Minneapolis, MN 55402
ARTICLE IX
No director or officer of the corporation will be personally liable to the
corporation or to its shareholders for monetary damages for any breach of
fiduciary duty as a director, except to the extent such exemption from liability
or limitation thereof is not permitted under the laws of the State of Kansas as
the same may now exist or may hereafter be amended. Any repeal or modification
of the provisions of this Article will not adversely affect any right or
protection of a director or an officer of the corporation existing at the time
of such repeal or modification.
Any person who at any time serves or served as a director, officer, or
employee of the corporation, or of any other enterprise at the request of the
corporation, and the heirs, executors and administrators of such person, must be
indemnified by the corporation in accordance with, and to the fullest extent
permitted by, the provisions of the 1972 General Corporation Code of Kansas, as
it may be amended from time to time.
ARTICLE X
Is this corporation to exist perpetually? Yes.
2
<PAGE>
ARTICLE XI
The name and mailing address of the incorporator is Loren R. Thacker,
Lindquist & Vennum P.L.L.P., 4200 IDS Center, 80 South 8th Street, Minneapolis,
MN 55402.
IN TESTIMONY WHEREOF, I have hereunto set my hand this 4th day of February,
1997.
Loren R. Thacker, Incorporator
STATE OF MINNESOTA)
)
COUNTY OF HENNEPIN)
Before me, a notary public in and for said county and state, personally
appeared Loren R. Thacker who is known to me to be the same person who executed
the foregoing Articles of Incorporation and duly acknowledged the execution of
the same. In witness whereof, I have hereunto subscribed my name and affixed my
official seal this 4th day of February, 1997.
(Seal)
_________________________________
Notary Public
My appointment or commission expires _________________, 19__.
3
<PAGE>
<TABLE>
<CAPTION>
MINIMUM FEE $105. SEE (S)1403 FOR PROPER FILING FEE.
--------------------------------------------------------------
<S> <C>
BUSINESS CORPORATION
FILE NO. 19922196 D PAGES 2
STATE OF MAINE FEE PAID $
DCN 1910000290023 ARTI
----------------- FILED ---------------
06/12/1992
ARTICLES OF INCORPORATION _________________________
_________________________
DEPUTY SECRETARY OF STATE
(Check box only if applicable) --------------------------------------------------------------
[_] This is a professional service corporation A TRUE COPY WHEN ATTESTED BY SIGNATURE
formed pursuant to 13 MRSA Chapter 22.
_________________________
DEPUTY SECRETARY OF STATE
--------------------------------------------------------------
</TABLE>
PURSUANT TO 13-A MRSA (S)403, THE UNDERSIGNED, ACTING AS INCORPORATOR(S) OF A
CORPORATION, ADOPT(S) THE FOLLOWING ARTICLES OF INCORPORATION:
FIRST: The name of the corporation is _________________________________________
and its principal business location in Maine is ________________________
(physical location -
________________________________________________
street (not P.O. Box), city, state and zip code)
SECOND: The name of its Clerk, who must be a Maine resident, and the registered
office shall be:
________________________________________________________________________
(name)
________________________________________________________________________
(physical location - street (not P.O. Box), city, state and zip code)
________________________________________________________________________
(mailing address if different from above)
THIRD: ("X" one box only)
[_] A.1. The number of directors constituting the initial board of directors
of the corporation is _______ (See (S)703.1.A)
2. If the initial directors have been selected, the names and addresses
of the persons who are to serve as directors until the first annual
meeting of the shareholders or until their successors are elected and
shall qualify are:
NAME ADDRESS
________________ ____________________________________________
________________ ____________________________________________
________________ ____________________________________________
3. The board of directors [_] is [_] is not authorized to increase or
decrease the number of directors.
<PAGE>
4. If the board is so authorized, the minimum number, if any, shall be
______ directors, (see (S)703.1.a) and the maximum number, if any,
shall be __________ directors.
[_] B. There shall be no directors initially; the shares of the corporation
will not be sold to more than twenty (20) persons; the business of
the corporation will be managed by the shareholders. (See (S)701.2.)
FOURTH: ("X" ONE BOX ONLY)
[_] There shall be only one class of shares (title of class) ________________
Par value of each share (if none, so state) _____________________ Number
of shares authorized _________________
[_] There shall be two or more classes of shares. The information required by
(S)403 concerning each such class is set out in Exhibit _____ attached
hereto and made a part hereof.
SUMMARY
The aggregate par value of all authorized shares (of all classes) having a
--------
par value is $______________________
- ---------
The total number of authorized shares (of all classes) without par value is
--------------------
____________________________ shares
FIFTH: ("X" ONE BOX ONLY) MEETINGS OF THE SHAREHOLDERS [_] MAY [_] MAY NOT
BE HELD OUTSIDE OF THE STATE OF MAINE.
SIXTH: ("X" IF APPLICABLE) [_] THERE ARE NO PREEMPTIVE RIGHTS.
SEVENTH: OTHER PROVISIONS OF THESE ARTICLES, IF ANY, INCLUDING PROVISIONS
FOR THE REGULATION OF THE INTERNAL AFFAIRS OF THE CORPORATION, ARE
SET OUT IN EXHIBIT ___ ATTACHED HERETO AND MADE A PART HEREOF.
================================================================================
INCORPORATORS DATED ______________________
_____________________________________ Street _________________________________
(signature) (residence address)
_____________________________________ ________________________________________
(type or print name) (CITY, STATE AND ZIP CODE)
_____________________________________ Street _________________________________
(signature) (residence address)
_____________________________________ ________________________________________
(type or print name) (city, state and zip code)
_____________________________________ Street _________________________________
(signature) (residence address)
_____________________________________ ________________________________________
(type or print name) (city, state and zip code)
For Corporate Incorporators*
Name Of Corporate Incorporator ____ ___________________________________________
By __________________________________ Street _________________________________
(signature of officer) (principal business location)
_____________________________________ ________________________________________
(type or print name and capacity) (city, state and zip code)
<PAGE>
*Articles are to be executed as follows:
If a corporation is an incorporator ((S)402), the name of the corporation should
be typed and signed on its behalf by an officer of the corporation. The articles
of incorporation must be accompanied by a certificate of an appropriate officer
of the corporation certifying that the person executing the articles on behalf
of the corporation was duly authorized to do so.
SUBMIT COMPLETED FORMS TO: SECRETARY OF STATE, STATION #101, AUGUSTA, ME
04333-0101
ATTN: CORPORATE EXAMINING SECTION
FORM NO. MBCA-6 REV. 91 TEL. (207) 289-4195
<PAGE>
BY-LAWS
OF
DIAMOND BRANDS OPERATING CORP.
------------------------------
ARTICLE I
OFFICES
-------
SECTION 1.1. REGISTERED OFFICE. The registered office of the corporation
-----------------
shall be maintained in the City of Wilmington, State of Delaware, and the
registered agent in charge thereof is The Corporation Trust Company.
SECTION 1.2. OTHER OFFICES. The corporation may also have an office in
-------------
Cloquet, Minnesota, and also offices at such other places as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
STOCKHOLDERS' MEETINGS
----------------------
SECTION 2.1. PLACE OF MEETINGS. All meetings of the stockholders, whether
-----------------
annual or special, shall be held at the offices of the corporation, or at such
other place as may be fixed from time to time by the Board of Directors.
SECTION 2.2. ANNUAL MEETINGS. An annual meeting of the stockholders,
---------------
commencing with the year 1998, shall be held on the first Monday in May in each
year, but if a legal holiday then on the next secular day following, at 10:00
A.M., at which they shall elect a Board of Directors, and transact such other
business as may properly be brought before the meeting.
SECTION 2.3. NOTICE OF MEETING. Written notice of the annual meeting
-----------------
stating the place, date and hour of the meeting, shall be given not less than
ten nor more than sixty days before the date of the meeting to each stockholder
entitled to vote at such meeting. If mailed, notice is given when deposited in
the United States mail, postage prepaid, directed to the stockholder at his
address as it appears on the records of the corporation.
SECTION 2.4. STOCKHOLDERS' LIST. At least ten days before every meeting
------------------
of stockholders, a complete list of the stockholders entitled to vote at said
meeting, arranged in alphabetical order and showing the address of each
stockholder and the number of shares registered in the name of each stockholder,
shall be prepared by the Secretary. Such list shall be open to the examination
of any stockholder, for any purpose germane to the
<PAGE>
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
SECTION 2.5. SPECIAL MEETINGS. Special meetings of the stockholders, for
----------------
any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the President and shall be called
by the Secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders owning at least 75% of
the number of shares of the corporation issued and outstanding and entitled to
vote. Such request shall state the purpose or purposes of the proposed meeting.
SECTION 2.6. NOTICE OF SPECIAL MEETINGS. Written notice of a special
--------------------------
meeting, stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called, shall be given not less than ten nor
more than sixty days before the date of the meeting to each stockholder entitled
to vote at such meeting. If mailed, notice is given when deposited in the
United States mail, postage prepaid, directed to the stockholder at his address
as it appears on the records of the corporation.
SECTION 2.7. QUORUM. The holders of a majority of the shares issued and
------
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall be requisite and shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided by
statute, by the Certificate of Incorporation or by these By-Laws. If, however,
such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have the power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, of the place, date
and hour of the adjourned meeting, until a quorum shall again be present or
represented by proxy. At the adjourned meeting at which a quorum shall be
present or represented by proxy, the corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment, a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
SECTION 2.8. VOTING. When a quorum is present at any meeting, and subject
------
to the provisions of the General Corporation Law of the State of Delaware, the
Certificate of Incorporation or by these By-Laws in respect of the vote that
shall be required for a specified action, the vote of the holders of a majority
of the shares having voting power, present in person or represented by proxy,
shall decide any question brought before such meeting, unless the question is
one upon which, by express provision of the statutes or of the Certificate of
Incorporation or of these By-Laws, a different vote is required in which case
such express provision shall govern and control the decision of such question.
Each
-2-
<PAGE>
stockholder shall have one vote for each share of stock having voting power
registered in his name on the books of the corporation, except as otherwise
provided in the Certificate of Incorporation.
SECTION 2.9. PROXIES. Each stockholder entitled to vote at a meeting of
-------
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period.
A stockholder may execute a writing authorizing another person or persons
to act for him as proxy by transmitting or authorizing the transmission of a
telegram, cablegram, or other means of electronic transmission, provided that
the telegram, cablegram or other means of electronic transmission either sets
forth or is submitted with information from which it can be determined that the
telegram, cablegram or other electronic transmission was authorized by the
stockholder.
SECTION 2.10. MAJORITY CONSENT. Whenever the vote of stockholders at a
----------------
meeting thereof is required or permitted to be taken for or in connection with
any corporate action by any provisions of the statutes or of the Certificate of
Incorporation or these By-Laws, the meeting, notice of the meeting, and vote of
stockholders may be dispensed with if stockholders owning stock having not less
than the minimum number of votes which, by statute, the Certificate of
Incorporation or these By-Laws, is required to authorize such action at a
meeting at which all shares entitled to vote thereon were present and voted
shall consent in writing to such corporate action being taken; provided that
prompt notice of the taking of such action must be given to those stockholders
who have not consented in writing.
ARTICLE III
DIRECTORS
---------
SECTION 3.1. GENERAL POWERS. The business and affairs of the corporation
--------------
shall be managed by or under the direction of the Board of Directors which may
exercise all such powers of the corporation and do all such acts and things as
are not by the General Corporation Law of the State of Delaware nor by the
Certificate of Incorporation nor by these By-Laws directed or required to be
exercised or done by the stockholders.
SECTION 3.2. NUMBER OF DIRECTORS. The number of directors which shall
-------------------
constitute the whole Board shall be three. The directors shall be elected at
the annual meeting of the
-3-
<PAGE>
stockholders, and each director shall hold office until his successor is elected
and qualified or until his earlier resignation or removal.
SECTION 3.3. VACANCIES. If the office of any director or directors
---------
becomes vacant by reason of death, resignation, retirement, disqualification,
removal from office, or otherwise, or a new directorship is created, the holders
of a plurality of shares issued and outstanding and entitled to vote in
elections of directors, shall choose a successor or successors, or a director to
fill the newly created directorship, who shall hold office for the unexpired
term or until the next election of directors.
SECTION 3.4. PLACE OF MEETINGS. The Board of Directors may hold its
-----------------
meetings outside of the State of Delaware, at the office of the corporation or
at such other places as they may from time to time determine, or as shall be
fixed in the respective notices or waivers of notice of such meetings.
SECTION 3.5. COMMITTEES OF DIRECTORS. The Board of Directors may, by
-----------------------
resolution or resolutions passed by a majority of the whole Board, designate one
or more committees, each committee to consist of one or more of the directors of
the corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have the
power of authority in reference to amending the Certificate of Incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amendment to
the By-Laws, of the corporation; and, unless the resolution, By-Laws, or
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
The committees shall keep regular minutes of their proceedings and report the
same to the Board of Directors when required.
SECTION 3.6. COMPENSATION OF DIRECTORS. Directors, as such, may receive
-------------------------
such stated salary for their services and/or such fixed sums and expenses of
attendance for attendance at each regular or special meeting of the Board of
Directors as may be established by resolution of the Board; provided that
nothing herein contained shall be construed to preclude any director from
serving the corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
-4-
<PAGE>
SECTION 3.7. ANNUAL MEETING. The annual meeting of the Board of Directors
--------------
shall be held within ten days after the annual meeting of the stockholders in
each year. Notice of such meeting, unless waived, shall be given by mail or
telegram to each director elected at such annual meeting, at his address as the
same may appear on the records of the corporation, or in the absence of such
address, at his residence or usual place of business, at least three days before
the day on which such meeting is to be held. Said meeting may be held at such
place as the Board may fix from time to time or as may be specified or fixed in
such notice or waiver thereof.
SECTION 3.8. SPECIAL MEETINGS. Special meetings of the Board of Directors
----------------
may be held at any time on the call of the President or at the request in
writing of any one director. Notice of any such meeting, unless waived, shall
be given by mail or telegram to each director at his address as the same appears
on the records of the corporation not less than one day prior to the day on
which such meeting is to be held if such notice is by telegram, and not less
than two days prior to the day on which the meeting is to be held if such notice
is by mail. If the Secretary shall fail or refuse to give such notice, then the
notice may be given by the officer or any one of the directors making the call.
Any such meeting may be held at such place as the Board may fix from time to
time or as may be specified or fixed in such notice or waiver thereof. Any
meeting of the Board of Directors shall be a legal meeting without any notice
thereof having been given, if all the directors shall be present thereat, and no
notice of a meeting shall be required to be given to any director who shall
attend such meeting.
SECTION 3.9. ACTION WITHOUT MEETING. Any action required or permitted to
----------------------
be taken at any meeting of the Board of Directors or any committee thereof may
be taken without a meeting, if a written consent to such action is signed by all
members of the Board or of such committee, as the case may be, and such written
consent is filed with the minutes of proceedings of the Board of Directors.
Members of the Board of Directors, or any committee designated by the
Board, may participate in a meeting of the Board or committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting pursuant to this section shall constitute presence in person at such
meeting.
SECTION 3.10. QUORUM AND MANNER OF ACTING. Except as otherwise provided
---------------------------
in these By-Laws, a majority of the total number of directors as at the time
specified by the By-Laws shall constitute a quorum at any regular or special
meeting of the Board of Directors. Except as otherwise provided by statute, by
the Certificate of Incorporation or by these By-Laws, the vote of a majority of
the directors present at any meeting at which a quorum is present shall be the
act of the Board of Directors. In the absence of a quorum, a majority of the
directors present may adjourn the meeting from time to time until a quorum shall
be present. Notice of any adjourned meeting need not be given, except that
notice shall
-5-
<PAGE>
be given to all directors if the adjournment is for more than thirty days or if
after the adjournment a new record date is fixed for the adjourned meeting.
ARTICLE IV
OFFICERS
--------
SECTION 4.1. EXECUTIVE OFFICERS. The executive officers of the
------------------
corporation shall be a President, such number of Vice Presidents, if any, as the
Board of Directors may determine, a Secretary and a Treasurer. One person may
hold any number of said offices.
SECTION 4.2. ELECTION, TERM OF OFFICE AND ELIGIBILITY. The executive
----------------------------------------
officers of the corporation shall be elected annually by the Board of Directors
at its annual meeting or at a special meeting held in lieu thereof. Each
officer, except such officers as may be appointed in accordance with the
provisions of Section 4.3, shall hold office until his successor shall have been
duly chosen and qualified or until his death, resignation or removal. None of
the officers need be members of the Board.
SECTION 4.3. SUBORDINATE OFFICERS. The Board of Directors may appoint
--------------------
such Assistant Secretaries, Assistant Treasurers, Controller and other officers,
and such agents as the Board may determine, to hold office for such period and
with such authority and to perform such duties as the Board may from time to
time determine. The Board may, by specific resolution, empower the chief
executive officer of the corporation or the Executive Committee to appoint any
such subordinate officers or agents.
SECTION 4.4. REMOVAL. The President, any Vice President, the Secretary
-------
and/or the Treasurer may be removed at any time, either with or without cause,
but only by the affirmative vote of the majority of the total number of
directors as at the time specified by the By-Laws. Any subordinate officer
appointed pursuant to Section 4.3 may be removed at any time, either with or
without cause, by the majority vote of the directors present at any meeting of
the Board or by any committee or officer empowered to appoint such subordinate
officers.
SECTION 4.5. THE PRESIDENT. The President shall be the chief executive
-------------
officer of the corporation. He shall have executive authority to see that all
orders and resolutions of the Board of Directors are carried into effect and,
subject to the control vested in the Board of Directors by statute, by the
Certificate of Incorporation, or by these By-Laws, shall administer and be
responsible for the management of the business and affairs of the corporation.
He shall preside at all meetings of the stockholders and the Board of Directors;
and in general shall perform all duties incident to the office of the President
and such other duties as from time to time may be assigned to him by the Board
of Directors.
-6-
<PAGE>
SECTION 4.6. THE VICE PRESIDENTS. In the event of the absence or
-------------------
disability of the President, each Vice President, in the order designated, or in
the absence of any designation, then in the order of their election, shall
perform the duties of the President. The Vice Presidents shall also perform
such other duties as from time to time may be assigned to them by the Board of
Directors or by the chief executive officer of the corporation.
SECTION 4.7. THE SECRETARY. The Secretary shall:
-------------
(a) Keep the minutes of the meetings of the stockholders and of the
Board of Directors;
(b) See that all notices are duly given in accordance with the
provisions of these By-Laws or as required by law;
(c) Be custodian of the records and of the seal of the corporation
and see that the seal or a facsimile or equivalent thereof is affixed to or
reproduced on all documents, the execution of which on behalf of the
corporation under its seal is duly authorized;
(d) Have charge of the stock record books of the corporation;
(e) In general, perform all duties incident to the office of
Secretary, and such other duties as are provided by these By-Laws and as
from time to time are assigned to him by the Board of Directors or by the
chief executive officer of the corporation.
SECTION 4.8. THE ASSISTANT SECRETARIES. If one or more Assistant
-------------------------
Secretaries shall be appointed pursuant to the provisions of Section 4.3
respecting subordinate officers, then, at the request of the Secretary, or in
his absence or disability, the Assistant Secretary designated by the Secretary
(or in the absence of such designations, then any one of such Assistant
Secretaries) shall perform the duties of the Secretary and when so acting shall
have all the powers of, and be subject to all the restrictions upon, the
Secretary.
SECTION 4.9. THE TREASURER. The Treasurer shall:
-------------
(a) Receive and be responsible for all funds of and securities owned
or held by the corporation and, in connection therewith, among other
things: keep or cause to be kept full and accurate records and accounts
for the corporation; deposit or cause to be deposited to the credit of the
corporation all moneys, funds and securities so received in such bank or
other depositary as the Board of Directors or an officer designated by the
Board may from time to time establish; and disburse or supervise the
disbursement of the funds of the corporation as may be properly authorized.
-7-
<PAGE>
(b) Render to the Board of Directors at any meeting thereof, or from
time to time when ever the Board of Directors or the chief executive
officer of the corporation may require, financial and other appropriate
reports on the condition of the corporation;
(c) In general, perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him
by the Board of Directors or by the chief executive officer of the
corporation.
SECTION 4.10. THE ASSISTANT TREASURERS. If one or more Assistant
------------------------
Treasurers shall be appointed pursuant to the provisions of Section 4.3
respecting subordinate officers, then, at the request of the Treasurer, or in
his absence or disability, the Assistant Treasurer designated by the Treasurer
(or in the absence of such designation, then any one of such Assistant
Treasurers) shall perform all the duties of the Treasurer and when so acting
shall have all the powers of and be subject to all the restrictions upon, the
Treasurer.
SECTION 4.11. SALARIES. The salaries of the officers shall be fixed from
--------
time to time by the Board of Directors, and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
corporation.
SECTION 4.12. BONDS. If the Board of Directors or the chief executive
-----
officer shall so require, any officer or agent of the corporation shall give
bond to the corporation in such amount and with such surety as the Board of
Directors or the chief executive officer, as the case may be, may deem
sufficient, conditioned upon the faithful performance of their respective duties
and offices.
SECTION 4.13. DELEGATION OF DUTIES. In case of the absence of any officer
--------------------
of the corporation or for any other reason which may seem sufficient to the
Board of Directors, the Board of Directors may, for the time being, delegate his
powers and duties, or any of them, to any other officer or to any director.
ARTICLE V
SHARES OF STOCK
---------------
SECTION 5.1. REGULATION. Subject to the terms of any contract of the
----------
corporation, the Board of Directors may make such rules and regulations as it
may deem expedient concerning the issue, transfer, and registration of
certificates for shares of the stock of the corporation, including the issue of
new certificates for lost, stolen or destroyed certificates, and including the
appointment of transfer agents and registrars.
SECTION 5.2. STOCK CERTIFICATES. Certificates for shares of the stock of
------------------
the corporation shall be respectively numbered serially for each class of stock,
or series thereof,
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<PAGE>
as they are issued, shall be impressed with the corporate seal or a facsimile
thereof, and shall be signed by the President or a Vice President, and by the
Secretary or Treasurer, or an Assistant Secretary or an Assistant Treasurer,
provided that such signatures may be facsimiles on any certificate countersigned
by a transfer agent other than the corporation or its employee. Each certificate
shall exhibit the name of the corporation, the class (or series of any class)
and number of shares represented thereby, and the name of the holder. Each
certificate shall be otherwise in such form as may be prescribed by the Board of
Directors.
SECTION 5.3. RESTRICTION ON TRANSFER OF SECURITIES. A restriction on the
-------------------------------------
transfer or registration of transfer of securities of the corporation may be
imposed either by the Certificate of Incorporation or by these By-Laws or by an
agreement among any number of security holders or among such holders and the
corporation. No restriction so imposed shall be binding with respect to
securities issued prior to the adoption of the restriction unless the holders of
the securities are parties to an agreement or voted in favor of the restriction.
A restriction on the transfer of securities of the corporation is permitted
by this Section if it:
(a) Obligates the holder of the restricted securities to offer to the
corporation or to any other holders of securities of the corporation or to
any other person or to any combination of the foregoing a prior
opportunity, to be exercised within a reasonable time, to acquire the
restricted securities; or
(b) Obligates the corporation or any holder of securities of the
corporation or any other person or any combination of the foregoing to
purchase the securities which are the subject of an agreement respecting
the purchase and sale of the restricted securities; or
(c) Requires the corporation or the holders of any class of
securities of the corporation to consent to any proposed transfer of the
restricted securities or to approve the proposed transferee of the
restricted securities; or
(d) Prohibits the transfer of the restricted securities to designated
persons or classes of persons; and such designation is not manifestly
unreasonable; or
(e) Restricts transfer or registration of transfer in any other
lawful manner.
Unless noted conspicuously on the security, a restriction, even though
permitted by this Section, is ineffective except against a person with actual
knowledge of the restriction.
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<PAGE>
SECTION 5.4. TRANSFER OF SHARES. Subject to the restrictions permitted by
------------------
Section 5.3, shares of the capital stock of the corporation shall be
transferable on the books of the corporation by the holder thereof in person or
by his duly authorized attorney, upon the surrender or cancellation of a
certificate or certificates for a like number of shares. As against the
corporation, a transfer of shares can be made only on the books of the
corporation and in the manner hereinabove provided, and the corporation shall be
entitled to treat the registered holder of any share as the owner thereof and
shall not be bound to recognize any equitable or other claim to or interest in
such share on the part of any other person, whether or not it shall have express
or other notice thereof, save as expressly provided by the statutes of the State
of Delaware.
SECTION 5.5. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. (a)
-------------------------------------------------------
In order that the corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, the
Board of Directors may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board of Directors, and which record date shall not be more than sixty nor less
than ten days before the date of such meeting. If no record is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; providing, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required by the General Corporation Law of the State of Delaware, shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business, or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings by stockholders are recorded. Delivery made to a
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. If no record date has been fixed by the Board
of Directors and prior action by the Board of Directors is required by the
General Corporation Law of the State of Delaware, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action.
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<PAGE>
(c) In order that the corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
SECTION 5.6. LOST CERTIFICATE. Any stockholder claiming that a
----------------
certificate representing shares of stock has been lost, stolen or destroyed may
make an affidavit or affirmation of the fact and, if the Board of Directors so
requires, advertise the same in a manner designated by the Board, and give the
corporation a bond of indemnity in form and with security for an amount
satisfactory to the Board (or an officer or officers designated by the Board),
whereupon a new certificate may be issued of the same tenor and representing the
same number, class and/or series of shares as were represented by the
certificate alleged to have been lost, stolen or destroyed.
ARTICLE VI
BOOKS AND RECORDS
-----------------
SECTION 6.1. LOCATION. The books, accounts and records of the corporation
--------
may be kept at such place or places within or without the State of Delaware as
the Board of Directors may from time to time determine.
SECTION 6.2. INSPECTION. The books, accounts, and records of the
----------
corporation shall be open to inspection by any member of the Board of Directors
at all times; and open to inspection by the stockholders at such times, and
subject to such regulations as the Board of Directors may prescribe, except as
otherwise provided by statute.
SECTION 6.3. CORPORATE SEAL. The corporate seal shall contain two
--------------
concentric circles between which shall be the name of the corporation and the
word "Delaware" and in the center shall be inscribed the words "Corporate Seal."
ARTICLE VII
DIVIDENDS AND RESERVES
----------------------
SECTION 7.1. DIVIDENDS. The Board of Directors of the corporation,
---------
subject to any restrictions contained in the Certificate of Incorporation and
other lawful commitments of the corporation, may declare and pay dividends upon
the shares of its capital stock either out of
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<PAGE>
the surplus of the corporation, as defined in and computed in accordance with
the General Corporation Law of the State of Delaware, or in case there shall be
no such surplus, out of the net profits of the corporation for the fiscal year
in which the dividend is declared and/or the preceding fiscal year. If the
capital of the corporation, computed in accordance with the General Corporation
Law of the State of Delaware, shall have been diminished by depreciation in the
value of its property, or by losses, or otherwise, to an amount less than the
aggregate amount of the capital represented by the issued and outstanding stock
of all classes having a preference upon the distribution of assets, the Board of
Directors of the corporation shall not declare and pay out of such net profits
any dividends upon any shares of any classes of its capital stock until the
deficiency in the amount of capital represented by the issued and outstanding
stock of all classes having a preference upon the distribution of assets shall
have been repaired.
SECTION 7.2. RESERVES. The Board of Directors of the corporation may set
--------
apart, out of any of the funds of the corporation available for dividends, a
reserve or reserves for any proper purpose and may abolish any such reserve.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
------------------------
SECTION 8.1. FISCAL YEAR. The fiscal year of the corporation shall end on
-----------
the 31st day of December of each year.
SECTION 8.2. DEPOSITORIES. The Board of Directors or an officer
------------
designated by the Board shall appoint banks, trust companies, or other
depositories in which shall be deposited from time to time the money or
securities of the corporation.
SECTION 8.3. CHECKS, DRAFTS AND NOTES. All checks, drafts, or other
------------------------
orders for the payment of money and all notes or other evidences of indebtedness
issued in the name of the corporation shall be signed by such officer or
officers or agent or agents as shall from time to time be designated by
resolution of the Board of Directors or by an officer appointed by the Board.
SECTION 8.4. CONTRACTS AND OTHER INSTRUMENTS. The Board of Directors may
-------------------------------
authorize any officer, agent or agents to enter into any contract or execute and
deliver any instrument in the name and on behalf of the corporation and such
authority may be general or confined to specific instances.
SECTION 8.5. NOTICES. Whenever under the provisions of the statutes or of
-------
the Certificate of Incorporation or of these By-Laws notice is required to be
given to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, by depositing the same
in a post office or letter box, in a postpaid
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<PAGE>
sealed wrapper, or by delivery to a telegraph company, addressed to such
director or stockholder at such address as appears on the records of the
corporation, or, in default of other address, to such director or stockholder at
the General Post Office in the City of Dover, Delaware, and such notice shall be
deemed to be given at the time when the same shall be thus mailed or delivered
to a telegraph company.
SECTION 8.6. WAIVERS OF NOTICE. Whenever any notice is required to be
-----------------
given under the provisions of the statutes or of the Certificate of
Incorporation or of these By-Laws, a waiver thereof in writing signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent to notice. Attendance of a person at
a meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the stockholders, directors or
members of a committee of directors need be specified in any written waiver of
notice.
SECTION 8.7. STOCK IN OTHER CORPORATIONS. Any shares of stock in any
---------------------------
other corporation which may from time to time be held by this corporation may be
represented and voted at any meeting of shareholders of such corporation by the
President or a Vice President, or by any other person or persons thereunto
authorized by the Board of Directors, or by any proxy designated by written
instrument of appointment executed in the name of this corporation by its
President or a Vice President. Shares of stock belonging to the corporation
need not stand in the name of the corporation, but may be held for the benefit
of the corporation in the individual name of the Treasurer or of any other
nominee designated for the purpose by the Board of Directors. Certificates for
shares so held for the benefit of the corporation shall be endorsed in blank or
have proper stock powers attached so that said certificates are at all times in
due form for transfer, and shall be held for safekeeping in such manner as shall
be determined from time to time by the Board of Directors.
SECTION 8.8. INDEMNIFICATION. (a) Each person who was or is a party or
---------------
is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he, or a person of whom
he is the legal representative, is or was a director or officer of the
corporation or is or was a director or officer of the corporation who is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, shall be
indemnified and held harmless by the corporation to the fullest extent
authorized by the laws of Delaware as the same now or may hereafter exist (but,
in the case of any change, only to the extent that such change authorizes the
corporation to provide broader indemnification rights than said law permitted
the corporation to provide prior to such change) against all costs, charges,
expenses, liabilities and losses (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts
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<PAGE>
paid or to be paid in settlement) reasonably incurred or suffered by such person
in connection therewith and such indemnification shall continue as to a person
who has ceased to be a director or officer and shall inure to the benefit of his
heirs, executors and administrators. The right to indemnification conferred in
this Section shall be a contract right and shall include the right to be paid by
the corporation the expenses incurred in defending any such proceeding in
advance of its final disposition upon receipt by the corporation of an
undertaking, by or on behalf of such director or officer, to repay all amounts
so advanced if it shall ultimately be determined that the director or officer is
not entitled to be indemnified under this Section or otherwise. The corporation
may, by action of its Board of Directors, provide indemnification to employees
and agents of the corporation with the same scope and effect as the foregoing
indemnification of directors and officers.
(b) If a claim under subsection (a) of this Section is not paid in full by
the corporation within thirty days after a written claim has been received by
the corporation, the claimant may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall also be entitled to be paid the expense of
prosecuting such claim. It shall be a defense to any action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking
has been tendered to the corporation) that the claimant has failed to meet a
standard of conduct which makes it permissible under Delaware law for the
corporation to indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the corporation. Neither the failure of the
corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is permissible in the circumstances
because he has met such standard of conduct, nor an actual determination by the
corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such standard of conduct, nor the
termination of any proceeding by judgment, order, settlement, conviction or upon
a plea of nolo contendere or its equivalent, shall be a defense to the action or
create a presumption that the claimant has failed to meet the required standard
of conduct.
(c) The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Section shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, by-law, agreement, vote of stockholders or disinterested
directors or otherwise.
(d) The corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the corporation would
have the power to indemnify such person against such expense, liability or loss
under Delaware law.
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<PAGE>
(e) To the extent that any director, officer, employee or agent of the
corporation is by reason of such position, or a position with another entity at
the request of the corporation, a witness in any proceeding, he shall be
indemnified against all costs and expenses actually and reasonably incurred by
him or on his behalf in connection therewith.
(f) Any amendment, repeal or modification of any provision of this Section
by the stockholders or the directors of the corporation shall not adversely
affect any right or protection of a director or officer of the corporation
existing at the time of such amendment, repeal or modification.
SECTION 8.9. AMENDMENT OF BY-LAWS. The stockholders, by the affirmative
--------------------
vote of the holders of a majority of the stock issued and outstanding and having
voting power may, at any annual or special meeting if notice of such alteration
or amendment of the By-Laws is contained in the notice of such meeting, adopt,
amend, or repeal these By-Laws, and alterations or amendments of By-Laws made by
the stockholders shall not be altered or amended by the Board of Directors.
The Board of Directors, by the affirmative vote of a majority of the whole
Board, may adopt, amend, or repeal these By-Laws at any meeting, except as
provided in the above paragraph. By-Laws made by the Board of Directors may be
altered or repealed by the stockholders.
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<PAGE>
BYLAWS
OF
EMPIRE CANDLE, INC.
ARTICLE I
---------
OFFICES AND CORPORATE SEAL
Section 1.01. Registered and Other Offices. The registered office of the
----------------------------
corporation in Kansas is the address set forth in the Articles of Incorporation
or in the most recent amendment of the Articles of Incorporation or statement of
the Board of Directors filed with the Secretary of State of Kansas changing the
registered office in the manner prescribed by law. The corporation may have such
other offices, within or without the State of Kansas, as the Board of Directors
may, from time to time, determine.
Section 1.02. Corporate Seal. The corporation has no corporate seal.
--------------
ARTICLE II
----------
MEETINGS OF SHAREHOLDERS
Section 2.01. Time and Place of Meetings. Regular or special meetings of
--------------------------
the shareholders, if any, must be held on the date and at the time and place
fixed by the Chairman of the Board of Directors or, if a Chairman of the Board
of Directors has not been elected, by Board action or, in the absence of Board
action, by the President, except that a regular or special meeting called by, or
at the demand of a shareholder or shareholders, must be held in the county where
the principal executive office is located.
Section 2.02. Regular Meetings. At any regular meeting of the
----------------
shareholders there must be an election of qualified successors for directors who
serve for an indefinite term or whose terms have expired or are due to expire
within six (6) months after the date of the meeting. Any business appropriate
for action by the shareholders may be transacted at a regular meeting. No
meeting may be considered a regular meeting unless specifically designated as
such in the notice of meeting or unless all the shareholders are present in
person or by proxy and none of them objects to such designation.
Section 2.03. Demand by Shareholders. Regular or special meetings may be
----------------------
demanded by a shareholder or shareholders, pursuant to the provisions of Kansas
Statutes, Article 65, 17-6501.
<PAGE>
Section 2.04. Quorum, Adjourned Meetings. The holders of a majority of
--------------------------
the voting power of the shares entitled to vote at a meeting constitute a quorum
for the transaction of business; said holders may be present at the meeting
either in person or by proxy. In the absence of a quorum, any meeting may be
adjourned to a subsequent date, provided a notice of such adjournment is mailed
to each shareholder entitled to vote at least five (5) days before such
adjourned meeting. If a quorum is present, a meeting may be adjourned from time
to time without notice other than announcement at such meeting. At adjourned
meetings at which a quorum is present, any business may be transacted which
might have been transacted at the meeting as originally noticed. If a quorum is
present when a duly called or held meeting is convened, the shareholders present
may continue to transact business until adjournment, even though withdrawal of
shareholders originally present leaves less than the proportion or number
otherwise required for a quorum.
Section 2.05. Voting. At each meeting of the shareholders, every
------
shareholder having the right to vote must be entitled to vote either in person
or by proxy. Unless otherwise provided by the Articles of Incorporation or a
resolution of the Board of Directors filed with the Secretary of State, each
shareholder will have one vote for each share held. Upon demand of any
shareholder, the vote upon any question before the meeting must be by ballot.
Section 2.06. Notice of Meetings. Notice of all meetings of shareholders
------------------
must be given to every holder of voting shares, except where the meeting is an
adjourned meeting at which a quorum was present and the date, time and place of
the meeting were announced at the time of adjournment. The notice must be given
at least ten (10), but not more than sixty (60) days before the date of the
meeting, except that written notice of a meeting at which there is to be
considered either (i) an agreement of merger or consolidation other than a
merger of the nature described in Kansas Statutes Article 17-6703, (ii) a
proposal to dispose of all or substantially all of the property and assets of
the corporation, (iii) a proposal to dissolve the corporation, or (iv) a
proposal to amend the Articles of Incorporation, must be mailed to all
shareholders, whether entitled to vote or not, at least twenty (20) days prior
thereto. Every notice of any special meeting must state the purpose or purposes
for which the meeting has been called, and the business transacted at all
special meetings must be confined to the purpose stated in the call, unless all
of the shareholders are present in person or by proxy and none of them objects
to consideration of a particular item of business.
Section 2.07. Waiver of Notice. A shareholder may waive notice of any
----------------
meeting of shareholders. A waiver of notice by a shareholder entitled to notice
is effective whether given before, at or after the meeting and whether given in
writing, orally or by attendance.
Section 2.08. Authorization Without a Meeting. Any action required or
-------------------------------
permitted to be taken at a meeting of the shareholders may be taken without a
meeting by written action signed by all of the shareholders entitled to vote on
that action.
2
<PAGE>
ARTICLE III
-----------
DIRECTORS
Section 3.01. General Powers. The business and affairs of the Corporation
--------------
must be managed by and must be under the direction of the Board of Directors.
Section 3.02. Number, Qualifications and Term of Office. The Board of
-----------------------------------------
Directors of this corporation must consist of one or more directors as fixed
from time to time by the shareholders. In addition, the number of directors may
be increased or, subject to Kansas Statutes, Article 17-6301, decreased at any
time by action of the Board of Directors. Directors need not be shareholders.
Each of the directors must hold office until the regular meeting of the
shareholders next held after his or her election, until his or her successor has
been elected and qualified, subject, however, to prior retirement, resignation,
death or removal from office, as provided in these Bylaws.
Section 3.03. Board Meetings; Place and Notice. Meetings of the Board of
--------------------------------
Directors may be held from time to time at any place within or without the State
of Kansas that the Board of Directors may designate. In the absence of
designation by the Board of Directors, Board meetings must be held at the
principal executive office of the corporation, except as may be otherwise
unanimously agreed orally or in writing or by attendance. The Chairman of the
Board, the President, or directors comprising at least one third of the number
of directors then in office may call a Board meeting by giving five (5) days'
notice if by mail or two (2) days' notice if by telephone, facsimile
transmission, telegram or in person, to all directors of the day or date and
time of the meeting. The notice need not state the purpose of the meeting. If a
meeting schedule is adopted by the Board, or if the date and time of a Board
meeting has been announced at a previous meeting, no notice is required.
Section 3.04. Action Without Meeting. An action required or permitted to
----------------------
be taken at a Board meeting may be taken by written action signed by all of the
directors. Any such written action is effective when signed by all directors,
unless a different effective time is provided in the written action.
Section 3.05. Waiver of Notice. Notice of any meeting of the Board of
----------------
Directors may be waived by a director either before, at, or after such meeting
in a writing signed by such director; provided, however, that a director, by his
attendance and participation in any action taken at the meeting of the Board of
Directors, is deemed to waive notice of such meeting.
Section 3.06. Quorum. A majority of the directors currently holding
------
office is a quorum for the transaction of business. If a quorum is present when
a duly called or held meeting is convened, the directors present may continue to
transact business until adjournment, even though
3
<PAGE>
withdrawal of directors originally present leaves less than the proportion or
number otherwise required for a quorum.
Section 3.07. Advance Consent by Absent Directors. A director may give
-----------------------------------
advance written consent or opposition to a proposal to be acted on at a Board of
Directors' meeting.
Section 3.08. Vacancies. Any vacancies occurring in the Board of
---------
Directors for any reason, and any newly created directorships resulting from an
increase in the number of directors, may be filled by a majority of the
directors then in office. Any director so chosen must hold office until the
regular meeting of the shareholders next held after his or her election, until
his or her successor has been elected and qualified, subject, however, to prior
retirement, resignation, death or removal from office, as provided in these
Bylaws.
ARTICLE IV
----------
OFFICERS
Section 4.01. Number and Offices. The officers of the corporation must
------------------
consist of a President, Treasurer and Secretary and may also consist of one or
more Vice Presidents (any one of whom may be designated an Executive Vice
President or Senior Vice President in the discretion of the Board), one or more
Assistant Secretaries and one or more Assistant Treasurers. The Board may elect
or appoint any other officers it deems necessary for the operation and
management of the corporation, each of whom will have the powers, rights,
duties, responsibilities and terms of office determined by the Board from time
to time. Any number of officers or functions of those offices may be held or
exercised by the same person.
Section 4.02. Chairman of the Board. The Board of Directors may also
---------------------
elect as an officer a Chairman of the Board, who, if so elected, must preside at
all meetings of the Board of Directors, must make such reports to the Board of
Directors as may from time to time be required, and must have such other powers
and must perform such other duties as may be from time to time assigned to him
or her by the Board of Directors. If a Chairman of the Board is not appointed,
or is not present at any meetings of the Board of Directors, the duties and
responsibilities of the Chairman of the Board set forth in this Section 4.02
must be performed by the President.
Section 4.03. Election and Term of Office. The Board of Directors must
---------------------------
from time to time elect a President and may elect one or more Vice Presidents, a
Secretary and a Treasurer and any other officers or agents the Board deems
necessary. Such officers must hold their offices until their successors are
elected and qualified, subject, however, to prior retirement, resignation, death
or removal from office, as provided in these Bylaws.
Section 4.04. President. Unless otherwise stipulated, the President is
---------
the chief executive officer of the corporation and has responsibility for the
general active management of the
4
<PAGE>
corporation. When present, he or she must preside at all meetings of the
shareholders, and unless a Chairman of the Board of Directors has been elected
and is present, must preside at all meetings of the Board of Directors and see
that all orders and resolutions of the Board of Directors are carried into
effect. The President, a Vice President or the Secretary, unless some other
person is specifically authorized by resolution of the Board of Directors, must
sign all certificates of stock, bonds, deeds, mortgages, agreements,
modification of mortgage agreements, leases, and contracts of the corporation.
The President, if no Secretary has been elected, must maintain records of and
whenever necessary, must certify all proceedings of the Board of Directors and
the shareholders. The President must perform such other duties as the Board of
Directors may designate.
Section 4.05. Vice President. If a Vice President or Vice Presidents have
--------------
been elected, they have such powers and must perform such duties as may be
prescribed by the Board of Directors or by the President. In the event of the
absence, death or disability of the President, a Vice President must succeed to
the President's power and duties in the order designated by the Board of
Directors.
Section 4.06. Secretary. The Secretary must keep accurate minutes of all
---------
meetings of the shareholders and the Board of Directors, must give proper notice
of meetings of shareholders and directors, and will have such powers and must
perform such other duties as the Board of Directors or the President may from
time to time prescribe. In the Secretary's absence at any meeting, the
President, an Assistant Secretary or a Secretary Pro Tempore must perform the
Secretary's duties.
Section 4.07. Treasurer. Unless another officer is designated by the
---------
Board of Directors as the chief financial officer, the Treasurer must hold such
title and must keep accurate financial records of the corporation; deposit all
money, drafts and checks in the name of and to the credit of the corporation in
the banks and depositories designated by the Board of Directors; endorse for
deposit all notes, checks and drafts received by the corporation as ordered by
the Board of Directors, making proper vouchers therefor; and disburse corporate
funds and issue checks and drafts in the name of the corporation, as ordered by
the Board of Directors. The Treasurer will have such powers and must perform
such other duties as the Board of Directors or the President may from time to
time prescribe.
Section 4.08. Removal and Vacancies. Any officer may be removed from
---------------------
office by a majority of the whole Board of Directors, with or without cause.
Such removal, however, must be without prejudice to the contract rights of the
person so removed. If there is a vacancy among the officers of the corporation
by reason of death, resignation or otherwise, such vacancy may be filled for the
unexpired term by the Board of Directors.
Section 4.09. Delegation of Authority. Unless prohibited by the Articles
-----------------------
of Incorporation, these Bylaws, or a resolution approved by the affirmative vote
of a majority of the
5
<PAGE>
Directors present, an officer elected or appointed by the Board may without the
approval of the Board delegate some or all of the duties or powers of such
office to other persons, provided that such delegation is in writing.
ARTICLE V
---------
SHARES AND THEIR TRANSFER
Section 5.01. Certificates for Shares. Every shareholder of this
-----------------------
corporation is entitled to a certificate, to be in such form as prescribed by
law and adopted by the Board of Directors, certifying the number of shares of
the corporation owned by such shareholder. The certificates must be numbered in
the order in which they are issued and must be signed by the President, a Vice
President or the Secretary, unless some other person is specifically authorized
by resolution of the Board of Directors. Every certificate surrendered to the
corporation for exchange or transfer must be canceled and no new certificate or
certificates may be issued in exchange for any existing certificate until such
existing certificate has been so canceled.
Section 5.02. Transfer of Shares. Transfer of shares on the books of the
------------------
corporation may be authorized by the shareholder named in the certificate or the
shareholder's legal representative, and upon surrender of the certificate or the
certificates for such shares. The corporation may treat, as the absolute owner
of the shares of the corporation, the person or persons in whose name or names
the shares are registered on the books of the corporation. The legend on the
reverse side of all certificates for shares of the corporation must read:
The shares of common stock represented by this certificate have not been
registered under the Securities Act of 1933 or under applicable state laws
and may not be sold, transferred, or pledged in the absence of such
registration unless pursuant to an exemption from the registration
requirements of the Securities Act of 1933 and applicable state securities
laws. The company reserves the right to require an opinion of counsel
satisfactory to it before effecting any transfer of the shares.
Section 5.03. Lost Certificates. A new share certificate may be issued in
-----------------
place of one that is alleged to have been lost, stolen or destroyed, but only in
accordance with applicable law and such other reasonable requirements imposed by
the Board of Directors.
ARTICLE VI
----------
AMENDMENTS
Section 6.01. Subject to the power of shareholders to adopt, amend, or
repeal these Bylaws as provided in Kansas Statutes Article 17-6009, any Bylaw
may be amended or repealed by the Board of Directors at any meeting, except that
after adoption of the initial Bylaws, the
6
<PAGE>
Board must not adopt, amend, or repeal a Bylaw fixing a quorum for meetings for
shareholders, prescribing procedures for removing directors or filling vacancies
in the Board, or fixing the number of directors or their classifications,
qualifications, or terms of office but may adopt or amend a Bylaw to increase
the number of directors.
ARTICLE VII
-----------
INDEMNIFICATION
Section 7.01. Any person who at any time serves or served as director,
officer or employee of the corporation, or of any other enterprise at the
request of the corporation, and the heirs, executors and administrators of such
person must be indemnified by the corporation, in accordance with and to the
fullest extent permitted by the provisions of the 1972 General Corporation Code
of Kansas as it may be amended from time to time.
7
<PAGE>
EXHIBIT A
FORSTER ACQUISITION CO.
-----------------------
BYLAWS
------
Article 1
General
-------
Section 1.1 Principal Place of Business. The principal office of the
----------------------------------------
corporation shall be located at Wilton, Maine, or such other place as the board
of directors may from time to time designate.
Section 1.2 Other Offices. The corporation may also have offices and
--------------------------
places of business at such other places both within and without the State of
Maine as the board of directors may from time to time determine or the business
of the corporation may require.
Section 1.3 Seal. The corporate seal shall have inscribed thereon
-----------------
the name of the corporation, the year of its organization and the word "Maine".
The seal may be used by causing it or a facsimile of it to be impressed or
affixed or in any manner reproduced.
Article 2
Meetings of Shareholders and Unanimous Action
---------------------------------------------
Section 2.1 Place of Meetings. Meetings of the shareholders shall be
------------------------------
held either within or without the State of Maine at the principal office or at
any other place as may be fixed by the board of directors, or in the absence of
such action by the board of directors, as may be fixed by the President.
Section 2.2 Annual Meetings. Annual meetings of the shareholders
----------------------------
shall be held at such time of day and place as may be fixed by the directors or
in the absence of action by the directors, as may be fixed by the President, and
shall be held on the third Tuesday of October in each year, if not a legal
holiday, and if a legal holiday, then on the next secular day following that is
not a legal holiday, or on such other date and time as the board of directors
may specify. The shareholders shall elect a board of directors and transact
such other business as may properly be brought before the annual meeting. If an
annual meeting has not been called and held within thirty (30) days after the
time designated for it, any shareholder entitled to call a special meeting of
shareholders may call it.
Section 2.3 Special Meetings. Special meetings of the shareholders
-----------------------------
may be called by the board of directors, by the President, or by the holders of
more than forty percent of the shares outstanding and entitled to vote.
Section 2.4 Notice of Meetings. Written notice of each meeting of
-------------------------------
shareholders, stating the place, day and hour of the meeting the shall be
delivered, either personally or by mail,
<PAGE>
to each shareholder of record entitled to vote at such meeting, not less than
three (3) days before the date of the meeting. In the case of a special meeting,
or to the extent otherwise required by statute, the Articles of Incorporation or
by these Bylaws, such notice shall also state the purpose of purposes for which
the meeting is called. Attendance of a shareholder at any meeting shall
constitute a waiver of notice of such meeting, except where a shareholder
attends for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened. Notwithstanding any
provision of these Bylaws, defects in the calling or notice of a meeting of
shareholders shall be deemed waived to the extent provided by statute.
Section 2.5 Unanimous Consent. Any action required or permitted to
------------------------------
be taken at any annual or special meeting of the shareholders may be taken
without a meeting if consents in writing, setting forth the action so taken,
shall be signed by all the shareholders entitled to vote with respect to the
subject matter thereof and filed with the Clerk as part of the corporate
records.
Article 3
Quorum and Voting of Stock
--------------------------
Section 3.1 Quorum. The holders of a majority of the voting shares
-------------------
of stock issued and outstanding and entitled to vote, represented in person or
by proxy, shall constitute a quorum at all meetings of the shareholders for the
transaction of business. If, however, such quorum shall not be present or
represented at any meeting of the shareholders, the shareholders present in
person or represented by proxy shall have the power to adjourn the meeting for
up to thirty (30) days, without notice other than announcement at the meeting,
until a quorum shall be present or represented. At such adjourned meeting at
which a quorum shall be present or represented, any business may be transacted
which might have been transacted at the meeting as originally notified.
Section 3.2 Vote Required. If a quorum is or was present, the
--------------------------
affirmative vote of a majority of the votes cast at the meeting shall be the act
of the shareholders unless the vote of a greater number of shares of stock is
required by the Articles of incorporation, these Bylaws, or by statute.
Section 3.3 Voting Rights. Each outstanding share of stock having
--------------------------
voting power shall be entitled to one vote on each matter submitted to a vote at
a meeting or shareholders.
Section 3.4 Proxies. A shareholder may vote either in person or by
--------------------
proxy executed in writing by the shareholder or by his duly authorized attorney-
in-fact. No proxy shall be valid after eleven (11) months.
Article 4
Directors
---------
Section 4.1 Management by Board. The business and affairs of the
--------------------------------
corporation shall be managed by its board of directors, which may exercise all
powers of the corporation and
2
<PAGE>
do all lawful acts and things as are not be statute or by the Articles of
Incorporation or by these Bylaws directed or required to by exercised or done by
the shareholders.
Section 4.2 Number of Directors. As stated in the Articles of
--------------------------------
Incorporation, the number of directors shall be not less than one (1) nor more
than seven (7) provided that the number of directors may be one (1) only when
there is no more than one (1) shareholder and may be two (2) only when there are
not more than two (2) shareholders.
The number of directors shall be fixed at the annual meeting of the
shareholders or at any meeting held in lieu thereof.
Section 4.3 Election, Term. The directors shall be elected at the
---------------------------
annual meeting of the shareholders, or at any meeting held in lieu thereof, and
each director elected shall serve until the next succeeding annual meeting and
until his successor shall have been elected and qualified.
Section 4.4 Qualifications. Directors need not be shareholders.
---------------------------
Section 4.5 Vacancies. Any vacancy occurring in the board of
----------------------
directors may be filled by the affirmative vote of a majority of the remaining
directors although less than a quorum of the board of directors. A director
elected to fill a vacancy shall be elected for the unexpired portion of the term
of his predecessor in office.
Section 4.6 Vacancies Created by Enlargement of the Board. The board
----------------------------------------------------------
of directors may at any time increase the number of directors within the limits
set in Section 4.2 of this Article. Any directorship so created by an increase
in the number of directors shall be filled by the remaining directors. A
director elected to fill a newly created directorship shall serve until the next
succeeding annual meeting of shareholders and until his successor shall have
been elected and qualified.
Section 4.7 Removal of Directors. The entire board of directors or
---------------------------------
any individual director may be removed, with or without cause, at a special
shareholders' meeting the notice of which includes notice of the proposed
removal, by the affirmative vote of the holders of two-thirds (2/3) of the
outstanding shares of common stock.
Article 5
Meetings of the Board of Directors and Unanimous Action
-------------------------------------------------------
Section 5.1 Place of Meetings. Regular or special meetings of the
------------------------------
board of directors may be held either within or without the State of Maine.
Section 5.2 Regular Meetings. Regular meetings of the board of
-----------------------------
directors may be held upon such notice, or without notice if the time and place
is fixed by the board of directors, and at such time and at such place as shall
from time to time be determined by the board.
3
<PAGE>
Section 5.3 Special Meetings. Special meetings of the board of
-----------------------------
directors may be called by the President or by any two (2) directors on two (2)
days' notice to each director at such time and at such place as shall be
determined by the person calling the meeting.
Section 5.4 Notice of Meetings. Written notice of each meeting of
-------------------------------
directors, stating the place, day and hour of the meeting shall be (i) delivered
or mailed to each director, addressed to him at his residence or usual place of
business, not less than two (2) days before the date of the meeting or (ii) sent
to him at such place by telegram or cable, or received by him personally by
telephone at least twenty-four (24) hours before the meeting. Notwithstanding
any provision of these Bylaws, defects in the calling or notice of a meeting of
directors shall be deemed waived to the extent provided by statute. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the board of directors need be specified in the notice or waiver of notice of
such meeting, except as provided by statute.
Section 5.5 Telephonic Meetings. The directors may hold a meeting by
--------------------------------
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other. Notice of such
meeting shall be given as provided in Section 5.4 and shall give each director
the telephone number at which, or other manner in which, he will be called.
Section 5.6 Record of Meetings. The Clerk, Secretary or such person
-------------------------------
as the directors designate shall keep a record of the meeting.
Section 5.7 Quorum. A majority of the directors shall constitute a
-------------------
quorum for the transaction of business and the act of the majority of the
directors present at any meeting at which a quorum is or was once present shall
be the act of the board of directors, unless a greater vote is required by the
Articles of Incorporation, these Bylaws, or by statute. If a quorum shall not
be present at any meeting of directors, the directors present thereat may
adjourn the meeting from time to time, without notice other than an announcement
at the meeting, until a quorum shall be present. At such adjourned meeting at
which a quorum shall be present, any business may be transacted which might have
been transacted at the meeting as originally notified.
Section 5.8 Action by Unanimous Consent. Any action required or
----------------------------------------
permitted to be taken at a meeting of the directors may be taken without a
meeting if consents in writing, setting forth the action so taken, shall be
signed by all of the directors and filed with the minutes of the meetings of the
board of directors.
Section 5.9 Executive and Other Committees. The board of directors,
-------------------------------------------
by a resolution adopted by a majority of the directors then in office, may
designate from among its members an executive committee and other committees,
each consisting of two (2) or more directors, and may delegate to such committee
or committees all the authority of the board of directors, or any portion of
said authority, to the extent permitted by law.
4
<PAGE>
Article 6
Officers and Agents
-------------------
Section 6.1 Officers. The officers of the corporation shall be a
---------------------
President, one or more Vice Presidents, a Treasurer, a Secretary and a Clerk.
Section 6.2 Election and Qualification of Officers. The board of
---------------------------------------------------
directors, at its first meeting after each annual shareholders' meeting, shall
choose the officers. A person may hold more than one office.
Section 6.3 Other Officers and Agents. The board of directors or the
--------------------------------------
President may from time to time appoint or delegate the appointment of such
other officers and assistant officers as are deemed necessary, including one or
more Vice-Presidents, Assistant Secretaries, Assistant Clerks or Assistant
Treasurers.
Section 6.4 Compensation. The compensation of all officers and
-------------------------
agents of the corporation shall be fixed by the board of directors.
Section 6.5 Term of Officers, Vacancies. The officers of the
----------------------------------------
corporation shall hold office until their successors shall have been elected and
qualified, and they need not be elected annually. Any officer elected or
appointed by the board of directors may be removed at any time by the
affirmative vote of a majority of the board of directors or the Executive
Committee. Any vacancy occurring in any office of the corporation shall be
filled by the directors.
Section 6.6 The President. The President shall be the chief
--------------------------
executive officer of the corporation, shall preside at all meetings of the
shareholders and the board of directors, shall have general and active
management of the business of the corporation, shall see that all orders and
resolutions of the board of directors are carried into effect, and shall perform
whatever duties the board of directors may from time to time prescribe. He
shall execute bonds, mortgages, deeds and other contracts requiring a seal,
under the seal of the corporation, except where required or permitted by law to
be otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the board of directors to some other
officer or agent of the corporation.
Section 6.7 The Vice President. The Vice President shall, in the
-------------------------------
absence or disability of the President, perform the duties and exercise the
powers of the President and shall perform such other duties and have such other
powers as the board of directors may from time to time prescribe.
Section 6.8 The Treasurer. The Treasurer shall have the custody of
--------------------------
the corporate funds and securities, shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation, and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the board of
directors. He shall disburse the funds of the corporation as may be ordered by
the board
5
<PAGE>
directors, taking proper vouchers for such disbursements, and shall render to
the President and the board of directors at its regular meetings, or when the
directors so require, an account of all his transactions as Treasurer and of the
financial condition of the corporation.
Section 6.9 The Secretary. The Secretary shall attend all meetings
--------------------------
of the board of directors and record all its proceedings. He may give, or cause
to be given, notice of all shareholders' and directors' meetings and shall
perform such other duties as may be prescribed by the board of directors or by
the President. The Secretary may certify all votes, resolutions, and actions of
the shareholders and of the board.
Section 6.10 The Clerk. The Clerk shall be a resident of Maine. He
-----------------------
shall keep, at the registered office of the corporation, in a book kept for such
purpose, the records of all shareholders' meetings, shall keep the stock
transfer book and keep on file a list of shareholders entitled to vote at each
meeting and the most recent list of shareholders. He may certify all votes,
resolutions and actions of the shareholders and of the board of directors, shall
attend the meetings of the shareholders and record the proceedings in a book
kept for that purpose; and, in his absence, a temporary Clerk shall be appointed
and shall record such meetings. He may give or cause to be given notice of all
shareholders' and directors' meetings. He shall have custody of the corporate
seal and shall have authority to affix the same to any instrument requiring it
and when so affixed, it may be attested by his signature. The directors may
give general authority to any other officer to affix the seal of the corporation
and to attest the affixing by his signature.
Article 7
Share Certificates and Transfers of Shares
------------------------------------------
Section 7.1 Certificates for Shares. The shares of the corporation
------------------------------------
shall be represented by certificates signed by any two of the officers, and
shall be sealed with the seal of the corporation or a facsimile thereof.
Section 7.2 Lost Certificates. The board of directors may direct a
------------------------------
new certificate to be issued in place of any certificate theretofore issued by
the corporation alleged to have been lost or destroyed. When authorizing such
issue of a new certificate, the board of directors, in its discretion and as a
condition precedent to the issuance thereof, may prescribe such terms and
conditions as it deems expedient, and may require such indemnities as it deems
adequate to protect the corporation from any claim that may be made against it
with respect to any such certificate alleged to have been lost or destroyed.
Section 7.3 Record Owners. The corporation shall be entitled to
--------------------------
treat the holder of record of shares as the holder in fact and shall not be
bound to recognize any equitable or other claim to or interest in the shares,
except as otherwise provided by law.
Section 7.4 List of Shareholders. The officer or agent having charge
---------------------------------
of the stock transfer books and shares shall, in advance of each meeting of
shareholders, prepare a complete list of the shareholders entitled to vote at
such meeting. Such list shall comply as to form with the requirements of the
corporation statute. For a period commencing not less than ten (10) days
6
<PAGE>
prior to the date of the meeting (or such lesser period as is permitted by
statute), such list shall be kept on file at the office of the clerk of the
corporation, and at the office of its transfer agent or registrar, if any, and
shall be subject to inspection by any shareholder at any time during usual
business hours. Such list shall also be produced and kept open at the time and
place of the meeting and shall be subject to the inspection of any shareholder
during the whole time of the meeting. Failure to comply with the requirements of
this section shall not affect the validity of any action taken at any meeting.
If the requirements of this section have not been substantially complied with,
the meeting shall, on the demand in person or by proxy of any shareholder who
sought to inspect the required list, be adjourned shall until the requirements
are met.
Article 8
Finances
--------
Section 8.1 Dividends. Dividends may be declared by the board of
----------------------
directors at any regular or special meeting, pursuant to law. Dividends may be
paid in cash, in property, or in shares of the capital stock.
Section 8.2 Checks. All checks or demands for money and notes for
-------------------
the corporation shall be signed by the Treasurer and such officers or other
persons as the board of directors may from time to time designate.
Section 8.3 Fiscal Year. The fiscal year of the corporation shall
------------------------
end on the close of business on the Saturday closest to the end of September
unless otherwise fixed by resolution of the board of directors.
Article 9
Indemnification
---------------
The corporation shall indemnify any person who is or was a director,
officer, employee or agent of the corporation, or who is or was serving in
another capacity at the request of the corporation, to the extent authorized by
law, and may purchase and maintain liability insurance on behalf of such persons
or to protect itself against liability for such indemnification to the extent
authorized by law.
7
<PAGE>
EXECUTION COPY
DIAMOND BRANDS OPERATING CORP.
___________________________________
10 1/8% SENIOR SUBORDINATED NOTES DUE 2008
___________________________________
_________________
INDENTURE
DATED AS OF APRIL 21, 1998
_________________
___________________________________
STATE STREET BANK AND TRUST COMPANY
TRUSTEE
___________________________________
<PAGE>
Indenture, dated as of April 21, 1998 among Diamond Brands Operating Corp., a
Delaware corporation (the "Company"), as issuer, each of Empire Candle, Inc., a
Kansas corporation, and Forster, Inc., a Maine corporation as guarantors (each a
"Guarantor") and together with any subsidiary that executes a Subsidiary
Guarantee substantially in the form of Exhibit D attached hereto, (the
"Guarantors") and State Street Bank and Trust Company, as trustee (the
"Trustee").
The Company, the Guarantors and the Trustee agree as follows for the
benefit of each other and for the equal and ratable benefit of the holders of
the Company's 10 1/8% Senior Subordinated Notes due 2008 (the "Senior
Subordinated Notes") and the exchange 10 1/8% Senior Subordinated Notes due 2008
(the "Exchange Senior Subordinated Notes" and, together with the Senior
Subordinated Notes, the "Notes"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, and (ii)
Indebtedness secured by a Lien encumbering any asset acquired by such specified
Person or assumed in connection with the acquisition of any asset used or useful
in a Permitted Business acquired by such specified Person; provided that such
Indebtedness was not incurred in connection with, or in contemplation of, such
other Person merging with or into or becoming a Subsidiary of such specified
Person, or such acquisition, as the case may be.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Applicable Procedures" means, with respect to any transfer or exchange of
beneficial interests in a Global Note, the rules and procedures of the
Depositary that apply to such transfer and exchange.
"Asset Sale" means (i) the sale, lease (other than an operating lease
entered into in the ordinary course of business), conveyance or other
disposition of any assets or rights (including, without limitation, by way of a
sale and leaseback) other than sales of inventory in the ordinary course of
business consistent with past practices (provided that the sale, lease,
conveyance or other disposition of all or substantially all of the assets of the
Company and its Restricted Subsidiaries taken as a whole will be governed by the
provisions of this Indenture described in Sections 4.13 and 5.01 and not by the
provisions of Section 4.10 hereof, and (ii) the sale by the Company and the
issue or sale by any of the Restricted Subsidiaries of the Company of Equity
Interests of any of the Company's Subsidiaries, in the case of either clause (i)
or (ii), whether in a single transaction or a series of related transactions
that have a fair market value (as determined in good faith by the Board of
Directors) in excess of $1.0 million or for net cash proceeds in excess of $1.0
million. Notwithstanding the foregoing, the following shall not
2
<PAGE>
be deemed to be Asset Sales: (i) a transfer of assets by the Company to a Wholly
Owned Restricted Subsidiary of the Company or by a Wholly Owned Restricted
Subsidiary of the Company to the Company or to a Wholly Owned Restricted
Subsidiary of the Company, (ii) an issuance of Equity Interests by a Restricted
Subsidiary of the Company to the Company or to a Wholly Owned Restricted
Subsidiary of the Company, (iii) a Restricted Payment that is permitted by
Section 4.07 hereof, (iv) the sale and leaseback of any assets within 90 days of
the acquisition of such assets, provided that the sale price of such assets is
not materially less than the acquisition price of such assets, and (v) the
periodic clearance of aged inventory.
"Bank Facilities" means that certain credit facility, dated as of April 21,
1998, by and among the Company, DLJ Capital Funding, Inc., as Syndication Agent,
Wells Fargo Bank, N.A., as Administrative Agent, Morgan Stanley Senior Funding,
Inc., as Documentation Agent, the Lenders party thereto and Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ"), as Arranger, providing for up to $105.0
million of borrowings, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, and in
each case as amended, extended, modified, renewed, refunded, replaced or
refinanced in whole or in part from time to time, including any agreement
restructuring or adding Subsidiaries of the Company as additional borrowers or
guarantors thereunder and whether by the same or any other agent, lender or
group of lenders.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state
law for the relief of debtors.
"Board of Directors" means the board of directors of the Company or any
authorized committee of such board of directors.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) securities issued or unconditionally and fully
guaranteed or insured by the full faith and credit of the United States
government or any agency or instrumentality thereof having maturities of not
more than one year from the date of acquisition, (ii) obligations issued or
fully guaranteed by any state of the United States of America or any political
subdivision of any such state or any public instrumentality thereof maturing
within one year from the date of acquisition thereof and, at the time of
acquisition, having one of the two highest ratings obtainable from either
Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc.
("Moody's"), (iii) certificates of deposit and eurodollar time deposits with
maturities of one year or less from the date of acquisition, bankers'
acceptances with maturities not exceeding one year and overnight bank deposits,
in each case with any lender party to the Bank Facilities or with any domestic
commercial bank having capital and surplus in excess of $250.0 million, (iv)
repurchase obligations with a term of not more than seven days
3
<PAGE>
for underlying securities of the types described in clauses (i) and (iii), above
entered into with any financial institution meeting the qualifications specified
in clause (iii) above, (v) commercial paper having one of the two of the highest
ratings obtainable from either Moody's or S&P and in each case maturing within
one year after the date of acquisition and (vi) investments in funds investing
exclusively in investments of the types described in clauses (i) through (v)
above.
"Cedel" means Cedel Bank, societe anonyme.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act), other than the Principals and their Related Parties, (ii) the adoption of
a plan relating to the liquidation or dissolution of the Company, (iii) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that (A) any "person" (as defined above),
other than the Principals and their Related Parties, becomes the "beneficial
owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange
Act), directly or indirectly, of 40% or more of the Voting Stock of the Company
(measured by voting power rather than number of shares) and (B) the Principals
and their Related Parties beneficially own, directly or indirectly, in the
aggregate a lesser percentage of the Voting Stock of the Company than such other
"person", (iv) the first day on which a majority of the members of the Board of
Directors of the Company are not Continuing Directors or (v) the Company
consolidates with, or merges with or into, any Person, or any Person
consolidates with, or merges with or into, the Company, in any such event
pursuant to a transaction in which any of the outstanding Voting Stock of the
Company is converted into or exchanged for cash, securities or other property,
other than any such transaction where (A) the Voting Stock of the Company
outstanding immediately prior to such transaction is converted into or exchanged
for Voting Stock (other than Disqualified Stock) of the surviving or transferee
Person and (B) either (1) the "beneficial owners" (as defined above) of the
Voting Stock of the Company immediately prior to such transaction own, directly
or indirectly through one or more subsidiaries, not less than a majority of the
total Voting Stock of the surviving or transferee corporation immediately after
such transaction or (2) if, immediately prior to such transaction the Company is
a direct or indirect subsidiary of any other Person (such other Person, the
"Holding Company"), then the "beneficial owners" (as defined above) of the
Voting Stock of such Holding Company immediately prior to such transaction own,
directly or indirectly through one or more subsidiaries, not less than a
majority of the Voting Stock of the surviving or transferee corporation
immediately after such transaction.
"Commission" means the Securities and Exchange Commission.
"Company" means Diamond Brands Operating Corp., a Delaware corporation, and
its permitted successors.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income of such Person and its Restricted Subsidiaries), plus
(ii) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such provision for
taxes was included in computing such Consolidated Net Income, plus (iii)
consolidated interest expense of such Person and its Restricted Subsidiaries for
such period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt
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issuance costs and original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments (if any) pursuant to Hedging
Obligations), to the extent that any such expense was deducted in computing such
Consolidated Net Income, plus (iv) depreciation and amortization (including
amortization of goodwill and other intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period) and other non-cash
charges (excluding any such non-cash charge to the extent that it represents an
accrual of or reserve for cash charges in any future period or amortization of a
prepaid cash charge that was paid in a prior period) of such Person and its
Subsidiaries for such period to the extent that such depreciation, amortization
and other non-cash charges were deducted in computing such Consolidated Net
Income, minus (v) non-cash items increasing such Consolidated Net Income for
such period, in each case, on a consolidated basis and determined in accordance
with GAAP. Notwithstanding the foregoing, the provision for taxes based on the
income or profits of, and the depreciation and amortization and other non-cash
charges of, a Restricted Subsidiary of a Person shall be added to Consolidated
Net Income to compute Consolidated Cash Flow only to the extent (and in the same
proportion) that the Net Income of such Restricted Subsidiary was included in
calculating the Consolidated Net Income of such Person.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP, provided
that (i) the Net Income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash to the referent Person or a Restricted Subsidiary thereof, (ii) the Net
Income of any Restricted Subsidiary shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by that Restricted
Subsidiary of that Net Income is not at the date of determination permitted
without any prior governmental approval (that has not been obtained) or,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its stockholders, (iii)
the Net Income of any Person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition shall be excluded, and (iv) the
cumulative effect of a change in accounting principles shall be excluded.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company or Holdings who (i) was a member of
such Board of Directors on the date hereof immediately after consummation of the
Recapitalization or (ii) was nominated for election or elected to such Board of
Directors with the approval of a majority of the Continuing Directors who were
either members of such Board at the time of such nomination or election or are
successor Continuing Directors appointed by such Continuing Directors (or their
successors).
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 13.02 hereof or such other address as to which the
Trustee may give notice to the Company.
"Credit Agent" means Wells Fargo Bank, N.A. in its capacity as
Administrative Agent for the lenders party to the Bank Facilities or any
successor thereto or any person otherwise appointed.
"Credit Facilities" means, with respect to the Company, one or more debt
facilities (including, without limitation, the Bank Facilities) or commercial
paper facilities with banks or other institutional lenders providing for
revolving credit loans, term loans, receivables financing (including through the
sale of receivables to such lenders or to special purpose entities formed to
borrow from such lenders against
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such receivables) or letters of credit, in each case, as amended, restated,
modified, renewed, refunded, replaced or refinanced in whole or in part from
time to time. Indebtedness under Credit Facilities outstanding on the Issue Date
shall be deemed to have been incurred on such date in reliance on the exceptions
provided by clause (i) of the definition of Permitted Debt.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Definitive Notes" means Notes that are in the form of Exhibit A-1 attached
-----------
hereto (but without including the text referred to in footnotes 1 and 3
thereto).
"Depositary" means, with respect to the Notes issuable or issued in whole
or in part in global form, the Person specified in Section 2.03 hereof as the
Depositary with respect to the Notes, until a successor shall have been
appointed and become such pursuant to Section 2.06 of this Indenture, and,
thereafter, "Depositary" shall mean or include such successor.
"Designated Senior Debt" means (i) any Senior Debt outstanding under the
Bank Facilities and (ii) any other Senior Debt permitted under this Indenture
the principal amount of which is $25 million or more and that has been
designated by the Company as "Designated Senior Debt."
"Disqualified Stock" means 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 at the option of the holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature; provided, however, that a class of Capital Stock shall
not be Disqualified Stock hereunder solely as the result of any maturity or
redemption that is conditioned upon, and subject to, compliance with Section
4.07 hereof; and provided, further, that Capital Stock issued to any plan for
the benefit of employees of the Company or its subsidiaries or by any such plan
to such employees shall not constitute Disqualified Stock solely because it may
be required to be repurchased by the Company in order to satisfy applicable
statutory or regulatory obligations.
"DLJ" means Donaldson, Lufkin & Jenrette Securities Corporation.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means an offering of common stock (other than
Disqualified Stock) of the Company or Holdings, pursuant to an effective
registration statement filed with the Commission in accordance with the
Securities Act, other than an offering pursuant to Form S-8 (or any successor
thereto) provided, that in the case of an Equity Offering by Holdings, Holdings
contributes to the common equity of the Company the portion of the net cash
proceeds thereof necessary to pay the aggregate redemption price of the Notes to
be redeemed in connection therewith.
"Euroclear" means Morgan Guaranty Trust Company of New York, the Brussels
office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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<PAGE>
"Exchange Offer" means the offer by the Company to Holders to exchange
Senior Subordinated Notes for Exchange Senior Subordinated Notes.
"Exchange Offer Registration Statement" has the meaning set forth in the
Registration Rights Agreement.
"Exchange Senior Subordinated Notes" means the Company's 10 1/8% Senior
Subordinated Notes due 2008, which will be issued in exchange for the Company's
Senior Subordinated Notes.
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Bank Facilities) in existence on
the date of this Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations; provided, however, that
in no event shall any amortization of deferred financing costs incurred in
connection with the Recapitalization be included in Fixed Charges), and (ii) the
consolidated interest expense of such Person and its Restricted Subsidiaries
that was capitalized during such period, and (iii) any interest expense on
Indebtedness of another Person that is Guaranteed by such Person or one of its
Restricted Subsidiaries or secured by a Lien on assets of such Person or one of
its Restricted Subsidiaries (whether or not such Guarantee or Lien is called
upon), and (iv) the product of (a) (without duplication) (1) all dividends paid
or accrued in respect of Disqualified Stock which are not treated as interest
for tax purposes for such period and (2) all cash dividend payments on any
series of preferred stock of such Person or any of its Restricted Subsidiaries,
other than dividend payments on Equity Interests payable solely in Equity
Interests (other than Disqualified Stock) of the Company, times (b) a fraction,
the numerator of which is one and the denominator of which is one minus the then
current combined federal, state and local statutory tax rate of such Person,
expressed as a decimal, in each case, on a consolidated basis and in accordance
with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the Company or
any of its Restricted Subsidiaries incurs, assumes, Guarantees, repays or
redeems any Indebtedness (other than revolving credit borrowings) or issues or
redeems preferred stock subsequent to the commencement of the period for which
the Fixed Charge Coverage Ratio is being calculated but prior to the date on
which the event for which the calculation of the Fixed Charge Coverage Ratio is
made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be
calculated giving pro forma effect to such incurrence, assumption, Guarantee,
repayment or redemption of Indebtedness, or such issuance or redemption of
preferred stock, as if the same had occurred at the beginning of the applicable
four-quarter reference period. In addition, for purposes of making the
computation referred to above, (i) acquisitions that have been made by the
Company or any of its Restricted Subsidiaries, including through mergers or
consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period and Consolidated Cash Flow for such
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<PAGE>
reference period shall be calculated without giving effect to clause (iii) of
the proviso set forth in the definition of Consolidated Net Income and shall
reflect any pro forma expense and cost reductions attributable to such
acquisitions (to the extent such expense and cost reduction would be permitted
by the Commission to be reflected in pro forma financial statements included in
a registration statement filed with the Commission), and (ii) the Consolidated
Cash Flow attributable to discontinued operations, as determined in accordance
with GAAP, and operations or businesses disposed of prior to the Calculation
Date, shall be excluded and Consolidated Cash Flow shall reflect any pro forma
expense or cost reductions relating to such discontinuance or disposition (to
the extent such expense or cost reductions would be permitted by the Commission
to be reflected in pro forma financial statements included in a registration
statement filed with the Commission), and (iii) the Fixed Charges attributable
to discontinued operations, as determined in accordance with GAAP, and
operations or businesses disposed of prior to the Calculation Date, shall be
excluded, but only to the extent that the obligations giving rise to such Fixed
Charges will not be obligations of the referent Person or any of its
Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date hereof; provided, however, that all
reports and other financial information provided by the Company to the Holders,
the Trustee and/or the Commission shall be prepared in accordance with GAAP, as
in effect on the date of such report or other financial information.
"Global Notes" means the Rule 144A Global Notes, the Regulation S Temporary
Global Notes and the Regulation S Permanent Global Notes and any Notes exchanged
for any of the foregoing in the Exchange Offer.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantors" means, initially, each Subsidiary of the Company on the Issue
Date and thereafter each of the Subsidiaries of the Company that executes a
Subsidiary Guarantee, substantially in the form of Exhibit D attached hereto,
and their respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or the value of foreign currencies.
"Holder" means a Person in whose name a Note is registered.
"Holdings" means Diamond Brands, Incorporated, a Minnesota corporation, the
corporate parent of the Company, or its successors.
8
<PAGE>
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any indebtedness of any other Person. The amount of
any Indebtedness outstanding as of any date shall be (i) the accreted value
thereof, in the case of any Indebtedness that does not require current payments
of interest, and (ii) the principal amount thereof in the case of any other
Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
such Person is no longer a Restricted Subsidiary of the Company, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
Restricted Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of Section 4.07 hereof.
"Indenture" means this Indenture, as amended or supplemented from time to
time.
"Indirect Participant" means a Person who holds an interest through a
Participant.
"Initial Purchasers" means DLJ and Morgan Stanley.
"Insolvency or Liquidation Proceedings" means (i) any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding, relative to the Company or to the creditors
of the Company, as such, or to the assets of the Company or (ii) any
liquidation, dissolution, reorganization or winding up of the Company, whether
voluntary or involuntary and involving insolvency or bankruptcy, or (iii) any
assignment for the benefit of creditors or any other marshalling of assets and
liabilities of the Company.
"Institutional Accredited Investor" means an "accredited investor" as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act.
"Issue Date" means the date on which notes are first issued and
authenticated under this Indenture.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York, the city in which the principal Corporate
Trust Office of the Trustee is located or at a place of payment are authorized
by law, regulation or executive order to remain closed. If a payment date is a
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<PAGE>
Legal Holiday at a place of payment, payment shall be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, and any option or other agreement to sell or give a security
interest therein).
"Liquidated Damages" means all liquidated damages then owing pursuant to
Section 5 of the Registration Rights Agreement.
"Morgan Stanley" means Morgan Stanley & Co. Incorporated.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(ii) any extraordinary or nonrecurring gain (but not loss), together with any
related provision for taxes on such extraordinary or nonrecurring gain (but not
loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
(other than Indebtedness under the Credit Facilities) secured by a Lien on the
asset or assets that were the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), or (b) is directly or indirectly liable (as a guarantor or
otherwise), and (ii) as to which the lenders have been notified in writing that
they will not have any recourse to the stock or assets of the Company or any of
its Restricted Subsidiaries, including the stock of such Unrestricted
Subsidiary.
"Note Custodian" means the Trustee when serving as custodian for the
Depositary with respect to the Notes in global form, or any successor entity
thereto.
"Obligations" means, with respect to any Indebtedness, any principal,
interest, penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Offering" means the offer and sale of the Notes of the Company.
"Offerings" means the Offering and the concurrent offering of the 12 7/8%
Senior Discount Debentures due 2009 by Holdings pursuant to an offering
memorandum dated as of April 15, 1998.
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"Officer" means, with respect to any Person, the Chairman of the Board, the
Chief Executive Officer, the President, the Chief Operating Officer, the Chief
Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the
Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the Company
by two Officers of the Company, one of whom must be the principal executive
officer, the principal financial officer, the treasurer or the principal
accounting officer of the Company, that meets the requirements of Sections 13.04
and 13.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is reasonably
acceptable to the Trustee, that meets the requirements of Sections 13.04 and
13.05 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.
"Pari Passu Indebtedness" means Indebtedness that ranks pari passu in right
of payment to the Notes.
"Participant" means, with respect to DTC, Euroclear or Cedel, a Person who
has an account with DTC, Euroclear or Cedel, respectively (and, with respect to
DTC, shall include Euroclear and Cedel).
"Permitted Business" means the design, manufacture, importing, exporting,
distribution, marketing, licensing and wholesale and retail sale of household
and consumer goods, molded plastic goods and woodenware, and businesses
reasonably related thereto.
"Permitted Investments" means (a) any Investment in the Company or in a
Restricted Subsidiary of the Company; (b) any Investment in Cash and Cash
Equivalents; (c) any Investment by the Company or any Restricted Subsidiary in a
Person, if as a result of such Investment (i) such Person becomes a Restricted
Subsidiary of the Company or (ii) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Restricted Subsidiary of the
Company; (d) any Restricted Investment made as a result of the receipt of non-
cash consideration from an Asset Sale that was made pursuant to and in
compliance with Section 4.10 hereof or any transaction not constituting an Asset
Sale by reason of the $1.0 million threshold contained in the definition
thereof; (e) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of the Company; (f) Hedging
Obligations entered into in the ordinary course of the Company's or its
Restricted Subsidiaries' Businesses and otherwise in compliance with this
Indenture; (g) loans and advances to employees and officers of the Company and
its Restricted Subsidiaries in the ordinary course of business for bona fide
business purposes not in excess of $2.0 million at any one time outstanding; (h)
additional Investments not to exceed $8.0 million at any one time outstanding;
and (i) Investments in securities of trade creditors or customers received in
settlement of obligations or pursuant to any plan of reorganization or similar
arrangement upon the bankruptcy or insolvency of such trade creditors or
customers.
"Permitted Junior Securities" means Equity Interests in the Company or
debt securities that are subordinated to all Senior Debt (and any debt
securities issued in exchange for Senior Debt) to substantially the same extent
as, or to a greater extent than, the Notes are subordinated to Senior Debt
pursuant to Article 10 hereof, that have a full maturity date and a weighted
average life to maturity which is the same as or greater than the Notes, and
that are not secured by any collateral.
"Permitted Liens" means (i) Liens existing as of the Issue Date to the
extent and in the manner such Liens are in effect on the Issue Date (other than
Liens to be extinguished in connection with the
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Recapitalization); (ii) Liens securing Senior Debt and Liens on assets of
Restricted Subsidiaries securing Guarantees of Senior Debt permitted to be
incurred under this Indenture; (iii) Liens securing the Notes and the Subsidiary
Guarantees; (iv) Liens of the Company or a Wholly Owned Restricted Subsidiary on
assets of any Restricted Subsidiary of the Company; (v) Liens securing Permitted
Refinancing Indebtedness which is incurred to refinance any Indebtedness which
has been secured by a Lien permitted under this Indenture and which has been
incurred in accordance with the provisions hereof; provided, however, that such
Liens (A) are not materially less favorable to the Holders and are not
materially more favorable to the lienholders with respect to such Liens than the
Liens in respect of the Indebtedness being refinanced and (B) do not extend to
or cover any property or assets of the Company or any of its Restricted
Subsidiaries not securing the Indebtedness so refinanced; (vi) Liens for taxes,
assessments or governmental charges or claims that are either (A) not delinquent
or (B) being contested in good faith by appropriate proceedings and as to which
the Company or its Restricted Subsidiaries shall have set aside on its books
such reserves as may be required pursuant to GAAP; (vii) statutory Liens of
landlords and Liens of carriers, warehousemen, mechanics, supplies, materialmen,
repairmen and other Liens imposed by law incurred in the ordinary course of
business for sums not yet delinquent for a period of more than 60 days or being
contested in good faith, if such reserve or other appropriate provision, if any,
as shall be required by GAAP shall have been made in respect thereof; (viii)
Liens incurred or deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other types of social
security or similar obligations, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations (exclusive
of obligations for the payment of borrowed money); (ix) judgment Liens not
giving rise to an Event of Default so long as such Lien is adequately bonded and
any appropriate legal proceedings which may have been duly initiated for the
review of such judgment shall not have been finally terminated or the period
within which such proceedings may be initiated shall not have expired; (x)
easements, rights-of-way, zoning restrictions and other similar charges or
encumbrances in respect of real property not interfering in any material respect
with the ordinary conduct of the business of the Company or any of its
Restricted Subsidiaries; (xi) any interest or title of a lessor under any lease,
whether or not characterized as capital or operating; provided that such Liens
do not extend to any property or assets which is not leased property subject to
such lease; (xii) Liens securing Capital Lease Obligations and purchase money
Indebtedness incurred in accordance with Section 4.09 hereof; provided, however,
that (A) the Indebtedness shall not exceed the cost of such property or assets
being acquired or constructed and shall not be secured by any property or assets
of the Company or any Restricted Subsidiary of the Company other than the
property or assets of the Company or any Restricted Subsidiary of the Company
other than the property and assets being acquired or constructed and (B) the
Lien securing such Indebtedness shall be created within 90 days of such
acquisition or construction; (xiii) Liens upon specific items of inventory or
other goods and proceeds of any Person securing such Person's obligations in
respect of bankers' acceptances issued or created for the account of such Person
to facilitate the purchase, shipment or storage of such inventory or other
goods; (xiv) Liens securing reimbursement obligations with respect to letters of
credit which encumber documents and other property relating to such letters of
credit and products and proceeds thereof; (xv) Liens encumbering deposits made
to secure obligations arising from statutory, regulatory, contractual, or
warranty requirements of the Company or any of its Restricted Subsidiaries,
including rights of offset and set-off; (xvi) Liens securing Hedging Obligations
which Hedging Obligations relate to Indebtedness that is otherwise permitted
under this Indenture; (xvii) Liens securing Acquired Debt incurred in accordance
with Section 4.09 hereof; provided that (A) such Liens secured such Acquired
Debt at the time of and prior to the incurrence of such Acquired Debt by the
Company or a Restricted Subsidiary of the Company and were not granted in
connection with, or in anticipation of, the incurrence of such Acquired
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Debt by the Company or a Restricted Subsidiary of the Company and (B) such Liens
do not extend to or cover any property or assets of the Company or any of its
Restricted Subsidiaries other than the property or assets that secured the
Acquired Debt prior to the time such Indebtedness became Acquired Debt of the
Company or a Restricted Subsidiary of the Company and are not more favorable to
the lienholders than those securing the Acquired Debt prior to the incurrence of
such Acquired Debt by the Company or a Restricted Subsidiary of the Company; and
(xviii) leases or subleases granted to others not interfering in any material
respect with the business of the Company or its Restricted Subsidiaries.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, prepay, retire, renew, replace, defease or refund
Indebtedness of the Company or any of its Subsidiaries (other than such
Indebtedness described in clauses (i), (vi), (vii), (viii), (ix), (x), (xi),
(xii) and (xiii) of Section 4.09 hereof); provided that: (i) the principal
amount (or accreted value, if applicable) of such Permitted Refinancing
Indebtedness does not exceed the principal amount of (or accreted value, if
applicable), plus accrued interest on, the Indebtedness so extended, refinanced,
renewed, prepaid, retired, replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection therewith including premiums paid, if
any, to the holders thereof); (ii) such Permitted Refinancing Indebtedness has a
final maturity date at or later than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced, renewed,
prepaid, retired, replaced, defeased or refunded; (iii) if the Indebtedness
being extended, refinanced, renewed, prepaid, retired, replaced, defeased or
refunded is subordinated in right of payment to the Notes, such Permitted
Refinancing Indebtedness has a final maturity date later than the final maturity
date of, and is subordinated in right of payment to, the Notes on terms at least
as favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred either by the
Company or by the Restricted Subsidiary who is the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture, or a governmental
agency or political subdivision thereof.
"Principals" means Seaver Kent - TPG Partners, L.P. and Seaver Kent I
Parallel, L.P.
"Private Placement Legend" means the legend initially set forth on the
Senior Discount Notes in the form set forth in Section 2.06(g) hereof.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A under
the Securities Act.
"Qualified Proceeds" means any of the following or any combination of the
following: (i) cash, (ii) Cash Equivalents, (iii) long-term assets that are
used or useful in a Permitted Business and (iv) the Capital Stock of any Person
engaged primarily in a Permitted Business if, in connection with the receipt by
the Company or any Restricted Subsidiary of the Company of such Capital Stock,
(a) such Person becomes a Wholly Owned Restricted Subsidiary and a Guarantor or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into,
the Company or any Wholly-Owned Restricted Subsidiary of the Company that is a
Guarantor.
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"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of the date hereof, among the Company, the Guarantors and the Initial
Purchasers.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Regulation S Global Notes" means the Regulation S Temporary Global Notes
or the Regulation S Permanent Global Notes as applicable.
"Regulation S Permanent Global Notes" means the permanent global notes that
do not contain the paragraphs referred to in footnote 1 to the form of Note
attached hereto as Exhibit A-2 and that are deposited with and registered in the
-----------
name of the Depositary or its nominee, representing a series of Notes sold in
reliance on Regulation S.
"Regulation S Temporary Global Notes" means the temporary global notes that
contain the paragraphs referred to in footnote 1 to the form of Note attached
hereto as Exhibit A-2 and that are deposited with and registered in the name of
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the Depositary or its nominee, representing a series of Notes sold in reliance
on Regulation S.
"Related Party" with respect to any Principal means (A) any controlling
stockholder or a majority of (or more) owned Subsidiary of such Principal or, in
the case of an individual, any spouse or immediate family member of such
Principal, or (B) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially holding a
majority (or more) controlling interest of which consist of such Principal
and/or such other Persons referred to in the immediately preceding clause (A).
Without limiting the generality of the foregoing, each of SKC GenPar LLC, TPG
Advisors II Inc. and their respective Affiliates shall be deemed to be Related
Parties of the Principals.
"Responsible Officer" when used with respect to the Trustee, means any
officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Beneficial Interest" means any beneficial interest of a
Participant or Indirect Participant in the Rule 144A Global Note or the
Regulation S Global Note.
"Restricted Broker Dealer" has the meaning set forth in the Registration
Rights Agreement.
"Restricted Global Notes" means the Rule 144A Global Notes and the
Regulation S Global Notes, all of which shall bear the Private Placement Legend.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 144A Global Notes" means the permanent global notes that contain the
paragraph referred to in footnote 1 and the additional schedule referred to in
footnote 3 to the form of the Note attached
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hereto as Exhibit A-1, and that is deposited with and registered in the name of
-----------
the Depositary or its nominee, representing a series of Notes sold in reliance
on Rule 144A.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Debt" means (i) all Indebtedness of the Company or any Guarantor
outstanding under Credit Facilities and all Hedging Obligations with respect
thereto, (ii) other Indebtedness of the Company or any of its Guarantors
permitted to be incurred under the terms of the Indenture, unless the instrument
under which such Indebtedness is incurred expressly provides that it is on a
parity with or subordinated in right of payment to the Notes and (iii) all
Obligations with respect to the foregoing. Notwithstanding anything to the
contrary in the foregoing, Senior Debt will not include (w) any liability for
federal, state, local or other taxes owed or owing by the Company, (x) any
Indebtedness of the Company to any of its Subsidiaries or other Affiliates, (y)
any trade payables or (z) any Indebtedness that is incurred in violation of the
Indenture.
"Senior Discount Debentures" means Holdings' 12 7/8% Senior Discount
Debentures due 2009.
"Shelf Registration Statement" means the Shelf Registration Statement as
defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total Voting
Stock thereof is at the time owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of that Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof).
"Tax Sharing Agreement" means, the tax sharing agreement among Holdings,
the Company and any one or more of the Company's subsidiaries, as amended from
time to time, so long as the method of calculating the amount of the Company's
(or any Restricted Subsidiary's) payments, if any, to be made thereunder is not
less favorable to the Company than as provided in such agreement as in effect on
the Issue Date, as determined in good faith by the Board of Directors of the
Company.
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"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-
77bbbb), as amended, as in effect on the date hereof.
"Transfer Restricted Securities" means Notes or beneficial interests
therein that bear or are required to bear the Private Placement Legend.
"Trustee" means State Street Bank and Trust Company until a successor
replaces it in accordance with the applicable provisions of this Indenture, and
thereafter means the successor.
"Unrestricted Global Notes" means one or more Global Notes that do not and
are not required to bear the Private Placement Legend.
"Unrestricted Subsidiary" means any Subsidiary (other than the Subsidiary
Guarantors as of the date hereof or any successor to any of them) of the Company
that is designated by the Board of Directors as an Unrestricted Subsidiary
pursuant to a Board Resolution; but only to the extent that such Subsidiary:
(a) has no Indebtedness other than Non-Recourse Debt; (b) is not party to any
agreement, contract, arrangement or understanding with the Company or any
Restricted Subsidiary unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of the Company; (c) is a Person with respect to which
neither the Company nor any of its Restricted Subsidiaries has any direct or
indirect obligation (x) to subscribe for additional Equity Interests or (y) to
maintain or preserve such Person's financial condition or to cause such Person
to achieve any specified levels of operating results; (d) has not guaranteed or
otherwise directly or indirectly provided credit support for any Indebtedness of
the Company or any of its Restricted Subsidiaries; and (e) has at least one
director on its board of directors that is not a director or executive officer
of the Company or any of its Restricted Subsidiaries and has at least one
executive officer that is a director or executive officer of the Company or any
of its Restricted Subsidiaries. Any such designation by the Board of Directors
shall be evidenced to the Trustee by filing with a Trustee a certified copy of
the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions and was permitted by Section 4.07 hereof. If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of this Indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date. The Board of Directors of the Company may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that such designation shall be deemed to be an incurrence of Indebtedness and
issuance of preferred stock by a Restricted Subsidiary of the Company of any
outstanding Indebtedness or outstanding issue of preferred stock of such
Unrestricted Subsidiary and such designation shall only be permitted if (i) such
Indebtedness and preferred stock is permitted to be
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incurred under Section 4.09 hereof, calculated on a pro forma basis as if such
designation had occurred at the beginning of the four quarter reference period,
(ii) such Subsidiary becomes a Subsidiary Guarantor and (iii) no Default or
Event of Default would exist following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Restricted Subsidiary of
such Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Restricted Subsidiaries of such
Person or by such Person and one or more "Wholly Owned Subsidiaries of such
Person.
Section 1.02. Other Definitions
<TABLE>
<CAPTION>
Defined In
Term Section
<S> <C>
"Affiliate Transaction" 4.11
"Asset Sale Offer" 4.10
"Change of Control Offer" 4.13
"Change of Control Payment" 4.13
"Change of Control Payment Date" 4.13
"Covenant Defeasance" 8.03
"Custodian" 6.01
"DTC" 2.03
"Electronic Message" 2.02
"Event of Default" 6.01
"Excess Proceeds" 4.10
"Guaranteed Debt" 4.17
"incur" 4.09
"Legal Defeasance" 8.02
"Offer Amount" 3.09
"Offer Period" 3.09
"Pari Passu Indebtedness" 4.10
</TABLE>
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<TABLE>
<S> <C>
"Paying Agent" 2.03
"Payment Default" 6.01
"Permitted Debt" 4.09
"Repurchase Date" 3.09
"Registrar" 2.03
"Repurchase Offer" 3.09
"Restricted Payments" 4.07
</TABLE>
Section 1.03. Incorporation by Reference of Trust Indenture Act
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in, and made a part of, this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes means the Company, each Guarantor and any successor
obligor upon the Notes.
All other terms used in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by the Commission rule under the
TIA have the meanings so assigned to them therein.
Section 1.04. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it herein;
(2) an accounting term not otherwise defined herein has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular;
(5) provisions apply to successive events and transactions; and
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(6) references to sections of or rules under the Securities Act shall
be deemed to include substitute, replacement or successor sections or rules
adopted by the Commission from time to time.
ARTICLE 2
THE NOTES
Section 2.01. Form and Dating.
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A-1 or Exhibit A-2 attached hereto. The
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Notes may have notations, legends or endorsements required by law, stock
exchange rule or usage. Each Note shall be dated the date of its
authentication. The Notes initially shall be issued in denominations of $1,000
and integral multiples thereof.
The terms and provisions contained in the Notes shall constitute, and are
hereby expressly made, a part of this Indenture and the Company, the Guarantors
and the Trustee, by their execution and delivery of this Indenture, expressly
agree to such terms and provisions and to be bound thereby.
(a) Global Notes. Notes offered and sold to QIBs in reliance on Rule
144A shall be issued initially in the form of Rule 144A Global Notes, which
shall be deposited on behalf of the purchasers of the Notes represented
thereby with a custodian of the Depositary, and registered in the name of
the Depositary or a nominee of the Depositary, duly executed by the Company
and authenticated by the Trustee as hereinafter provided. The aggregate
principal amount of the Rule 144A Global Notes may from time to time be
increased or decreased by adjustments made on the records of the Trustee
and the Depositary or its nominee as hereinafter provided.
Notes offered and sold in reliance on Regulation S shall be issued
initially in the form of the Regulation S Temporary Global Note, which shall be
deposited on behalf of the purchasers of the Notes represented thereby with the
Trustee, as custodian for the Depositary, and registered in the name of the
Depositary or the nominee of the Depositary for the accounts of designated
agents holding on behalf of Euroclear or Cedel, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The "40-day restricted
period" (as defined in Regulation S) shall be terminated upon the receipt by the
Trustee of (i) a written certificate from the Depositary, together with copies
of certificates from Euroclear and Cedel certifying that they have received
certification of non-United States beneficial ownership of 100% of the aggregate
principal amount of the Regulation S Temporary Global Notes (except to the
extent of any beneficial owners thereof who acquired an interest therein
pursuant to another exemption from registration under the Securities Act and who
will take delivery of a beneficial ownership interest in a Rule 144A Global
Note, all as contemplated by Section 2.06(a)(ii) hereof), and (ii) an Officers'
Certificate from the Company certifying as to the same matters covered in clause
(i)
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above. Following the termination of the 40-day restricted period, beneficial
interests in the Regulation S Temporary Global Note shall be exchanged for
beneficial interests in Regulation S Permanent Global Notes pursuant to the
Applicable Procedures. Simultaneously with the authentication of Regulation S
Permanent Global Notes, the Trustee shall cancel the Regulation S Temporary
Global Notes. The aggregate principal amount of the Regulation S Temporary
Global Notes and the Regulation S Permanent Global Notes may from time to time
be increased or decreased by adjustments made on the records of the Trustee and
the Depositary or its nominee, as the case may be, in connection with transfers
of interest as hereinafter provided.
Each Global Note shall represent such of the outstanding Notes as shall be
specified therein and each shall provide that it shall represent the aggregate
amount of outstanding Notes from time to time endorsed thereon and that the
aggregate amount of outstanding Notes represented thereby may from time to time
be reduced or increased, as appropriate, to reflect exchanges, redemptions and
transfers of interests. Any endorsement of a Global Note to reflect the amount
of any increase or decrease in the amount of outstanding Notes represented
thereby shall be made by the Trustee or the Note Custodian, at the direction of
the Trustee, in accordance with instructions given by the Holder thereof as
required by Section 2.06 hereof.
The provisions of the "Operating Procedures of the Euroclear System" and
"Terms and Conditions Governing Use of Euroclear" and the "Management
Regulations" and "Instructions to Participants" of Cedel shall be applicable to
interests in the Regulation S Temporary Global Notes and the Regulation S
Permanent Global Notes that are held by Participants through Euroclear or Cedel.
The Trustee shall have no obligation to notify Holders of any such procedures or
to monitor or enforce compliance with the same.
Except as set forth in Section 2.06 hereof, the Global Notes may be
transferred, in whole and not in part, only to another nominee of the Depositary
or to a successor of the Depositary or its nominee.
(b) Book-Entry Provisions. This Section 2.01(b) shall apply only to
Rule 144A Global Notes and Regulation S Permanent Global Notes deposited
with or on behalf of the Depositary.
The Company shall execute and the Trustee shall, in accordance with this
Section 2.01(b) and Section 2.02, authenticate and deliver the Global Notes that
(i) shall be registered in the name of the Depositary or the nominee of the
Depositary and (ii) shall be delivered by the Trustee to the Depositary or
pursuant to the Depositary's instructions or held by the Trustee as custodian
for the Depositary.
Participants shall have no rights either under this Indenture with respect
to any Global Note held on their behalf by the Depositary or by the Note
Custodian as custodian for the Depositary or under such
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Global Note, and the Depositary may be treated by the Company, the Trustee and
any agent of the Company or the Trustee as the absolute owner of such Global
Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein
shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or impair, as between the Depositary
and its Participants, the operation of customary practices of such Depositary
governing the exercise of the rights of an owner of a beneficial interest in any
Global Note.
(c) Definitive Notes. Notes issued in certificated form shall be
substantially in the form of Exhibit A-1 attached hereto (but without
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including the text referred to in footnotes 1 and 2 thereto).
Section 2.02. Execution and Authentication.
Two Officers of the Company shall sign the Notes for the Company by manual
or facsimile signature. The Company's seal shall be reproduced on the Notes and
may be in facsimile form.
If an Officer of the Company whose signature is on a Note no longer holds
that office at the time the Note is authenticated, the Note shall nevertheless
be valid.
A Note shall not be valid until authenticated by the manual signature of
the Trustee. The signature of the Trustee shall be conclusive evidence that the
Note has been authenticated under this Indenture. The form of Trustee's
certificate of authentication to be borne by the Notes shall be substantially as
set forth in Exhibit A-1 or Exhibit A-2 hereto.
--------------------------
The Trustee shall, upon a written order of the Company signed by two
Officers of the Company, authenticate Notes for original issue up to an
aggregate principal amount at maturity of Notes stated in the Notes. The
aggregate principal amount at maturity of Notes outstanding at any time shall
not exceed such amount except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the Company
to authenticate Notes. Unless limited by the terms of such appointment, an
authenticating agent may authenticate Notes whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same rights as an
Agent to deal with the Company or an Affiliate of the Company.
Section 2.03. Registrar and Paying Agent.
The Company shall maintain in the Borough of Manhattan, in the City of New
York, State of New York and in such other locations as it shall determine, (i)
an office or agency where Notes may be presented for registration of transfer or
for exchange ("Registrar") and (ii) an office or agency where
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Notes may be presented for payment ("Paying Agent"). The Registrar shall keep a
register of the Notes and of their transfer and exchange. The Company may
appoint one or more additional paying agents. The term "Paying Agent" includes
any additional paying agent. The Company may change any Paying Agent or
Registrar without notice to any Holder. The Company shall notify the Trustee in
writing of the name and address of any Agent not a party to this Indenture. If
the Company fails to appoint or maintain another entity as Registrar or Paying
Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may
act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company ("DTC") to act
as Depositary with respect to the Global Notes.
The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Note Custodian with respect to the Global Notes. The
Company initially appoints the Trustee to act as the Registrar and Paying Agent
with respect to the Definitive Notes.
Section 2.04. Paying Agent to Hold Money in Trust.
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 Holders
or the Trustee all money held by the Paying Agent for the payment of principal,
premium or Liquidated Damages, if any, or interest on the Notes, and shall
notify the Trustee of any default by the Company in making any such payment.
While any such default continues, the Trustee may require a Paying Agent to pay
all money held by it to the Trustee. The Company at any time may require a
Paying Agent to pay all money held by it to the Trustee. Upon payment over to
the Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall
have no further liability for the money. If the Company or a Subsidiary acts as
Paying Agent, it shall segregate and hold in a separate trust fund for the
benefit of the Holders all money held by it as Paying Agent. Upon the
occurrence of events specified in Section 6.01(vii) or (viii) hereof, the
Trustee shall serve as Paying Agent for the Notes.
Section 2.05. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA (S) 312(a). If the Trustee is
not the Registrar, the Company and the Guarantors shall furnish to the Trustee
at least seven (7) 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
the Holders of Notes and the Company shall otherwise comply with TIA (S) 312(a).
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Section 2.06. Transfer and Exchange.
(a) Transfer and Exchange of Global Notes. The transfer and exchange
of Global Notes or beneficial interests therein shall be effected through the
Depositary, in accordance with this Indenture and the procedures of the
Depositary therefor, which shall include restrictions on transfer comparable to
those set forth herein to the extent required by the Securities Act. Beneficial
interests in a Global Note may be transferred to Persons who take delivery
thereof in the form of a beneficial interest in the same Global Note in
accordance with the transfer restrictions set forth in the legend in subsection
(g) of this Section 2.06. Transfers of beneficial interests in the Global Notes
to Persons required to take delivery thereof in the form of an interest in
another Global Note shall be permitted as follows:
(i) Rule 144A Global Note to Regulation S Global Note. If, at any
time, an owner of a beneficial interest in a Rule 144A Global
Note deposited with the Depositary (or the Trustee as custodian
for the Depositary) wishes to transfer its beneficial interest in
such Rule 144A Global Note to a Person who is required or
permitted to take delivery thereof in the form of an interest in
a Regulation S Global Note, such owner shall, subject to the
Applicable Procedures, exchange or cause the exchange of such
interest for an equivalent beneficial interest in a Regulation S
Global Note as provided in this Section 2.06(a)(i). Upon receipt
by the Trustee of (1) instructions given in accordance with the
Applicable Procedures from a Participant directing the Trustee to
credit or cause to be credited a beneficial interest in the
Regulation S Global Note in an amount equal to the beneficial
interest in the Rule 144A Global Note to be exchanged, (2) a
written order given in accordance with the Applicable Procedures
containing information regarding the Participant account of the
Depositary and the Euroclear or Cedel account to be credited with
such increase, and (3) a certificate in the form of Exhibit B-1
hereto given by the owner of such beneficial interest stating
that the transfer of such interest has been made in compliance
with the transfer restrictions applicable to the Global Notes and
pursuant to and in accordance with Rule 903 or Rule 904 of
Regulation S, then the Trustee, as Registrar, shall instruct the
Depositary to reduce or cause to be reduced the aggregate
principal amount at maturity of the applicable Rule 144A Global
Note and to increase or cause to be increased the aggregate
principal amount at maturity of the applicable Regulation S
Global Note by the principal amount at maturity of the beneficial
interest in the Rule 144A Global Note to be exchanged or
transferred, to credit or cause to be credited to the account of
the
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Person specified in such instructions, a beneficial interest
in the Regulation S Global Note equal to the reduction in the
aggregate principal amount at maturity of the Rule 144A Global
Note, and to debit, or cause to be debited, from the account of
the Person making such exchange or transfer the beneficial
interest in the Rule 144A Global Note that is being exchanged or
transferred.
(ii) Regulation S Global Note to Rule 144A Global Note. If, at any
time, after the expiration of the 40-day restricted period, an
owner of a beneficial interest in a Regulation S Global Note
deposited with the Depositary or with the Trustee as custodian
for the Depositary wishes to transfer its beneficial interest in
such Regulation S Global Note to a Person who is required or
permitted to take delivery thereof in the form of an interest in
a Rule 144A Global Note, such owner shall, subject to the
Applicable Procedures, exchange or cause the exchange of such
interest for an equivalent beneficial interest in a Rule 144A
Global Note as provided in this Section 2.06(a)(ii). Upon
receipt by the Trustee of (1) instructions from Euroclear or
Cedel, if applicable, and the Depositary, directing the Trustee,
as Registrar, to credit or cause to be credited a beneficial
interest in the Rule 144A Global Note equal to the beneficial
interest in the Regulation S Global Note to be exchanged, such
instructions to contain information regarding the Participant
account with the Depositary to be credited with such increase,
(2) a written order given in accordance with the Applicable
Procedures containing information regarding the participant
account of the Depositary and (3) a certificate in the form of
Exhibit B-2 attached hereto given by the owner of such beneficial
-----------
interest stating (A) if the transfer is pursuant to Rule 144A,
that the Person transferring such interest in a Regulation S
Global Note reasonably believes that the Person acquiring such
interest in a Rule 144A Global Note is a QIB and is obtaining
such beneficial interest in a transaction meeting the
requirements of Rule 144A and any applicable blue sky or
securities laws of any state of the United States, (B) that the
transfer complies with the requirements of Rule 144 under the
Securities Act, (C) if the transfer is to an Institutional
Accredited Investor that such transfer is in compliance with the
Securities Act and a certificate in the form of Exhibit C
---------
attached hereto and, if such transfer is in respect of an
aggregate principal amount of less than $250,000, an Opinion of
Counsel acceptable to the Company that such transfer is in
compliance with the Securities Act or (D) if the transfer is
pursuant to any other exemption from the registration
requirements of the Securities Act, that the
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transfer of such interest has been made in compliance with the
transfer restrictions applicable to the Global Notes and pursuant
to and in accordance with the requirements of the exemption
claimed, such statement to be supported by an Opinion of Counsel
from the transferee or the transferor in form reasonably
acceptable to the Company and to the Registrar and in each case,
in accordance with any applicable securities laws of any state of
the United States or any other applicable jurisdiction, then the
Trustee, as Registrar, shall instruct the Depositary to reduce or
cause to be reduced the aggregate principal amount at maturity of
such Regulation S Global Note and to increase or cause to be
increased the aggregate principal amount at maturity of the
applicable Rule 144A Global Note by the principal amount at
maturity of the beneficial interest in the Regulation S Global
Note to be exchanged or transferred, and the Trustee, as
Registrar, shall instruct the Depositary, concurrently with such
reduction, to credit or cause to be credited to the account of
the Person specified in such instructions a beneficial interest
in the applicable Rule 144A Global Note equal to the reduction in
the aggregate principal amount at maturity of such Regulation S
Global Note and to debit or cause to be debited from the account
of the Person making such transfer the beneficial interest in the
Regulation S Global Note that is being exchanged or transferred.
(b) Transfer and Exchange of Definitive Notes. When Definitive Notes
are presented by a Holder to the Registrar with a request to register the
transfer of the Definitive Notes or to exchange such Definitive Notes for
an equal principal amount of Definitive Notes of other authorized
denominations, the Registrar shall register the transfer or make the
exchange as requested only if the Definitive Notes are presented or
surrendered for registration of transfer or exchange, are endorsed and
contain a signature guarantee or accompanied by a written instrument of
transfer in form satisfactory to the Registrar duly executed by such Holder
or by his attorney and contains a signature guarantee, duly authorized in
writing and the Registrar received the following documentation (all of
which may be submitted by facsimile):
(i) in the case of Definitive Notes that are Transfer Restricted
Securities, such request shall be accompanied by the following
additional information and documents, as applicable:
(A) if such Transfer Restricted Security is being delivered to
the Registrar by a Holder for registration in the name of such Holder, without
transfer, or such Transfer Restricted
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Security is being transferred to the Company or any of its Subsidiaries, a
certification to that effect from such Holder (in substantially the form of
Exhibit B-3 hereto); or
(B) if such Transfer Restricted Security is being transferred to
a QIB in accordance with Rule 144A under the Securities Act or pursuant to an
exemption from registration in accordance with Rule 144 under the Securities Act
or pursuant to an effective registration statement under the Securities Act, a
certification to that effect from such Holder (in substantially the form of
Exhibit B-3 hereto); or
- -----------
(C) if such Transfer Restricted Security is being transferred to
a Non-U.S. Person in an offshore transaction in accordance with Rule 904 under
the Securities Act, a certification to that effect from such Holder (in
substantially the form of Exhibit B-3 hereto);
-----------
(D) if such Transfer Restricted Security is being transferred to
an Institutional Accredited Investor in reliance on an exemption from the
registration requirements of the Securities Act other than those listed in
subparagraphs (B) and (C) above, a certification to that effect from such Holder
(in substantially the form of Exhibit B-3 hereto), a certification
-----------
substantially in the form of Exhibit C hereto, and, if such transfer is in
---------
respect of an-aggregate principal amount of Notes of less than $250,000, an
Opinion of Counsel reasonably acceptable to the Company that such transfer is in
compliance with the Securities Act; or
(E) if such Transfer Restricted Security is being transferred in
reliance on any other exemption from the registration requirements of the
Securities Act, a certification to that effect from such Holder (in
substantially the form of Exhibit B-3 hereto) and an Opinion of Counsel from
-----------
such Holder or the transferee reasonably acceptable to the Company and to the
Registrar to the effect that such transfer is in compliance with the Securities
Act.
(c) Transfer of a Beneficial Interest in a Rule 144A Global Note or
Regulation S Permanent Global Note for a Definitive Note.
(i) Any Person having a beneficial interest in a Rule 144A Global
Note or Regulation S Permanent Global Note may upon request,
subject to the Applicable Procedures, exchange such beneficial
interest for a Definitive Note. Upon receipt by the Trustee of
written instructions or such other form of instructions as is
customary for the Depositary (or Euroclear or Cedel, if
applicable), from the Depositary or its nominee on behalf of any
Person having a beneficial interest in a Rule 144A Global Note or
Regulation S Permanent Global Note, and, in the case of a
Transfer Restricted Security, the following
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additional information and documents (all of which may be
submitted by facsimile):
(A) if such beneficial interest is being transferred to the
Person designated by the Depositary as being the beneficial owner, a
certification to that effect from such Person (in substantially the form of
Exhibit B-4 hereto);
- -----------
(B) if such beneficial interest is being transferred to a QIB in
accordance with Rule 144A under the Securities Act or pursuant to an exemption
from registration in accordance with Rule 144 under the Securities Act or
pursuant to an effective registration statement under the Securities Act, a
certification to that effect from the transferor (in substantially the form of
Exhibit B-4 hereto);
- -----------
(C) if such beneficial interest is being transferred to an
Institutional Accredited Investor, pursuant to a private placement exemption
from the registration requirements of the Securities Act (and based on an
opinion of counsel if the Company so requests), a certification to that effect
from such Holder (in substantially the form of Exhibit B-4 hereto) and a
-----------
certificate from the applicable transferee (in substantially the form of Exhibit
-------
C hereto); or
- -
(D) if such beneficial interest is being transferred in reliance
on any other exemption from the registration requirements of the Securities Act,
a certification to that effect from the transferor (in substantially the form of
Exhibit B-4 hereto) and an Opinion of Counsel from the transferee or the
- -----------
transferor reasonably acceptable to the Company and to the Registrar to the
effect that such transfer is in compliance with the Securities Act, in which
case the Trustee or the Note Custodian, at the direction of the Trustee, shall,
in accordance with the standing instructions and procedures existing between the
Depositary and the Note Custodian, cause the aggregate principal amount of Rule
144A Global Notes or Regulation S Permanent Global Notes, as applicable, to be
reduced accordingly and, following such reduction, the Company shall execute
and, the Trustee shall authenticate and deliver to the transferee a Definitive
Note in the appropriate principal amount.
(ii) Definitive Notes issued in exchange for a beneficial interest in
a Rule 144A Global Note or Regulation S Permanent Global Note, as
applicable, pursuant to this Section 2.06(c) shall be registered
in such names and in such authorized denominations as the
Depositary, pursuant to instructions from its direct or Indirect
Participants or otherwise, shall instruct the Trustee. The
Trustee shall deliver such Definitive Notes to the Persons in
whose names such Notes are so registered. Following any such
issuance of Definitive Notes, the Trustee, as Registrar, shall
instruct the Depositary to reduce or cause to be reduced the
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aggregate principal amount at maturity of the applicable Global
Note to reflect the transfer.
(d) Restrictions on Transfer and Exchange of Global Notes.
Notwithstanding any other provision of this Indenture (other than the
provisions set forth in subsection (g) of this Section 2.06), a Global Note
may not be transferred as a whole except by the Depositary to a nominee of
the Depositary or by a nominee of the Depositary to the Depositary or
another nominee of the Depositary or by the Depositary or any such nominee
to a successor Depositary or a nominee of such successor Depositary.
(e) Transfer and Exchange of a Definitive Note for a Beneficial
Interest in a Global Note. A Definitive Note may not be transferred or
exchanged for a beneficial interest in a Global Note.
(f) Authentication of Definitive Notes in Absence of Depositary. If
at any time:
(i) the Depositary for the Notes notifies the Company that the
Depositary is unwilling or unable to continue as Depositary for
the Global Notes and a successor Depositary for the Global Notes
is not appointed by the Company within 90 days after delivery of
such notice; or
(ii) the Company, at its sole discretion, notifies the Trustee in
writing that it elects to cause the issuance of Definitive Notes
under this Indenture,
then the Company shall execute, and the Trustee shall, upon receipt of an
authentication order in accordance with Section 2.02 hereof, authenticate and
deliver, Definitive Notes in an aggregate principal amount equal to the
principal amount of the Global Notes in exchange for such Global Notes.
(g) Legends.
(i) Except as permitted by the following paragraphs (ii), (iii) and
(iv), each Note certificate evidencing Global Notes and
Definitive Notes (and all Notes issued in exchange therefor or
substitution thereof) shall bear the legend (the "Private
Placement Legend") in substantially the following form:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED IN THE
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ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM.
EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED
THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE
HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE
COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED, ONLY (1)(a) INSIDE THE UNITED STATES TO A PERSON WHO THE
SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT), IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING
THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE
UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT, (d) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1),
(2), (3) OR (7) OF THE SECURITIES ACT (AN "INSTITUTIONAL ACCREDITED
INVESTOR"), THAT PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS (THE
FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER
IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF SECURITIES LESS THAN
$250,000, AN OPINION OF COUNSEL THAT SUCH TRANSFER IS IN COMPLIANCE
WITH THE SECURITIES ACT, OR (e) IN ACCORDANCE WITH ANOTHER EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND, IN THE
CASE OF CLAUSE (b), (c), (d) OR (e), BASED UPON AN OPINION OF COUNSEL
IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH
ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR
ANY OTHER
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<PAGE>
APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT
HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY
EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE."
(ii) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by a
Global Note) pursuant to Rule 144 under the Securities Act or
pursuant to an effective registration statement under the
Securities Act:
(A) in the case of any Transfer Restricted Security that is a
Definitive Note, the Registrar shall permit the Holder thereof to exchange such
Transfer Restricted Security for a Definitive Note that does not bear the legend
set forth in (i) above and rescind any restriction on the transfer of such
Transfer Restricted Security upon receipt of a certification from the
transferring holder substantially in the form of Exhibit B-4 hereto; and
-----------
(B) in the case of any Transfer Restricted Security represented
by a Global Note, such Transfer Restricted Security shall not be required to
bear the legend set forth in (i) above, but shall continue to be subject to the
provisions of Section 2.06(a) and (b) hereof; provided, however, that with
respect to any request for an exchange of a Transfer Restricted Security that is
represented by a Global Note for a Definitive Note that does not bear the legend
set forth in (i) above, which request is made in reliance upon Rule 144, the
Holder thereof shall certify in writing to the Registrar that such request is
being made pursuant to Rule 144 (such certification to be substantially in the
form of Exhibit B-4 hereto).
-----------
(iii) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by a
Global Note) in reliance on any exemption from the registration
requirements of the Securities Act (other than exemptions
pursuant to Rule 144A or Rule 144 under the Securities Act) in
which the Holder or the transferee provides an Opinion of Counsel
to the Company and the Registrar in form and substance reasonably
acceptable to the Company and the Registrar (which Opinion of
Counsel shall also state that the transfer restrictions contained
in the legend are no longer applicable):
(A) in the case of any Transfer Restricted Security that is a
Definitive Note, the Registrar shall permit the Holder thereof to exchange such
Transfer Restricted Security for a Definitive Note that does not bear the legend
set forth in (i) above and rescind any restriction on the transfer of such
Transfer Restricted Security; and
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(B) in the case of any Transfer Restricted Security represented
by a Global Note, such Transfer Restricted Security shall not be required to
bear the legend set forth in (i) above, but shall continue to be subject to the
provisions of Section 2.06(a) and (b) hereof.
(iv) Notwithstanding the foregoing, upon the consummation of the
Exchange Offer in accordance with the Registration Rights
Agreement, the Company shall issue and, upon receipt of an
authentication order in accordance with Section 2.02 hereof, the
Trustee shall authenticate (i) one or more Unrestricted Global
Notes in aggregate principal amount equal to the principal amount
of the Restricted Beneficial Interests tendered for acceptance by
persons that are not (x) broker-dealers, (y) Persons
participating in the distribution of the Notes or (z) Persons who
are affiliates (as defined in Rule 144) of the Company and
accepted for exchange in the Exchange Offer and (ii) Definitive
Notes that do not bear the Private Placement Legend in an
aggregate principal amount equal to the principal amount of the
Restricted Definitive Notes accepted for exchange in the Exchange
Offer. The Trustee shall be entitled to rely upon the
authentication order when authenticating the Notes without any
obligation to verify that the restrictions in the preceding
sentence have been complied with. Concurrently with the issuance
of such Notes, the Trustee shall cause the aggregate principal
amount of the applicable Restricted Global Notes to be reduced
accordingly and the Company shall execute and the Trustee shall
authenticate and deliver to the Persons designated by the Holders
of Definitive Notes so accepted Definitive Notes in the
appropriate principal amount.
(h) Cancellation and/or Adjustment of Global Notes. At such time as
all beneficial interests in Global Notes have been exchanged for Definitive
Notes, redeemed, repurchased or canceled, all Global Notes shall be
returned to or retained and canceled by the Trustee in accordance with
Section 2.11 hereof. At any time prior to such cancellation, if any
beneficial interest in a Global Note is exchanged for Definitive Notes,
redeemed, repurchased or canceled, the principal amount of Notes
represented by such Global Note shall be reduced accordingly and an
endorsement may be made on such Global Note, by the Trustee or the Notes
Custodian, at the direction of the Trustee, to reflect such reduction but
any failure to make such an endorsement shall not affect the reductions.
(i) General Provisions Relating to Transfers and Exchanges.
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(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate
Global Notes and Definitive Notes at the Registrar's
request.
(ii) No service charge shall be made to a Holder for any
registration of transfer or exchange, but the Company may
require payment of a sum sufficient to cover any stamp or
transfer tax or similar governmental charge payable in
connection therewith (other than any such stamp or transfer
taxes or similar governmental charge payable upon exchange
or transfer pursuant to Sections 2.10, 3.06, 4.10, 4.13 and
9.05 hereto).
(iii) All Global Notes and Definitive Notes issued upon any
registration of transfer or exchange of Global Notes or
Definitive Notes shall be the valid obligations of the
Company, evidencing the same debt, and entitled to the same
benefits under this Indenture, as the Global Notes or
Definitive Notes surrendered upon such registration of
transfer or exchange.
(iv) The Registrar shall not be required: (A) to issue, to
register the transfer of or to exchange Notes during a
period beginning at the opening of fifteen (15) Business
Days before the day of any selection of Notes for redemption
under Section 3.02 hereof and ending at the close of
business on the day of selection, (B) to register the
transfer of or to exchange any Note so selected for
redemption in whole or in part, except the unredeemed
portion of any Note being redeemed in part, or (C) to
register the transfer of or to exchange a Note between a
record date and the next succeeding interest payment date.
(v) Prior to due presentment for the registration of a transfer
of any Note, the Trustee, any Agent and the Company may deem
and treat the Person in whose name any Note is registered as
the absolute owner of such Note for the purpose of receiving
payment of principal of and interest on such Notes and for
all other purposes, and neither the Trustee, any Agent nor
the Company shall be affected by notice to the contrary.
(vi) The Trustee shall authenticate Global Notes and Definitive
Notes in accordance with the provisions of Section 2.02
hereof.
Section 2.07. Replacement Notes.
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If any mutilated Note is surrendered to the Trustee, or the Company and the
Trustee receives evidence to their satisfaction of the destruction, loss or
theft of any Note, the Company shall issue and the Trustee, upon the written
order of the Company signed by an Officer of the Company, shall authenticate a
replacement Note if the Trustee's requirements are met. If required by the
Trustee or the Company, an indemnity bond must be supplied by the Holder that is
sufficient in the judgment of the Trustee and the Company to protect the
Company, the Trustee, any Agent and any authenticating agent from any loss that
any of them may suffer if a Note is replaced. The Company and the Trustee may
charge for their expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company and shall
be entitled to all of the benefits of this Indenture equally and proportionately
with all other Notes duly issued hereunder.
Section 2.08. Outstanding Notes.
The Notes outstanding at any time are all the Notes authenticated by the
Trustee except for those canceled by it, those delivered to it for cancellation,
those reductions in the interest in a Global Note effected by the Trustee in
accordance with the provisions hereof, and those described in this Section 2.08
as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not
cease to be outstanding because the Company or an Affiliate of the Company or
any Guarantor holds the Note.
If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section 4.01
hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an Affiliate
of any thereof) holds, on a redemption date or maturity date, money sufficient
to pay Notes payable on that date, then on and after that date such Notes shall
be deemed to be no longer outstanding and shall cease to accrue interest.
Section 2.09. Treasury Notes.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company or any Guarantor, or by any Affiliate of the Company or any Guarantor
shall be considered as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes shown on the Trustee's register as
being owned shall be so disregarded. Notwithstanding the foregoing, Notes that
are to be acquired by the Company or any Guarantor or an Affiliate of the
Company or any Guarantor pursuant to an exchange offer, tender offer or other
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agreement shall not be deemed to be owned by such entity until legal title to
such Notes passes to such entity.
Section 2.10. Temporary Notes.
Until Definitive Notes are ready for delivery, the Company may prepare and
the Trustee shall authenticate temporary Notes upon a written order of the
Company signed by an Officer of the Company. Temporary Notes shall be
substantially in the form of Definitive Notes but may have variations that the
Company considers appropriate for temporary Notes. Without unreasonable delay,
the Company shall prepare and the Trustee shall upon receipt of a written order
of the Company signed by an Officer authenticate Definitive Notes in exchange
for temporary Notes.
Holders of temporary Notes shall be entitled to all of the benefits of this
Indenture.
Section 2.11. Cancellation.
The Company at any time may deliver to the Trustee for cancellation any
Notes previously authenticated and delivered hereunder or which the Company may
have acquired in any manner whatsoever, and all Notes so delivered shall be
promptly canceled by the Trustee. All Notes surrendered for registration of
transfer, exchange or payment, if surrendered to any Person other than the
Trustee, shall be delivered to the Trustee. The Trustee and no one else shall
cancel all Notes surrendered for registration of transfer, exchange, payment,
replacement or cancellation. Subject to Section 2.07 hereof, the Company may not
issue new Notes to replace Notes that it has redeemed or paid or that have been
delivered to the Trustee for cancellation. All canceled Notes held by the
Trustee shall be destroyed and certification of their destruction delivered to
the Company, unless by a written order, signed by an Officer of the Company, the
Company shall direct that canceled Notes be returned to it.
Section 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the Notes, it shall pay
the defaulted interest in any lawful manner plus, to the extent lawful, interest
payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date, which date shall be at the earliest practicable
date but in all events at least five (5) Business Days prior to the payment
date, in each case at the rate provided in the Notes and in Section 4.01 hereof.
The Company shall fix or cause to be fixed each such special record date and
payment date, and shall promptly thereafter, notify the Trustee of any such
date. At least fifteen (15) days before the special record date, the Company
(or the Trustee, in the name and at the expense of the Company) shall mail or
cause to be mailed to Holders a notice that states the special record date, the
related payment date and the amount of such interest to be paid.
Section 2.13. Record Date.
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The record date for purposes of determining the identity of Holders of
Notes entitled to vote or consent to any action by vote or consent authorized or
permitted under this Indenture shall be determined as provided for in TIA (S)
316 (c).
Section 2.14. Computation of Interest.
Interest on the Notes shall be computed on the basis of a 360-day year
comprised of twelve 30-day months.
Section 2.15. CUSIP Number.
The Company in issuing the Notes may use a "CUSIP" number, and if it does
so, the Trustee shall use the CUSIP number in notices of redemption or exchange
as a convenience to Holders; provided that any such notice may state that no
representation is made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Notes and that reliance may be placed only on
the other identification numbers printed on the Notes. The Company shall
promptly notify the Trustee of any change in the CUSIP number.
ARTICLE 3.
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee.
If the Company elects to redeem Notes pursuant to the optional redemption
provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 45
days but not more than 60 days before a redemption date (unless a shorter period
is acceptable to the Trustee), an Officers' Certificate setting forth (i) the
Section of this Indenture pursuant to which the redemption shall occur, (ii) the
redemption date, (iii) the principal amount of Notes to be redeemed and (iv) the
redemption price.
If the Company is required to make an offer to repurchase Notes pursuant to
Section 4.10 or 4.13 hereof, it shall furnish to the Trustee, at least 45 days
before the scheduled purchase date, an Officers' Certificate setting forth (i)
the section of this Indenture pursuant to which the offer to purchase shall
occur, (ii) the terms of the offer, (iii) the principal amount of Notes to be
repurchased, (iv) the repurchase price, (v) the repurchase date and (vi) and
further setting forth a statement to the effect that (a) the Company or one its
Subsidiaries has affected an Asset Sale and there are Excess Proceeds
aggregating more than $7.5 million or (b) a Change of Control has occurred, as
applicable.
Section 3.02. Selection of Notes to be Redeemed or Repurchased.
If less than all of the Notes are to be redeemed in an offer to purchase at
any time, selection of Notes for redemption or repurchase will be made by the
Trustee in compliance with the requirements of
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the principal national securities exchange, if any, on which the Notes are
listed, or, if the Notes are not so listed, on a pro rata basis, by lot or by
such other method as the Trustee shall deem fair and appropriate; provided that
Notes to be redeemed with the proceeds of an Equity Offering shall be selected
on a pro rata basis; provided further that no Notes of $1000 or less shall be
redeemed in part. Notices of redemption shall be mailed by first class mail
at least 30 but not more than 60 days before the redemption date to each
Holder of Notes to be redeemed at its registered address. Notices of
redemption may not be conditional. If any Note is to be redeemed in part only,
the notice of redemption that relates to such Note shall state the portion of
the principal amount thereof to be redeemed. A new Note in principal amount
equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original Note. Notes called for
redemption become due on the date fixed for redemption. On and after the
redemption date, interest and Liquidated Damages shall cease to accrue on Notes
or portions of them called for redemption unless the Company defaults in making
the redemption payment.
Section 3.03. Notice of Redemption.
At least 30 days but not more than 60 days before a redemption date, the
Company shall mail or cause to be mailed by first class mail, a notice of
redemption to each Holder whose Notes are to be redeemed.
The notice shall identify the Notes to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price for the Notes and accrued interest, and
Liquidated Damages, if any;
(3) if any Note is being redeemed in part, the portion of the
principal amount of such Notes to be redeemed and that, after the
redemption date, upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion shall be issued upon
surrender of the original Note;
(4) the name and address of the Paying Agent;
(5) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(6) that, unless the Company defaults in making such redemption
payment, interest and Liquidated Damages, if any, on Notes called for
redemption ceases to accrue on and after the redemption date;
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(7) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(8) 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 Notes.
At the Company's request, the Trustee shall give the notice of redemption
in the Company's name and at the Company's expense; provided, however, that the
Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date (or such shorter period as shall be acceptable to the Trustee),
an Officers' Certificate requesting that the Trustee give such notice and
setting forth the information to be stated in the notice as provided in the
preceding paragraph. The notice mailed in the manner herein provided shall be
conclusively presumed to have been duly given whether or not the Holder receives
such notice. In any case, failure to give such notice by mail or any defect in
the notice to the Holder of any Note shall not affect the validity of the
proceeding for the redemption of any other Note.
Section 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03 hereof,
Notes called for redemption become irrevocably due and payable on the redemption
date at the redemption price plus accrued and unpaid interest and Liquidated
Damages, if any, to such date. A notice of redemption may not be conditional.
Section 3.05. Deposit of Redemption Or Repurchase Price.
On or before 10:00 a.m. (New York City time) on each redemption date, the
Company shall deposit with the Trustee or with the Paying Agent money sufficient
to pay the redemption price, and accrued and unpaid interest and Liquidated
Damages, if any, on all Notes to be redeemed on that date. The Trustee or the
Paying Agent shall promptly return to the Company upon its written request any
money deposited with the Trustee or the Paying Agent by the Company in excess of
the amounts necessary to pay the redemption price (including any applicable
premium), accrued interest and Liquidated Damages, if any, on all Notes to be
redeemed.
If Notes called for redemption or tendered in an Asset Sale Offer or Change
of Control Offer are paid or if the Company has deposited with the Trustee or
Paying Agent money sufficient to pay the redemption price, unpaid and accrued
interest and Liquidated Damages, if any, on all Notes to be redeemed or
repurchased, on and after the redemption or repurchase date, interest and
Liquidated Damages, if any, shall cease to accrue on the Notes or the portions
of Notes called for redemption or tendered and not withdrawn in an Asset Sale
Offer or Change of Control Offer (regardless of whether
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certificates for such securities are actually surrendered). If a Note is
redeemed or repurchased on or after an interest record date but on or prior to
the related interest payment date, then any accrued and unpaid interest and
Liquidated Damages, if any, shall be paid to the Person in whose name such
Note was registered at the close of business on such record date. If any Note
called for redemption or repurchase shall not be so paid upon surrender (which
surrender has not been withdrawn) for redemption or tender for repurchase of
the Notes pursuant to an Asset Sales Offer or Change of Control Offer because
of the failure of the Company to comply with the preceding paragraph, interest
shall be paid on the unpaid principal and Liquidated Damages, if any, from the
redemption or repurchase date until such principal and Liquidated Damages, if
any, is paid, and to the extent lawful on any interest not paid on such unpaid
principal, in each case, at the rate provided in the Notes and in Section 4.01
hereof.
Section 3.06. Notes Redeemed in Part.
Upon surrender of a Note that is redeemed in part, the Company shall issue
and, upon the Company's written request, the Trustee shall authenticate for the
Holder at the expense of the Company a new Note equal in principal amount to the
unredeemed portion of the Note surrendered.
Section 3.07. Optional Redemption.
(a) Except as set forth in the next paragraph, the Notes will not be
redeemable at the Company's option prior to April 15, 2003. Thereafter,
the Notes will be subject to redemption at any time at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the applicable redemption date, if redeemed
during the twelve-month period beginning on April 15 of the years indicated
below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
<S> <C>
2003 105.063%
2004 103.375%
2005 101.688%
2006 and thereafter 100.000%
</TABLE>
(b) Notwithstanding the foregoing, at any time on or prior to April
15, 2001, the Company may (but shall not have the obligation to) redeem,
on one or more occasions, up to an aggregate of 35% of the principal
amount of Notes originally issued at a redemption price equal to 110.125%
of the principal amount thereof plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the redemption date, with the net
cash proceeds of one or more Equity Offerings; provided that at least 65%
in aggregate principal amount of the Notes
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originally issued remains outstanding immediately after the occurrence of
such redemption; and provided further, that such redemption shall occur
within 90 days of the date of the closing of such Equity Offering.
Section 3.08. Mandatory Redemption.
Except as set forth under Sections 3.09, 4.10 and 4.13 hereof, the Company
shall not be required to make mandatory redemption or sinking fund payments with
respect to the Notes.
Section 3.09. Repurchase Offers.
In the event that the Company shall be required to commence an offer to all
Holders to repurchase Notes (a "Repurchase Offer") pursuant to Section 4.10
hereof, an "Asset Sale," or pursuant to Section 4.13 hereof, a "Change of
Control Offer," the Company shall follow the procedures specified below.
A Repurchase Offer shall commence no earlier than 30 days and no later than
60 days after a Change of Control (unless the Company is not required to make
such offer pursuant to Section 4.13(c) hereof) or an Asset Sale Offer Triggering
Event (as defined below) (an "Asset Sale Offer Triggering Event"), as the case
may be, and remain open for a period of twenty (20) Business Days following its
commencement and no longer, except to the extent that a longer period is
required by applicable law (the "Offer Period"). No later than five (5) Business
Days after the termination of the Offer Period (the "Repurchase Date"), the
Company shall purchase the principal amount of Notes required to be purchased
pursuant to Section 4.10 hereof, in the case of an Asset Sale Offer, or 4.13
hereof, in the case of a Change of Control Offer (the "Offer Amount") or, if
less than the Offer Amount has been tendered, all Notes tendered in response to
the Repurchase Offer. Payment for any Notes so purchased shall be made in the
same manner as interest payments are made.
If the Repurchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest and
Liquidated Damages, if any, shall be paid to the Person in whose name a Note is
registered at the close of business on such record date, and no additional
interest or Liquidated Damages, if any, shall be payable to Holders who tender
Notes pursuant to the Repurchase Offer.
Upon the commencement of a Repurchase Offer, the Company shall send, by
first class mail, a notice to the Trustee (pursuant to Section 3.01 hereof) and
each of the Holders (pursuant to Section 3.02 hereof), with a copy to the
Trustee. The notice shall contain all instructions and materials necessary to
enable such Holders to tender Notes pursuant to such Repurchase Offer. The
Repurchase Offer shall be made to all Holders. The notice, which shall govern
the terms of the Repurchase Offer, shall describe the
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transaction or transactions that constitute the Change of Control or Asset Sale
as the case may be and shall state:
(a) that the Repurchase Offer is being made pursuant to this Section
3.09 and Section 4.10 or 4.13 hereof, as the case may be, and the length of
time the Repurchase Offer shall remain open;
(b) the Offer Amount, the repurchase price and the Repurchase Date;
(c) that any Note not tendered or accepted for payment shall continue
to accrue interest;
(d) that, unless the Company defaults in making such payment, any
Note accepted for payment pursuant to the Repurchase Offer shall cease to
accrue interest and Liquidated Damages, if any, after the Repurchase Date;
(e) that Holders electing to have a Note repurchased pursuant to a
Repurchase Offer shall be required to surrender the Note, with the form
entitled "Option of Holder to Elect Repurchase" on the reverse of the Note,
duly completed, or transfer by book-entry transfer, to the Company, the
Depositary, or the Paying Agent at the address specified in the notice not
later than the close of business on the last day of the Offer Period;
(f) that Holders shall be entitled to withdraw their election if the
Company, the Depositary or the Paying Agent, as the case may be, receives,
not later than the expiration of the Offer Period, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Note the Holder delivered for repurchase and a
statement that such Holder is withdrawing his election to have such Note
repurchased;
(g) that, if the aggregate principal amount of Notes surrendered by
Holders exceeds the Offer Amount, the Company shall select the Notes to be
repurchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000,
or integral multiples thereof, shall be repurchased); and
(h) that Holders whose Notes were repurchased only in part shall be
issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered (or transferred by book-entry transfer).
On or before 10:00 a.m. (New York City time) on each Repurchase Date, the
Company shall irrevocably deposit with the Trustee or Paying Agent in
immediately available funds the aggregate purchase price with respect to a
principal amount of Notes equal to the Offer Amount, together with accrued and
unpaid interest and Liquidated Damages, if any, thereon, to be held for payment
in
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accordance with the terms of this Section 3.09. On the Repurchase Date, the
Company shall, to the extent lawful, (i) accept for payment, on a pro rata basis
to the extent necessary, the Offer Amount of Notes or portions thereof tendered
pursuant to the Repurchase Offer, or if less than the Offer Amount has been
tendered, all Notes tendered, (ii) deliver or cause the Paying Agent or
depository, as the case may be, to deliver to the Trustee Notes so accepted and
(iii) deliver to the Trustee an Officers' Certificate stating that such Notes or
portions thereof were accepted for payment by the Company in accordance with the
terms of this Section 3.09. The Company, the Depositary or the Paying Agent, as
the case may be, shall promptly (but in any case not later than three (3)
Business Days after the Repurchase Date) mail or deliver to each tendering
Holder an amount equal to the repurchase price of the Notes tendered by such
Holder and accepted by the Company for repurchase, plus any accrued and unpaid
interest and Liquidated Damages, if any, thereon to the Repurchase Date, and the
Company shall promptly issue a new Note, and the Trustee, shall authenticate and
mail or deliver such new Note, to such Holder, equal in principal amount to any
unrepurchased portion of such Holder's Notes surrendered. Any Note not so
accepted shall be promptly mailed or delivered by the Company to the Holder
thereof. The Company shall publicly announce in a newspaper of general
circulation or in a press release provided to a nationally recognized financial
wire service the results of the Repurchase Offer on the Repurchase Date.
Other than as specifically provided in this Section 3.09, any repurchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01, 3.02, 3.05 and 3.06 hereof.
ARTICLE 4
COVENANTS
Section 4.01. Payment of Notes.
The Company shall pay or cause to be paid the principal of, premium, if
any, and interest on the Notes on the dates and in the manner provided in the
Notes. The Company shall pay all Liquidated Damages, if any, in the same manner
on the dates and in the amounts set forth in the Registration Rights Agreement.
Principal, premium and Liquidated Damages, if any, and interest, shall be
considered paid for all purposes hereunder on the date the Paying Agent if other
than the Company or a Subsidiary thereof holds, as of 10:00 a.m. (New York City
time) money deposited by the Company in immediately available funds and
designated for and sufficient to pay all such principal, premium and Liquidated
Damages, if any, and interest, then due.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
1% per annum in excess of the then applicable interest rate on the Notes to the
extent lawful; it shall pay interest (including post-petition interest in any
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proceeding under any Bankruptcy Law) on overdue installments of interest and
Liquidated Damages (without regard to any applicable grace period) at the same
rate to the extent lawful.
Section 4.02. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, the City of New
York an office or agency (which may be an office of the Trustee or an affiliate
of the Trustee or Registrar) where Notes may be surrendered for registration of
transfer or for exchange and where notices and demands to or upon the Company in
respect of the Notes and this Indenture may be served. The Company shall give
prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other offices
or agencies where the Notes 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 rescission 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 shall give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the Trustee as
one such office or agency of the Company in accordance with Section 2.03 hereof.
Section 4.03. Commission Reports.
From and after the date hereof, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the Company
shall furnish to the Holders of Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" that describes the financial condition and results of
operations of the Company and its consolidated Subsidiaries and, with respect to
the annual information only, a report thereon by the Company's certified
independent accountants and (ii) all current reports that would be required to
be filed with the Commission on Form 8-K if the Company were required to file
such reports, in each case within the time periods set forth in the Commission's
rules and regulations. In addition, whether or not required by the rules and
regulations of the Commission, at any time after the consummation of the
Exchange Offer contemplated by the Registration Right Agreement (or, if the
Exchange Offer is not consummated, after the effectiveness of the Shelf
Registration Statement), the Company shall file a copy of all such
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<PAGE>
information and reports with the Commission for public availability within the
time periods set forth in the Commission's rules and regulations, (unless the
Commission will not accept such a filing) and make such information available
to securities analysts and prospective investors upon request. In addition,
at all times that the Commission does not accept the filings provided for in
the preceding sentence, the Company and the Guarantors shall, for so long as
any Notes remain outstanding, furnish to the Holders and to securities
analysts and prospective investors, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
The financial information to be distributed to Holders of Notes shall be
filed with the Trustee and mailed to the Holders at their addresses appearing in
the register of Notes maintained by the Registrar, within 90 days after the end
of the Company's fiscal years and within 45 days after the end of each of the
first three quarters of each such fiscal year.
The Company shall provide the Trustee with a sufficient number of copies of
all reports and other documents and information and, if requested by the Company
and at the Company's expense, the Trustee will deliver such reports to the
Holders under this Section 4.03.
Section 4.04. Compliance Certificate.
The Company shall deliver to the Trustee, within 90 days after the end of
each fiscal year, an Officers' Certificate stating that a review of the
activities of the Company and its Subsidiaries during the preceding fiscal year
has been made under the supervision of the signing Officers with a view to
determining whether each has kept, observed, performed and fulfilled its
obligations under this Indenture (including, with respect to any Restricted
Payments made during such year, the basis upon which the calculations required
by Section 4.07 hereof were computed, which calculations may be based on the
Company's latest available financial statements), and further stating, as to
each such Officer signing such certificate, that, to the best of his or her
knowledge, each entity has kept, observed, performed and fulfilled each and
every covenant contained in this Indenture and is not in default in the
performance or observance of any of the terms, provisions and conditions of this
Indenture (or, if a Default or Event of Default shall have occurred, describing
all such Defaults or Events of Default of which he or she may have knowledge and
what action the Company is taking or proposes to take with respect thereto) and
that, to the best of his or her knowledge, no event has occurred and remains in
existence by reason of which payments on account of principal of, premium or
Liquidated Damages, if any, or interest on the Notes is prohibited or if such
event has occurred, a description of the event and what action the Company is
taking or proposes to take with respect thereto.
So long as not contrary to the then current recommendations of the American
Institute of Certified Public Accountants, in connection with the year-end
financial statements delivered pursuant to
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Section 4.03 hereof, the Company shall use its best efforts to deliver a written
statement of the Company's independent public accountants (who shall be a firm
of established national reputation) that in making the examination necessary for
certification of such financial statements, nothing has come to their attention
that would lead them to believe that the Company has violated any provisions of
Article Four or Section 5.01 hereof or, if any such violation has occurred,
specifying the nature and period of existence thereof, it being understood that
such accountants shall not be liable directly or indirectly to any Person for
any failure to obtain knowledge of any such violation. In the event that such
written statement of the Company's independent public accountants cannot be
obtained, the Company shall deliver an Officers' Certificate certifying that it
has used its best efforts to obtain such statements and was unable to do so.
The Company shall, so long as any of the Notes are outstanding, deliver to
the Trustee, forthwith upon any Officer becoming aware of any Default or Event
of Default, an Officers' Certificate specifying such Default or Event of Default
and what action the Company is taking or proposes to take with respect thereto.
Section 4.05. Taxes.
The Company shall pay, and shall cause each of its Subsidiaries to pay,
prior to delinquency all material taxes, assessments and governmental levies,
except such as are contested in good faith and by appropriate proceedings and
with respect to which appropriate reserves have been taken in accordance with
GAAP.
Section 4.06. Stay, Extension and Usury Laws.
The Company and each Guarantor covenants (to the extent that it may
lawfully do so) that it shall not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay, extension
or usury law wherever enacted, now or at any time hereafter in force, that may
affect the covenants or the performance of this Indenture; and the Company and
each Guarantor (to the extent that it may lawfully do so) hereby expressly
waives all benefit or advantage of any such law, and covenants that it shall
not, by resort to any such law, 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 has been enacted.
Section 4.07. Restricted Payments.
From and after the date hereof the Company shall not, and shall not permit
any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or
pay any dividend or make any other payment or distribution on account of the
Company's or any of its Restricted Subsidiaries' Equity Interests
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(including, without limitation, any such dividend, distribution or other payment
made as a payment in connection with any merger or consolidation involving the
Company or any of its Restricted Subsidiaries), other than dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of the
Company or dividends or distributions payable to the Company or any Wholly Owned
Subsidiary of the Company; (ii) purchase, redeem or otherwise acquire or retire
for value (including, without limitation, any such purchase, redemption or other
acquisition or retirement for value made as a payment in connection with any
merger or consolidation involving the Company) any Equity Interests of the
Company or any Restricted Subsidiary (other than any such Equity Interests owned
by the Company or any Restricted Subsidiary of the Company); (iii) make any
payment on or with respect to, or purchase, redeem, defease or otherwise acquire
or retire for value, any Indebtedness that is subordinated to the Notes, except
a payment of interest or a payment of principal at Stated Maturity; or (iv) make
any Restricted Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments"), unless, at the time of and immediately after giving effect to such
Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing; and
(b) the Company would, at the time of such Restricted Payment, and
after giving pro forma effect thereto as if any Indebtedness in order to
make such Restricted Payment had been incurred at the beginning of the
applicable four quarter period, have been permitted to incur at least $1.00
of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test
set forth in the first paragraph of Section 4.09 hereof; and
(c) such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date hereof (excluding Restricted Payments permitted
by clauses (ii), (iii), (iv), (vi), (vii), (viii) and (x) of the next
succeeding paragraph), is less than the sum (without duplication) of (i)
50% of the Consolidated Net Income of the Company for the period (taken as
one accounting period) from the beginning of the first fiscal quarter
commencing after the date hereof to the end of the Company's most recently
ended fiscal quarter for which internal financial statements are available
at the time of such Restricted Payment (or, if such Consolidated Net Income
for such period is a deficit, less 100% of such deficit), plus (ii) 100% of
the aggregate Qualified Proceeds received by the Company from contributions
to the Company's capital or the issue or sale subsequent to the date hereof
of Equity Interests of the Company (other than Disqualified Stock) or of
Disqualified Stock or debt securities of the Company that have been
converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Subsidiary of
the Company and other than Disqualified Stock or convertible debt
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securities that have been converted into Disqualified Stock), plus (iii) to
the extent that any Restricted Investment that was made after the date
hereof is sold for Qualified Proceeds or otherwise liquidated or repaid
(including, without limitation, by way of a dividend or other distribution,
a repayment of a loan or advance or other transfer of assets) for in whole
or in part, the lesser of (A) the Qualified Proceeds with respect to such
Restricted Investment, (less the cost of disposition, if any) and (B) the
initial amount of such Restricted Investment, plus (iv) upon the
redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary, the
lesser of (x) the fair market value of such Subsidiary or (y) the aggregate
amount of all Investments made in such Subsidiary subsequent to the Issue
Date by the Company and its Restricted Subsidiaries, plus (v) $2.0 million.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of this
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
or any Guarantor in exchange for, or out of the net cash proceeds of the
substantially concurrent sale (other than to a Restricted Subsidiary of the
Company) of, other Equity Interests of the Company (other than any Disqualified
Stock); provided that the amount of any such net cash proceeds that are utilized
for any such redemption, repurchase, retirement, defeasance or other acquisition
shall be excluded from clause (c)(ii) of the preceding paragraph; (iii) the
defeasance, redemption, repurchase, retirement or other acquisition of
subordinated Indebtedness in exchange for, or with the net cash proceeds from,
an incurrence of Permitted Refinancing Indebtedness; (iv) the payment of any
dividend (or the making of a similar distribution or redemption) by a Restricted
Subsidiary of the Company to the holders of its common Equity Interests on a pro
rata basis; (v) so long as no Default or Event of Default shall have occurred
and is continuing, the repurchase, redemption or other acquisition or retirement
for value of any Equity Interests of the Company, Holdings or any Restricted
Subsidiary of the Company, held by any member of the Company's (or any of its
Subsidiaries') management, employees or consultants pursuant to any management,
employee or consultant equity subscription agreement or stock option agreement
in effect as of the date hereof; provided that the aggregate price paid for all
such repurchased, redeemed, acquired or retired Equity Interests shall not
exceed (1) $1.5 million in any twelve-month period and (2) in the aggregate, the
sum of (A) $7.0 million and (B) the aggregate cash proceeds received by the
Company from any reissuance of Equity Interests by Holdings or the Company to
members of management of the Company and its Subsidiaries (provided that the
cash proceeds referred to in this clause (B) shall be excluded from clause
(c)(ii) of the preceding paragraph); (vi) payments required to be made under the
Tax Sharing Agreement; (vii) distributions made by the Company on the date
hereof, the proceeds of which are utilized solely to consummate the
Recapitalization; (viii) the payment of dividends or the
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making of loans or advances by the Company to Holdings not to exceed $1.5
million in any fiscal year for costs and expenses incurred by Holdings in its
capacity as a holding company or for services rendered by Holdings on behalf of
the Company; (ix) so long as no Default or Event of Default has occurred and is
continuing, the declaration and payment of dividends to holders of any class or
series of Disqualified Stock of the Company or any Guarantor issued after the
date hereof in accordance with Section 4.09; and (x) so long as (A) no Default
or Event of Default has occurred and is continuing and (B) immediately before
and immediately after giving effect thereto, the Company would have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph described
under Section 4.09, (I) from and after April 15, 2003, payments of cash
dividends to Holdings in an amount sufficient to enable Holdings to make
payments of interest required to be made in respect of the Holdings Senior
Discount Debentures in accordance with the terms thereof in effect on the date
hereof, provided that such interest payments are made with the proceeds of such
dividends, and (II) a $16.0 million cash dividend that the Company shall be
entitled to declare and pay to Holdings on April 15, 2003 to enable Holdings to
redeem $33.2 million aggregate principal amount at maturity of the Holdings
Senior Discount Debentures as required by the terms of the Holdings Senior
Discount Debentures in accordance with such terms in effect on the date hereof,
provided that such redemption is made with the proceeds of such dividend.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default or an
Event of Default. For purposes of making such determination, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of such designation and will reduce the amount available
for Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the greater of (i) the net book value of such Investments at the time
of such designation and (ii) the fair market value of such Investments at the
time of such designation. Such designation will only be permitted if such
Restricted Payment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all (i) Restricted Payments (other than cash) shall be the
fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment
and (ii) Qualified Proceeds (other than cash) shall be the fair market value on
the date of receipt thereof by the Company of such Qualified Proceeds. The fair
market value of any non-cash Restricted Payment and Qualified Proceeds shall be
determined by the Board of Directors whose resolution with respect thereto shall
be delivered to the Trustee, such determination to be based upon an opinion or
appraisal issued by an accounting, appraisal or investment banking firm of
national standing, if such fair market value
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exceeds $10.0 million. Not later than the date of making any Restricted Payment,
the Company shall deliver to the Trustee an Officers' Certificate stating that
such Restricted Payment is permitted and setting forth the basis upon which the
calculations required by Section 4.07 were computed, together with a copy of any
fairness opinion or appraisal required by this Indenture.
Section 4.08. Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (i)(a) pay dividends or make any other distributions to
the Company or any of its Restricted Subsidiaries (1) on its Capital Stock or
(2) with respect to any other interest or participation in, or measured by, its
profits, or (b) pay any Indebtedness owed to the Company or any of its
Restricted Subsidiaries, (ii) make loans or advances to the Company or any of
its Restricted Subsidiaries, (iii) guarantee any Indebtedness of the Company or
any Restricted Subsidiary of the Company (provided that this clause (iii) shall
apply only to Restricted Subsidiaries that are Guarantors), (iv) transfer any of
its properties or assets to the Company or any of its Restricted Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of (a)
the Bank Facilities, as in effect as of the date hereof, and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings are no more restrictive with respect to such
dividend and other payment restrictions than those contained in the Bank
Facilities, as in effect on the date hereof, (b) this Indenture and the Notes,
(c) applicable law or any applicable rule, regulation or order, (d) any
agreement or instrument governing Indebtedness or Capital Stock of a Person
acquired by the Company or any of its Restricted Subsidiaries as in effect at
the time of such acquisition (except to the extent such agreement or instrument
was created or entered into in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted to be incurred under the terms of
this Indenture, (e) customary non-assignment provisions in leases, licenses,
encumbrances, contracts or similar assets entered into or acquired in the
ordinary course of business and consistent with past practices, (f) purchase
money obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iv) above on the property
so acquired, (g), Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive than those contained in the agreements
governing the Indebtedness being refinanced and (h) contracts for the sale of
assets containing customary restrictions with respect to a Subsidiary pursuant
to an agreement
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that has been entered into for the sale or disposition of all or substantially
all of the Capital Stock or assets of such Subsidiary.
Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt); neither the Company nor any Guarantor shall issue any Disqualified Stock;
and the Company shall not permit any of its Restricted Subsidiaries that are not
Guarantors to issue any shares of preferred stock; provided, however, that the
Company or any Guarantor may incur Indebtedness (including Acquired Debt) or
issue shares of Disqualified Stock if the Fixed Charge Coverage Ratio for the
Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock is issued would
have been at least 2.0 to 1.0, determined on a pro forma basis (including a pro
forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred, or the Disqualified Stock had been issued, as
the case may be, at the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company (and the guarantee thereof by the
Guarantors) of Indebtedness under Credit Facilities; provided
that the aggregate principal amount of all Indebtedness (with
letters of credit being deemed to have a principal amount equal
to the maximum potential liability of the Company and the
Guarantors thereunder) outstanding under all Credit Facilities
after giving effect to such incurrence, including all
Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (i), does not
exceed an amount equal to $105.0 million less the aggregate
principal of all principal payments (optional and mandatory)
thereunder constituting permanent reductions of such
Indebtedness pursuant to and in accordance with Section 4.10;
(ii) the incurrence by the Company and the Guarantors of
Indebtedness represented by the Notes and the Subsidiary
Guarantees;
(iii) the incurrence by the Company or any of the Guarantors of
Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase
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money obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of
construction or improvements of property used in the business
of the Company or such Guarantor, in an aggregate principal
amount not to exceed $5.0 million at any time outstanding;
(iv) other Indebtedness of the Company and its Restricted
Subsidiaries outstanding on the Issue Date (other than
Indebtedness to be repaid in connection with the
Recapitalization);
(v) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange
for, or the net proceeds of which are used to refund, refinance
or replace Indebtedness (other than intercompany Indebtedness)
that is permitted by this Indenture to exist or be incurred;
(vi) the incurrence of intercompany Indebtedness (A) between or
among the Company and any Wholly Owned Restricted Subsidiaries
of the Company or (B) by a Restricted Subsidiary that is not a
Wholly Owned Restricted Subsidiary to the Company or a Wholly
Owned Restricted Subsidiary; provided, however, that (i) if the
Company is the obligor on such Indebtedness, such Indebtedness
is expressly subordinated to the prior payment in full in cash
of all Obligations with respect to the Notes and if a Guarantor
incurs such Indebtedness to a Restricted Subsidiary that is not
a Guarantor, such Indebtedness is subordinate in right of
payment to the Subsidiary Guarantee of such Guarantor; and
(ii)(A) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person
other than the Company or a Wholly Owned Restricted Subsidiary
of the Company and (B) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a
Wholly Owned Restricted Subsidiary of the Company shall be
deemed, in each case, to constitute an incurrence of such
Indebtedness by the Company or such Subsidiary, as the case may
be, not permitted by this clause (vi);
(vii) the incurrence by the Company or any of the Guarantors of
Hedging Obligations that are incurred for the purpose of fixing
or hedging (i) interest rate risk with respect to any floating
rate Indebtedness that is permitted by the terms of this
Indenture to be outstanding, (ii) the value of foreign
currencies purchased or received by the Company in the ordinary
course of business or (iii) the price of raw materials used by
the Company or its Restricted Subsidiaries in a Permitted
Business;
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(viii) Indebtedness incurred in respect of workers' compensation
claims, self-insurance obligations and performance, surety and
similar bonds provided by the Company or a Guarantor in the
ordinary course of business;
(ix) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary providing for indemnification, adjustment
of purchase price or similar obligations, in each case,
incurred or assumed in connection with the disposition of any
business, assets or Capital Stock of a Restricted Subsidiary;
(x) the guarantee by the Company or any of the Guarantors of
Indebtedness of the Company or a Guarantor that was permitted
to be incurred by another provision of this covenant;
(xi) the incurrence by the Company or any of its Restricted
Subsidiaries of Acquired Debt in an aggregate principal amount
at any time outstanding not to exceed $17.0 million;
(xii) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts) drawn
against insufficient funds in the ordinary course of business;
provided, however, that such Indebtedness is extinguished
within five business days of incurrence; and
(xiii) the incurrence by the Company or any Guarantor of additional
Indebtedness (which may be Indebtedness under Credit
Facilities) in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, including all
Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (xiii), not to
exceed $10.0 million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xiii) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant and such item of Indebtedness will be
treated as having been incurred pursuant to only one of such clauses or pursuant
to the first paragraph hereof. Accrual of interest, the accretion of accreted
value and the payment of interest in the form of additional Indebtedness will
not be deemed to be an incurrence of Indebtedness for purposes of this covenant.
Section 4.10. Asset Sales.
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The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the
Restricted Subsidiary, as the case may be) receives consideration at the time of
such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (ii) at least 75% of the consideration therefor
received by the Company or such Restricted Subsidiary is in the form of cash or
Cash Equivalents; provided, that the amount of (x) any liabilities (as shown on
the Company's or such Restricted Subsidiary's most recent balance sheet), of the
Company or any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any Guarantee
thereof) that are assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases the Company or such Restricted
Subsidiary from further liability and (y) any securities, notes or other
obligations received by the Company or any such Restricted Subsidiary from such
transferee that are converted by the Company or such Restricted Subsidiary into
cash (to extent of the cash received) within 180 days following the closing of
such Asset Sale, shall be deemed to be cash for purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or its Restricted Subsidiaries may apply such Net Proceeds, at its
option, (a) to repay Senior Debt, or (b) to the investment in, or the making of
a capital expenditure or the acquisition of other long-term assets, in each case
used or useable in a Permitted Business, from a party other than the Company or
a Restricted Subsidiary, or (c) the acquisition of Capital Stock of any Person
primarily engaged in a Permitted Business if, as a result of the acquisition by
the Company or any Restricted Subsidiary thereof, such Person becomes a
Restricted Subsidiary, or (d) a combination of the uses described in clauses
(a), (b) and (c). Pending the final application of any such Net Proceeds, the
Company or its Restricted Subsidiaries may temporarily reduce Senior Debt or
otherwise invest such Net Proceeds in any manner that is not prohibited by this
Indenture. Any Net Proceeds from Asset Sales that are not applied or invested
as provided in the first sentence of this paragraph will be deemed to constitute
"Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $7.5
million, the Company will be required to make an offer to all Holders of Notes
and, to the extent required by the terms of any Pari Passu Indebtedness to all
holders of such Pari Passu Indebtedness (an "Asset Sale Offer"), to repurchase
the maximum principal amount of Notes and any such Pari Passu Indebtedness that
may be purchased out of the Excess Proceeds, at an offer price in cash in an
amount equal to 100% of the principal amount thereof plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the date of repurchase, in
accordance with the procedures set forth in Section 3.09 hereof or such Pari
Passu Indebtedness, as applicable. To the extent any Excess Proceeds remain
after consummation of the Asset Sale Offer, the Company may use such Excess
Proceeds for any purpose not otherwise prohibited by this Indenture. If
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the aggregate principal amount of Notes and any such Pari Passu Indebtedness
tendered pursuant to an Asset Sale Offer exceeds the amount of Excess Proceeds,
the Trustee shall select the Notes to be repurchased on a pro rata basis. Upon
completion of such Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
Section 4.11. Transactions With Affiliates.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, make any payment to or Investment in, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee
(a) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $1.0 million, a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $10.0 million, an opinion as to the
fairness to the Holders of such Affiliate Transaction from a financial point of
view issued by an accounting, appraisal or investment banking firm of national
standing; provided that the following shall not be deemed to be Affiliated
Transactions: (1) any employment agreements, stock option or other compensation
agreements or plans (and the payment of amounts or the issuance of securities
thereunder) and other reasonable fees, compensation, benefits and indemnities
paid or entered into by the Company or any of its Restricted Subsidiaries in the
ordinary course of business of the Company or such Restricted Subsidiary to or
with the officers, directors or employees of the Company or its Restricted
Subsidiaries, (2) transactions between or among the Company and/or its
Restricted Subsidiaries, (3) Restricted Payments (other than Restricted
Investments) that are permitted by Section 4.07 hereof, (4) customary advisory
investment banking fees paid to Principals and their Affiliates and (5)
transactions with suppliers or customers, in each case in the ordinary course of
business (including, without limitation, pursuant to joint venture agreements)
and otherwise in accordance with the terms of this Indenture which are fair to
the Company, in the good faith determination of the Board of Directors of the
Company and are on terms at least as favorable as might reasonably have been
obtained at such time from an unaffiliated party.
Section 4.12. Liens.
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The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien securing Indebtedness or trade payables on any asset now owned or
hereafter acquired, or any income or profits therefrom or assign or convey any
right to receive income therefrom for purposes of security, except Permitted
Liens, unless (x) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the Notes, the Notes are secured by
a Lien on such property, assets or proceeds that is senior in priority to such
Liens, (with the same relative priority as such subordinate or junior
Indebtedness shall have with respect to the Notes and Subsidiary Guarantees) and
(y) in all other cases, the Notes are secured by such Lien on an equal and
ratable basis.
Section 4.13. Offer to Repurchase Upon Change of Control.
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the date of repurchase (the
"Change of Control Payment"). Within 30 days following any Change of Control,
the Company shall mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Notes on the date specified in such notice, which date shall be no earlier than
30 days (or such shorter time period as may be permitted under applicable law,
rules and regulations) and no later than 60 days from the date such notice is
mailed (the "Change of Control Payment Date"), pursuant to the procedures
required by Section 3.09 hereof and described in such notice. The Company will
comply with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes as a
result of a Change of Control. To the extent that the provisions of any
securities laws or regulations conflict with the provisions hereof relating to
such Change of Control Offer, the Company will comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations described herein by virtue thereof.
On the Change of Control Payment Date, the Company shall, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee will
promptly
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authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unrepurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. Prior to complying with the
provisions of this covenant, but in any event within 90 days following a Change
of Control, the Company will either repay all outstanding Senior Debt or obtain
the requisite consents, if any, under all agreements governing outstanding
Senior Debt to permit the repurchase of Notes required by this covenant. The
Company will not be required to purchase any Notes until it has complied with
the preceding sentence, but failure to comply with the preceding sentence shall
constitute an Event of Default. The Company shall publicly announce the results
of the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date in accordance with Section 3.09 hereof.
The Change of Control provisions described above will be applicable whether
or not any other provisions of this Indenture are applicable. Except as
described above with respect to a Change of Control, this Indenture does not
contain provisions that permit the Holders of Notes to require that the Company
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction.
The Company shall not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
herein applicable to a Change of Control Offer made by the Company and purchases
all Notes validly tendered and not withdrawn under such Change of Control Offer.
Section 4.14. Corporate Existence.
Subject to Section 4.13 and Article 5 hereof, as the case may be, the
Company and each Guarantor shall do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence and the
corporate, partnership or other existence of each of its Subsidiaries in
accordance with the respective organizational documents (as the same may be
amended from time to time) of the Company or any such Subsidiary and the rights
(charter and statutory), licenses and franchises of the Company and its
Subsidiaries; provided that the Company shall not be required to preserve any
such right, license or franchise, or the corporate, partnership or other
existence of any of its Subsidiaries, if the Board of Directors of the Company
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company and its Subsidiaries, taken as a whole,
and that the loss thereof is not adverse in any material respect to the Holders
of Notes.
Section 4.15. Business Activities.
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The Company shall not, and shall not permit any Restricted Subsidiary to
engage in any business other than a Permitted Businesses.
Section 4.16. Senior Subordinated Debt.
Notwithstanding the provisions of Section 4.09 hereof, (i) the Company
shall not incur, create, issue, assume, guarantee or otherwise become liable for
any Indebtedness that is subordinate or junior in right of payment to any Senior
Debt and senior in any respect in right of payment to the Notes, and (ii) no
Guarantor shall incur, create, issue, assume, guarantee or otherwise become
liable for any Indebtedness that is subordinate or junior in right of payment to
Senior Debt of such Guarantor and senior in any respect in right of payment to
such Guarantor's Subsidiary Guarantees.
Section 4.17. Limitation on Issuances of Guarantees of Indebtedness.
The Company shall not permit any Restricted Subsidiary to guarantee the
payment of any Indebtedness of the Company or any Indebtedness of any other
Restricted Subsidiary, (in each case, the "Guaranteed Debt"), unless (i) if such
Restricted Subsidiary is not a Guarantor, such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture to this Indenture
providing for a Subsidiary Guarantee of payment of the Notes by such Restricted
Subsidiary, (ii) if the Notes or the Subsidiary Guarantee (if any) of such
Restricted Subsidiary are subordinated in right of payment to the Guaranteed
Debt, the Subsidiary Guarantee under the supplemental indenture shall be
subordinated to such Restricted Subsidiary's guarantee with respect to the
Guaranteed Debt substantially to the same extent as the Notes or the Subsidiary
Guarantee are subordinated to the Guaranteed Debt under the Indenture, (iii) if
the Guaranteed Debt is by its express terms subordinated in right of payment to
the Notes or the Subsidiary Guarantee (if any) of such Restricted Subsidiary,
any such guarantee of such Restricted Subsidiary with respect to the Guaranteed
Debt shall be subordinated in right of payment to such Restricted Subsidiary's
Subsidiary Guarantee with respect to the Notes substantially to the same extent
as the Guaranteed Debt is subordinated to the Notes or the Subsidiary Guarantee
(if any) of such Restricted Subsidiary, (iv) such Restricted Subsidiary
subordinates rights of reimbursement, indemnity or subrogation or any other
rights against the Company or any other Restricted Subsidiary as a result of any
payment by such Restricted Subsidiary under its Subsidiary Guarantee to its
obligation under its Subsidiary Guarantee, and (v) such Restricted Subsidiary
shall deliver to the Trustee an opinion of counsel to the effect that (A) such
Subsidiary Guarantee of the Notes has been duly authorized, executed and
delivered, and (B) such Subsidiary Guarantee of the Notes constitutes a valid,
binding and enforceable obligation of such Restricted Subsidiary, except insofar
as enforcement thereof may be limited by bankruptcy, insolvency or similar laws
(including, without limitations, all laws relating to fraudulent transfers) and
except insofar as enforcement thereof is subject to general principles of
equity.
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ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation of Sale of Assets.
The Company shall not consolidate or merge with or into (whether or not the
Company is the surviving corporation), or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its properties or assets in
one or more related transactions, to another Person unless (i) the Company is
the surviving corporation or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation or limited liability company organized or existing under
the laws of the United States, any state thereof or the District of Columbia;
(ii) the Person formed by or surviving any such consolidation or merger (if
other than the Company) or the Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of the Company under the Notes and this Indenture pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee; (iii)
immediately after such transaction no Default or Event of Default exists; and
(iv) except in the case of a merger of the Company with or into a Wholly Owned
Restricted Subsidiary of the Company, the Company or the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company), or
to which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made will, at the time of such transaction and after giving pro
forma effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of Section 4.09 hereof.
For purposes of this Section 5.01, the sale, lease, conveyance, assignment,
transfer, or other disposition of all or substantially all of the properties and
assets of one or more Subsidiaries of the Company, which properties and assets,
if held by the Company instead of such Subsidiaries, would constitute all or
substantially all of the properties and assets of the Company on a consolidated
basis, shall be deemed to be the transfer of all or substantially all of the
properties and assets of the Company. Clause (iv) of the preceding paragraph
will not prohibit (a) a merger between the Company and a Wholly Owned Restricted
Subsidiary of Holdings created for the purpose of holding the Capital Stock of
the Company, or (b) a merger between the Company and a Wholly Owned Restricted
Subsidiary of the Company so long as, in the case of each of clause (a) and (b)
the amount of Indebtedness of the Company and its Restricted Subsidiaries is not
increased thereby.
Section 5.02. Successor Corporation Substituted.
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Upon any consolidation or merger, or any sale, assignment, transfer, lease,
conveyance or other disposition of all or substantially all of the assets of the
Company in accordance with Section 5.01 hereof, the successor corporation formed
by such consolidation or into or with which the Company is merged or to which
such sale, assignment, transfer, lease, conveyance or other disposition is made
shall succeed to, and be substituted for (so that from and after the date of
such consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Company" shall refer instead to
the successor corporation and not to the Company), and shall exercise every
right and power of the Company under this Indenture with the same effect as if
such successor Person had been named as the Company herein; provided, that, (i)
solely for the purposes of computing Consolidated Net Income for purposes of
clause (b) of the first paragraph of Section 4.07 hereof, the Consolidated Net
Income of any person other than the Company and its Subsidiaries shall be
included only for periods subsequent to the effective time of such merger,
consolidation, combination or transfer of assets; and (ii) in the case of any
sale, assignment, transfer, lease, conveyance, or other disposition of less than
all of the assets of the predecessor Company, the predecessor Company shall not
be released or discharged from the obligation to pay the principal of or
interest and Liquidated Damages, if any, on the Notes.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.
Each of the following constitutes an "Event of Default":
(i) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Notes (whether
or not prohibited by the Article 10 hereof);
(ii) default in payment when due of the principal of, or premium, if
any, on, the Notes (whether or not prohibited by Article 10
hereof);
(iii) failure by the Company or any of its Restricted Subsidiaries
for 30 days after notice by the Trustee or by the Holders of at
least 25% in principal amount of Notes then outstanding to
comply with the provisions described under Sections 4.07, 4.09,
4.10 or 4.13;
(iv) failure by the Company or any of its Restricted Subsidiaries
for 60 days after notice by the Trustee or by the Holders of at
least 25% in principal amount of Notes then outstanding to
comply with any of its other agreements in this Indenture or
the Notes;
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(v) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company or
any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted
Subsidiaries) whether such Indebtedness or Guarantee now
exists, or is created after the date hereof, which default (a)
is caused by a failure to pay principal of such Indebtedness
after giving effect to any grace period provided in such
Indebtedness (a "Payment Default") or (b) results in the
acceleration of such Indebtedness prior to its stated maturity
and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default
or the maturity of which has been so accelerated, aggregates
$10.0 million or more;
(vi) failure by the Company or any of its Subsidiaries to pay final
judgments aggregating in excess of $10.0 million (net of any
amounts with respect to which a reputable and creditworthy
insurance company has acknowledged liability in writing), which
judgments are not paid, discharged or stayed for a period of 60
days;
(vii) except as permitted herein, any Subsidiary Guarantee shall be
held in any judicial proceeding to be unenforceable or invalid
or shall cease for any reason to be in full force and effect or
any Guarantor, or any Person acting on behalf of any Guarantor,
shall deny or disaffirm its obligations under its Subsidiary
Guarantee;
(viii) the Company or any of its Significant Subsidiaries or any group
of Subsidiaries that, taken as a whole would constitute a
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
all or substantially all of its property,
(d) makes a general assignment for the benefit of its
creditors, or
(e) generally is not paying its debts as they become due; or
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(ix) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(a) is for relief against the Company or any of its
Significant Subsidiaries or any group of Subsidiaries that,
taken as a whole, would constitute a Significant Subsidiary in
an involuntary case;
(b) appoints a Custodian of the Company or any of its
Significant Subsidiaries or any group of Subsidiaries that,
taken as a whole, would constitute a Significant Subsidiary or
for all or substantially all of the property of the Company or
any of its Significant Subsidiaries or any group of
Subsidiaries that, taken as a whole, would constitute a
Significant Subsidiary; or
(c) orders the liquidation of the Company or any of its
Significant Subsidiaries or any group of Subsidiaries that,
taken as a whole, would constitute a Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60
consecutive days.
The term "Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
Section 6.02. Acceleration.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default as described in clause (viii) or
(ix) of Section 6.01 hereof, all outstanding Notes will become due and payable
without further action or notice. Upon such acceleration, all principal of and
accrued interest and Liquidated Damages, if any, on the Notes shall be due and
payable immediately. Holders of Notes may not enforce this Indenture or the
Notes except as provided in this Indenture. The Trustee may withhold from
Holders of Notes notice of any continuing Default or Event of Default (except a
Default or Event of Default relating to the payment of principal or interest) if
it determines that withholding notice is in their interest. In the event of a
declaration of acceleration of the Notes because an Event of Default has
occurred and is continuing as a result of the acceleration of any Indebtedness
described in clause (v) of Section 6.01 hereof, the declaration of acceleration
of the Notes shall be automatically annulled if the holders of any Indebtedness
described in clause (v) of Section 6.01 hereof have rescinded the declaration of
acceleration in respect of such Indebtedness within 30 days of the date of such
declaration and if (a) the annulment of
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the acceleration of the Notes would not conflict with any judgment or decree of
a court of competent jurisdiction and (b) all existing Events of Default, except
nonpayment of principal or interest on the Notes that became due solely because
of the acceleration of the Notes, have been cured or waived.
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, premium, if any, interest
and Liquidated Damages, if any, on the Notes or to enforce the performance of
any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note 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. All remedies
are cumulative to the extent permitted by law.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with this Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
Section 6.04. Waiver of Past Defaults.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
this Indenture (including any acceleration (other than an automatic acceleration
resulting from an Event of Default under clause (vii) or (viii) of Section 6.01
hereof) except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes (other than as a result of an
acceleration), which shall require the consent of all of the Holders of the
Notes then outstanding.
Section 6.05. Control by Majority.
The Holders of a majority in principal amount of the then outstanding Notes
may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust power
conferred on it. However, (i) the Trustee may refuse to follow any direction
that conflicts with law or this Indenture, that the Trustee determines may be
unduly prejudicial to the rights of other Holders of Notes or that may involve
the Trustee in personal liability, and (ii) the Trustee may take any other
action deemed proper by the Trustee which is not inconsistent with such
direction. In case an Event of Default shall occur (which shall not be cured),
the Trustee will be required, in the exercise of its power, to use the degree of
care of a prudent man in the conduct of his own affairs.
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Notwithstanding any provision to the contrary in this Indenture, the Trustee is
under no obligation to exercise any of its rights or powers under this Indenture
at the request of any Holder of Notes, unless such Holder shall offer to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
Section 6.06. Limitation on Suits.
A Holder of a Note may pursue a remedy with respect to this Indenture, the
Subsidiary Guarantees or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default or the Trustee receives such notice from the
Company;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the
remedy;
(c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee
against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a direction
inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights of
another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
Section 6.07. Rights of Holders of Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, premium, if any, interest, and
Liquidated Damages, if any, on the Note, on or after the respective due dates
expressed in such Note (including in connection with an offer to purchase), 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(i) or (ii) hereof occurs
and is continuing, the Trustee is authorized to recover judgment in its own name
and as trustee of an express trust against the Company for the whole amount of
principal of, premium and Liquidated Damages, if any, and interest remaining
unpaid on the Notes and interest on overdue principal and, to the extent lawful,
interest and
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such further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
Section 6.09. Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Notes), its creditors or its property and shall
be entitled and empowered to collect, receive and distribute any money or other
securities or property payable or deliverable upon the conversion or exchange of
the Notes or on any such claims and any Custodian in any such judicial
proceeding is hereby authorized by each Holder to make such payments to the
Trustee, and in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due to it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties that the Holders may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise. Nothing herein contained shall
be deemed to authorize the Trustee to authorize or consent to or accept or adopt
on behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder, or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article 6, it shall pay
out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes
for principal, premium, if any, interest, and Liquidated Damages, if any,
ratably, without preference or priority of
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any kind, according to the amounts due and payable on the Notes for principal,
premium, if any, interest, and Liquidated Damages, if any, respectively;
Third: without duplication, to the Holders for any other Obligations
owing to the Holders under this Indenture and the Notes; and
Fourth: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
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 a
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 6.11
does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant
to Section 6.07 hereof, or a suit by Holders of more than 10% in principal
amount of the then outstanding Notes.
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing of which a
Responsible Officer of the Trustee has knowledge, the Trustee shall
exercise such of the rights and powers vested in it by this Indenture and
use the same degree of care and skill in its exercise, as a prudent man
would exercise or use under the circumstances in the conduct of his own
affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture or the TIA and the Trustee
need perform only those duties that are specifically set forth in
this Indenture or the TIA and no others, and no implied covenants
or obligations shall be read into this Indenture against the
Trustee; and
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(ii) 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.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section 7.01;
(ii) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it is proved
that the Trustee was negligent in ascertaining the pertinent
facts; and
(iii) 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 hereof.
(d) Whether or not therein expressly so provided, every provision
of this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b), (c), (e) and (f) of these Sections 7.01 and 7.02.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be
under no obligation to exercise any of its rights and powers under this
Indenture at the request of any Holders, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against
any loss, liability or expense.
(f) 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.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
Section 7.02. Rights of Trustee.
(a) The Trustee may conclusively rely on the truth of the
statements and correctness of the opinions contained in, and shall be
protected from acting or refraining from acting upon, any document believed
by it to be genuine and to have been signed or presented by the proper
Person. The Trustee need not investigate any fact or matter stated in the
document.
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(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith
in reliance on such Officers' Certificate or Opinion of Counsel. Prior to
taking, suffering or admitting any action, the Trustee may consult with
counsel of the Trustee's own choosing and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization
and protection from liability in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed
with due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company or any Guarantor
shall be sufficient if signed by an Officer of the Company or Guarantor, as
applicable.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity satisfactory to the Trustee against the
costs, expenses and liabilities that might be incurred by it in compliance
with such request or direction.
Section 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner of
Notes and may otherwise deal with the Company, the Guarantors or any Affiliate
of the Company or any Guarantor with the same rights it would have if it were
not Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the Commission
for permission to continue as Trustee or resign. Any Agent may do the same with
like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11
hereof.
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, the Subsidiary Guarantees or the
Notes, it shall not be accountable for the Company's use of the proceeds from
the Notes or any money paid to the Company or upon the Company's direction under
any provision of this Indenture, it shall not be responsible for the use or
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application of any money received by any Paying Agent other than the Trustee,
and it shall not be responsible for any statement or recital herein or any
statement in the Notes or any other document in connection with the sale of the
Notes or pursuant to this Indenture other than its certificate of
authentication.
Section 7.05. Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it is
known to a Responsible Officer of the Trustee, the Trustee shall mail to Holders
of Notes a notice of the Default or Event of Default within 90 days after it
occurs. Except in the case of a Default or Event of Default in payment on any
Note pursuant to Section 6.01(i) or (ii) hereof, the Trustee may withhold the
notice if and so long as a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interests of the Holders of the
Notes.
Section 7.06. Reports by Trustee to Holders of the Notes.
Within 60 days after each May 15 beginning with the May 15 following the
date of this Indenture, and for so long as Notes remain outstanding, the Trustee
shall mail to the Holders of the Notes a brief report dated as of such reporting
date that complies with TIA (S) 313(a) (but if no event described in TIA (S)
313(a) has occurred within the twelve months preceding the reporting date, no
report need be transmitted). The Trustee also shall comply with TIA (S) 313(b).
The Trustee shall also transmit by mail all reports as required by TIA (S)
313(c).
A copy of each report at the time of its mailing to the Holders of Notes
shall be mailed to the Company and filed with the Commission and each stock
exchange on which the Company has informed the Trustee in writing the Notes are
listed in accordance with TIA (S) 313(d). The Company shall promptly notify the
Trustee when the Notes are listed on any stock exchange and of any delisting
thereof.
Section 7.07. Compensation and Indemnity.
The Company and the Guarantors shall pay to the Trustee from time to time
reasonable compensation for its acceptance of this Indenture and services
hereunder. To the extent permitted by law, the Trustee's compensation shall not
be limited by any law on compensation of a trustee of an express trust. The
Company and the Guarantors shall reimburse the Trustee promptly upon request for
all reasonable disbursements, advances and expenses incurred or made by it in
addition to the compensation for its services. Such expenses shall include the
reasonable compensation, disbursements and expenses of the Trustee's agents and
counsel.
The Company and the Guarantors shall indemnify the Trustee against any and
all losses, liabilities or expenses incurred by it arising out of or in
connection with the acceptance or administration
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of its duties under this Indenture, including the costs and expenses of
enforcing this Indenture against the Company and the Guarantors (including this
Section 7.07) and defending itself against any claim (whether asserted by the
Company and the Guarantors or any Holder or any other person) or liability in
connection with the exercise or performance of any of its powers or duties
hereunder except to the extent any such loss, liability or expense may be
attributable to its negligence or bad faith. The Trustee shall notify the
Company and the Guarantors promptly of any claim for which it may seek
indemnity. Failure by the Trustee to so notify the Company and the Guarantors
shall not relieve the Company of its obligations hereunder. The Company and the
Guarantors shall defend the claim and the Trustee shall cooperate in the
defense. The Trustee may have separate counsel and the Company and the
Guarantors shall pay the reasonable fees and expenses of such counsel. The
Company and the Guarantors need not pay for any settlement made without its
consent, which consent shall not be unreasonably withheld.
The obligations of the Company and the Guarantors under this Section 7.07
shall survive the satisfaction and discharge of this Indenture.
To secure the Company's and the Guarantors payment obligations in this
Section 7.07, the Trustee shall have a Lien prior to the Notes on all money or
property held or collected by the Trustee, except that held in trust to pay
principal, interest and Liquidated Damages, if any, on particular Notes. Such
Lien shall survive the satisfaction and discharge of this Indenture and the
resignation or removal of the Trustee.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01 (vii) or (viii) hereof occurs, the expenses
and the compensation for the services (including the fees and expenses of its
agents and counsel) are intended to constitute expenses of administration under
any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA (S) 313(b)(2) to the
extent applicable.
Section 7.08. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section 7.08.
The Trustee may resign in writing at any time and be discharged from the
trust hereby created by so notifying the Company. The Holders of a majority in
principal amount of the then outstanding Notes may remove the Trustee by so
notifying the Trustee and the Company in writing. The Company may remove the
Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
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(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or
its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of at least 10% in principal amount of the then outstanding Notes
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee, after written request by any Holder of a Note who has been
a Holder of a Note for at least six months, fails to comply with Section 7.10
hereof, such Holder of a Note may petition any court of competent jurisdiction
for the removal of the Trustee and the appointment of 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 the duties of the Trustee under
this Indenture. The successor Trustee shall mail a notice of its succession to
the Holders of the Notes. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, provided that all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant
to this Section 7.08, the Company's obligations under Section 7.07 hereof shall
continue for the benefit of the retiring Trustee.
Section 7.09. Successor Trustee by Merger, etc.
If the Trustee or any Agent consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee or any Agent, as applicable.
Section 7.10. Eligibility; Disqualification.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws
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to exercise corporate trustee power, that is subject to supervision or
examination by federal or state authorities. The Trustee and its direct parent
shall at all times have a combined capital surplus of at least $50.0 million as
set forth in its most recent annual report of condition.
This Indenture shall always have a Trustee who satisfies the requirements
of TIA (S) 310(a)(1), (2) and (5). The Trustee is subject to TIA (S) 310(b).
Section 7.11. Preferential Collection of Claims Against the Company.
The Trustee is subject to 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 therein.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.
The Company may, at the option of its Board of Directors evidenced by a
resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.02 or Section 8.03 hereof be applied to all Notes and
Subsidiary Guarantees then outstanding upon compliance with the conditions set
forth below in this Article 8.
Section 8.02. Legal Defeasance and Discharge.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company and each Guarantor shall, subject
to the satisfaction of the conditions set forth in Section 8.04 hereof, be
deemed to have been discharged from their respective obligations with respect to
all Notes and Subsidiary Guarantees then outstanding on the date the conditions
set forth below are satisfied ("Legal Defeasance"). For this purpose, Legal
Defeasance means that the Company shall be deemed to have paid and discharged
the entire Indebtedness represented by the Notes outstanding, which shall
thereafter be deemed to be "outstanding" only for the purposes of Section 8.05
and the other Sections of this Indenture referred to in (a) and (b) below, and
to have satisfied all their respective other obligations under such Notes and
Subsidiary Guarantees and this Indenture (and the Trustee, on demand of and at
the expense of the Company, shall execute proper instruments acknowledging the
same), except for the following provisions which shall survive until otherwise
terminated or discharged hereunder: (a) the rights of Holders of outstanding
Notes to receive payments in respect of the principal amount, premium, if any,
and interest and Liquidated Damages, if any, on such Notes when such payments
are due from the trust referred to in Section 8.04(a); (b) the Company's
obligations with respect to such Notes under Sections 2.03, 2.04, 2.05, 2.06,
2.07, 2.10, 4.02 and 4.03 hereof; (c) the rights, powers,
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trusts, duties and immunities of the Trustee and the Company's obligations in
connection therewith; and (d) the provisions of this Section 8.02.
Section 8.03. Covenant Defeasance.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company and each Guarantor shall, subject
to the satisfaction of the conditions set forth in Section 8.04 hereof, be
released from its obligations under the covenants contained in Article 5 and in
Sections 4.03, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 5.01
and 11.01 hereof with respect to the outstanding Notes and Subsidiary Guarantees
on and after the date the conditions set forth below are satisfied (hereinafter,
"Covenant Defeasance"), and the Notes and Subsidiary Guarantees shall thereafter
be deemed not "outstanding" for the purposes of any direction, waiver, consent
or declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder (it being understood that such Notes shall not
be deemed outstanding for accounting purposes). For this purpose, Covenant
Defeasance means that, with respect to the outstanding Notes and Subsidiary
Guarantees, the Company or any of its Subsidiaries may omit to comply with and
shall have no liability in respect of any term, condition or limitation set
forth in any such covenant, whether directly or indirectly, by reason of any
reference elsewhere herein to any such covenant or by reason of any reference in
any such covenant to any other provision herein or in any other document and
such omission to comply shall not constitute a Default or an Event of Default
under Section 6.01 hereof, but, except as specified above, the remainder of this
Indenture and such Notes and Subsidiary Guarantees shall be unaffected thereby.
In addition, upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, subject to the satisfaction of the conditions
set forth in Section 8.04 hereof, Sections 6.01(iii) through 6.01(v) hereof
shall not constitute Events of Default.
Section 8.04. Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of either Section
8.02 or Section 8.03 hereof to the outstanding Notes and Subsidiary Guarantees:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders of the Notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such
amounts as shall be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal amount,
premium, if any, and interest and Liquidated Damages, if any, on the
outstanding Notes on the stated maturity or
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on the applicable redemption date, as the case may be, and the Company must
specify whether the Notes are being defeased to maturity or to a particular
redemption date;
(b) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service
a ruling or (B) since the date hereof, 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, subject to
customary assumptions and exclusions, the Holders of the outstanding Notes
shall not recognize income, gain or loss for federal income tax purposes as
a result of such Legal Defeasance and shall be subject to federal income
tax on the same amounts, in the same manner and at the same times as would
have been the case if such Legal Defeasance had not occurred;
(c) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that, subject to customary
assumptions and exclusions, the Holders of the outstanding Notes shall not
recognize income, gain or loss for federal income tax purposes as a result
of such Covenant Defeasance and shall be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the financing of amounts to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day
after the date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result
in a breach or violation of, or constitute a default under, any material
agreement or instrument (other than this Indenture) to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that, subject to customary assumptions and exclusions
(which assumptions and exclusions shall not relate to the operation of
Section 547 of the United States Bankruptcy Code or any analogous New York
State law provision), after the 91st day following the deposit, the trust
funds shall not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
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(g) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and
(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent provided for relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
Section 8.05. Deposited Money and U.S. Government Securities to be Held in
Trust; Other Miscellaneous Provisions.
Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the then outstanding
Notes shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as Paying Agent) as the
Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal, premium, if any, interest and
Liquidated Damages, if any, but such money need not be segregated from other
funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or non-callable Government
Securities deposited pursuant to Section 8.04 hereof or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time at the Company's written
request and be relieved of all liability with respect to any money or non-
callable Government Securities held by it as provided in Section 8.04 hereof
which, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee (which may be the opinion delivered under Section 8.04(a) hereof), are
in excess of the amount thereof that would then be required to be deposited to
effect an equivalent Legal Defeasance or Covenant Defeasance.
Section 8.06. Repayment to the Company.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of, premium, if any,
interest or Liquidated Damages, if any, on any Note and remaining unclaimed for
one year after such principal, and premium, if any, or interest, if any,
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or Liquidated Damages, if any, have become due and payable shall be paid to the
Company on its written request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Note shall thereafter, as an
unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; 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 published once, in the New York Times and The Wall Street Journal (national
edition), notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
shall be repaid to the Company.
Section 8.07. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States dollars
or non-callable Government Securities in accordance with Section 8.02 hereof or
Section 8.03 hereof, as the case may be, by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, then the obligations of the Company and the
Guarantors under this Indenture, and the Notes and the Subsidiary Guarantees
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.02 hereof or Section 8.03 hereof, as the case may be, until such time
as the Trustee or Paying Agent is permitted to apply all such money in
accordance with Section 8.02 hereof or Section 8.03 hereof, as the case may be;
provided, however, that, if the Company makes any payment of principal of,
premium, if any, interest or Liquidated Damages, if any, on any Note following
the reinstatement of its obligations, the Company shall be subrogated to the
rights of the Holders of such Notes to receive such payment from the money held
by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of the Notes.
Notwithstanding Section 9.02 of this Indenture, without the consent of any
Holder of Notes the Company and the Trustee may amend or supplement this
Indenture, the Notes or the Subsidiary Guarantees:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place
of certificated Notes;
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(c) to provide for the assumption of the Company's or a Guarantor's
obligations to the Holders of Notes in the case of a merger, or
consolidation pursuant to Article 5 or Article 11 hereof, as applicable;
(d) to make any change that would provide any additional rights or
benefits to the Holders of Notes or that does not adversely affect the
legal rights hereunder of any such Holder; or
(e) to comply with requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the TIA; or
(f) to allow any Restricted Subsidiary to Guarantee the Notes.
Upon the written request of the Company accompanied by a resolution of its
Board of Directors of the Company authorizing the execution of any such amended
or supplemental indenture, and upon receipt by the Trustee of the documents
described in Section 9.06 hereof, the Trustee shall join with the Company or the
Guarantors in the execution of any amended or supplemental indenture authorized
or permitted by the terms of this Indenture and to make any further appropriate
agreements and stipulations that may be therein contained, but the Trustee shall
not be obligated to enter into such amended or supplemental indenture that
affects its own rights, duties or immunities under this Indenture or otherwise.
Section 9.02. With Consent of Holders of Notes.
Except as provided below in this Section 9.02 or as provided in Section
10.13 or Section 12.13 of this Indenture, this Indenture, the Notes and the
Subsidiary Guarantees may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount at maturity of the Notes then
outstanding (including, without limitation, consents obtained in connection with
a purchase of, or a tender offer or exchange offer for Notes), and any existing
default or compliance with any provision of this Indenture, the Notes or the
Subsidiary Guarantees may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including, without
limitation, consents obtained in connection with a purchase of or a tender offer
or exchange offer for the Notes).
Upon the request of the Company accompanied by a resolution of its Board of
Directors authorizing the execution of any such amended or supplemental
indenture, and upon the filing with the Trustee of evidence satisfactory to the
Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by
the Trustee of an Officers' Certificate and an Opinion of Counsel, the Trustee
shall join with the Company and the Guarantors in the execution of such amended
or supplemental indenture unless such amended or supplemental indenture affects
the Trustee's own rights, duties or immunities
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under this Indenture or otherwise, in which case the Trustee may, but shall not
be obligated to, enter into such amended or supplemental indenture.
It shall not be necessary for the consent of the Holders of Notes under
this Section 9.02 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof. After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders of each Note affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental indenture or waiver.
Subject to Sections 6.04, 6.07, 10.13 and 12.13 hereof, the Holders of a
majority in aggregate principal amount of the Notes then outstanding may amend
or waive compliance in a particular instance by the Company or the Guarantors
with any provision of this Indenture or the Notes or the Subsidiary Guarantees.
However, without the consent of each Holder affected, an amendment, or waiver
may not (with respect to any Note held by a non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must consent
to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any Notes
or alter the provisions with respect to the redemption of the Notes (other
than provisions relating to Sections 3.09, 4.10 and 4.13 hereof);
(c) reduce the rate of or change the time for payment of interest on
any Note;
(d) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in
aggregate principal amount at maturity of the Notes and a waiver of the
payment default that resulted from such acceleration);
(e) make any Note payable in money other than that stated in the
Notes;
(f) make any change in Section 6.04 or 6.07 hereof;
(g) waive a redemption payment with respect to any Note (other than a
payment described in Section 4.10 or 4.13 hereof); or
(h) except as otherwise permitted herein, release any Guarantor from
any of its obligations under its Subsidiary Guarantee or this Indenture, or
amend the provisions herein relating to the release of Guarantors; or
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(i) make any change in the amendment and waiver provisions of this
Article 9.
Section 9.03. Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture, the Subsidiary Guarantees
or the Notes shall be set forth in an amended or supplemental indenture that
complies with the TIA as then in effect.
Section 9.04. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent to it
by a Holder of a Note is a continuing consent by the Holder and every subsequent
Holder of a Note or portion of a Note that evidences the same debt as the
consenting Holder's Note, even if notation of the consent is not made on any
Note. However, any such Holder or subsequent Holder of a Note may revoke the
consent as to its Note if the Trustee receives written notice of revocation
before the date the waiver, supplement or amendment becomes effective. When an
amendment, supplement or waiver becomes effective in accordance with its terms,
it thereafter binds every Holder.
Section 9.05. Notation on or Exchange of Notes.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall authenticate new Notes
that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
Section 9.06. Trustee to Sign Amendments, etc.
The Trustee shall sign any amended or supplemental indenture authorized
pursuant to this Article 9 if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The
Company and the Guarantors may not sign an amendment or supplemental indenture
until their respective Boards of Directors approve it. In signing or refusing
to sign any amended or supplemental indenture the Trustee shall be entitled to
receive and (subject to Section 7.01 hereof) shall be fully protected in relying
upon an Officers' Certificate and an Opinion of Counsel stating that the
execution of such amended or supplemental indenture is authorized or permitted
by this Indenture, that it is not inconsistent herewith, and that it will be
valid and binding upon the Company and the Guarantors in accordance with its
terms.
ARTICLE 10
SUBORDINATION
Section 10.01 Agreement to Subordinate.
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The Company agrees, and each Holder of Notes by accepting a Note agrees,
that the Indebtedness evidenced by the Note is subordinated in right of payment,
to the extent and in the manner provided in this Article, to the prior payment
in full of all Senior Debt (whether outstanding on the date hereof or hereafter
created, incurred, assumed or guaranteed), and that the subordination is for the
benefit of the holders of Senior Debt.
Section 10.02 Liquidation; Dissolution; Bankruptcy.
Upon any payment or distribution to creditors of the Company of any kind,
whether in cash, property or securities in a liquidation or dissolution of the
Company or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property, an assignment for the
benefit of creditors or any marshalling of the Company's assets and liabilities,
whether voluntary or involuntary, the holders of Senior Debt of the Company will
be entitled to receive payment in full in cash of all Obligations due in respect
of such Senior Debt (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Debt whether or not
allowable as a claim in any such proceeding) before the Holders of Notes will be
entitled to receive any payment or distribution of any kind with respect to the
Notes, and until all Obligations with respect to Senior Debt are paid in full,
any payment or distribution to which the Holders of Notes would be entitled
shall be made to the holders of Senior Debt (except that Holders of Notes may
receive and retain Permitted Junior Securities and payments made from the trust
described under Sections 8.02 and 8.03).
Section 10.03 Default on Designated Senior Debt.
The Company also shall not make any payment upon or in respect of the Notes
(except in Permitted Junior Securities or from the trust described under
Sections 8.02 and 8.03) if (i) a default in the payment of the principal of,
premium, if any, or interest on Designated Senior Debt occurs and is continuing
or (ii) any other default occurs and is continuing with respect to Designated
Senior Debt that permits holders of the Designated Senior Debt as to which such
default relates to accelerate its maturity, and in the case of this clause (ii)
only, and the Trustee receives a notice of such default invoking the provisions
described in this paragraph (a "Payment Blockage Notice") from the holders of
any Designated Senior Debt or any agent or trustee therefor. Payments on the
Notes may and shall be resumed (a) in the case of a payment default, upon the
date on which such default is cured or waived and (b) in case of a nonpayment
default, the earlier of the date on which such nonpayment default is cured or
waived or 179 days after the date on which the applicable Payment Blockage
Notice is received, unless a payment default has occurred and is continuing (as
a result of the non-payment of a scheduled principal repayment upon Designated
Senior Debt, nonpayment of principal upon the stated maturity of any Designated
Senior Debt or the acceleration of the maturity of any Designated Senior
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Debt). No new period of payment blockage (other than for a payment default) may
be commenced unless and until 360 days have elapsed since the effectiveness of
the immediately prior Payment Blockage Notice. No nonpayment default that
existed or was continuing on the date of delivery of any Payment Blockage Notice
to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice unless such default shall have been cured or waived for a period of not
less than 90 days.
Whenever the Company is prohibited from making any payment in respect of
the Notes, the Company also shall be prohibited from making, directly or
indirectly, any payment of any kind on account of the purchase or other
acquisition of the Notes. If any Holder receives any payment or distribution
that such Holder is not entitled to receive with respect to the Notes, such
Holder shall be required to pay the same over to the holders of Senior Debt.
Section 10.04. Acceleration of Notes.
If payment of the Notes is accelerated because of an Event of Default, the
Company shall promptly notify holders of Senior Debt of the acceleration.
Section 10.05. When Distribution Must Be Paid Over.
In the event that the Trustee or any Holder of a Note receives any payment
of any Obligations with respect to the Notes at a time when such payment is
prohibited by Section 10.03 hereof, such payment shall be held by the Trustee or
such Holder, in trust for the benefit of, and shall be paid forthwith over and
delivered, upon written request, to, the holders of Senior Debt as their
interests may appear or their Representative under the indenture or other
agreement (if any) pursuant to which Senior Debt may have been issued (the
"Representative"), as their respective interests may appear, for application to
the payment of all Obligations with respect to Senior Debt remaining unpaid to
the extent necessary to pay such Obligations in full in accordance with their
terms, after giving effect to any concurrent payment or distribution to or for
the holders of Senior Debt.
With respect to the holders of Senior Debt, the Trustee undertakes to
perform only such obligations on the part of the Trustee as are specifically set
forth in this Article 10, and no implied covenants or obligations with respect
to the holders of Senior Debt shall be read into this Indenture against the
Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt, and shall not be liable to any such holders if the
Trustee shall pay over or distribute to or on behalf of Holders of the Notes or
the Company or any other Person money or assets to which any holders of Senior
Debt shall be entitled by virtue of this Article 10, except if such payment is
made as a result of the willful misconduct or gross negligence of the Trustee.
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Section 10.06. Notice by the Company.
The Company shall promptly notify the Trustee and the Paying Agent of any
facts known to the Company that would cause a payment of any Obligations with
respect to the Notes to violate this Article, which notice shall specifically
refer to this Article 10, but failure to give such notice shall not affect the
subordination of the Notes to the Senior Debt as provided in this Article.
Section 10.07. Subrogation.
After all Senior Debt is paid in full and until the Notes are paid in full,
Holders of Notes shall be subrogated (equally and ratably with all other pari
passu indebtedness) to the rights of holders of Senior Debt to receive
distributions applicable to Senior Debt to the extent that distributions
otherwise payable to the Holders of the Notes have been applied to the payment
of Senior Debt. A distribution made under this Article to holders of Senior
Debt that otherwise would have been made to Holders of the Notes is not, as
between the Company and Holders of the Notes, a payment by the Company on the
Notes.
Section 10.08. Relative Rights.
This Article defines the relative rights of Holders of Notes and holders of
Senior Debt. Nothing in this Indenture shall:
(1) impair, as between the Company and Holders of Notes, the
obligations of the Company, which are absolute and unconditional, to pay
principal of and interest on the Notes in accordance with their terms;
(2) affect the relative rights of Holders of Notes and creditors of
the Company other than their rights in relation to holders of Senior Debt;
or
(3) prevent the Trustee or any Holder of Notes from exercising its
available remedies upon a Default or Event of Default, subject to the
rights of holders and owners of Senior Debt to receive distributions and
payments otherwise payable to Holders of Notes.
If the Company fails because of this Article to pay principal of or
interest on a Note on the due date, the failure is still a Default or Event of
Default.
Section 10.09. Subordination May Not Be Impaired by the Company.
No right of any holder of Senior Debt to enforce the subordination of the
Indebtedness evidenced by the Notes shall be impaired by any act or failure to
act by the Company or any Holder or by the failure of the Company or any Holder
to comply with this Indenture.
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Without in any way limiting the generality of the foregoing paragraph, the
holders of Senior Debt, or any of them, may, at any time and from time to time,
without the consent of or notice to the Holders of the Notes, without incurring
any liabilities to any Holder of any Notes and without impairing or releasing
the subordination and other benefits provided in this Indenture or the
obligations of the Holders of the Notes to the holders of the Senior Debt, even
if any right of reimbursement or subrogation or other right or remedy of any
Holder of Notes is affected, impaired or extinguished thereby, do any one or
more of the following:
(1) change the manner, place or terms of payment or change or extend
the time of payment of, or renew, exchange, amend, increase or alter, the
terms of any Senior Debt, any security therefor or guaranty thereof or any
liability of any obligor thereon (including any guarantor) to such holder,
or any liability incurred directly or indirectly in respect thereof or
otherwise amend, renew, exchange, extend, modify, increase or supplement in
any manner any Senior Debt or any instrument evidencing or guaranteeing or
securing the same or any agreement under which Senior Debt is outstanding;
(2) sell, exchange, release, surrender, realize upon, enforce or
otherwise deal with in any manner and in any order any property pledged,
mortgaged or otherwise securing Senior Debt or any liability of any obligor
thereon, to such holder, or any liability incurred directly or indirectly
in respect thereof;
(3) settle or compromise any Senior Debt or any other liability of
any obligor of the Senior Debt to such holder or any security therefor or
any liability incurred directly or indirectly in respect thereof and apply
any sums by whomsoever paid and however realized to any liability
(including, without limitation, Senior Debt) in any manner or order; and
(4) fail to take or to record or to otherwise perfect, for any reason
or for no reason, any lien or security interest securing Senior Debt by
whomsoever granted, exercise or delay in or refrain from exercising any
right or remedy against any obligor or any guarantor or any other person,
elect any remedy and otherwise deal freely with any obligor and any
security for the Senior Debt or any liability of any obligor to such holder
or any liability incurred directly or indirectly in respect thereof.
Section 10.10. Distribution or Notice to Representative.
Whenever a distribution is to be made or a notice given to holders of
Senior Debt, the distribution may be made and the notice given to their
Representative.
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Upon any payment or distribution of assets of the Company referred to in
this Article 10, the Trustee and the Holders of the Notes shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction or
upon any certificate of such Representative or of the liquidating trustee or
agent or other Person making any distribution to the Trustee or to the Holders
of Notes for the purpose of ascertaining the Persons entitled to participate in
such distribution, the holders of the Senior Debt and other Indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article 10.
Section 10.11. Rights of Trustee and Paying Agent.
Notwithstanding the provisions of this Article 10 or any other provision of
this Indenture, the Trustee shall not be charged with knowledge of the existence
of any facts that would prohibit the making of any payment or distribution by
the Trustee, and the Trustee and the Paying Agent may continue to make payments
on the Notes, unless the Trustee shall have received at its Corporate Trust
Office at least three Business Days prior to the date of such payment written
notice of facts that would cause the payment of any Obligations with respect to
the Notes to violate this Article, which notice shall specifically refer to this
Article 10. Only the Company or a Representative may give the notice. Nothing in
this Article 10 shall impair the claims of, or payments to, the Trustee under or
pursuant to Section 7.07 hereof.
The Trustee in its individual or any other capacity may hold Senior Debt
with the same rights it would have if it were not Trustee. Any Agent may do the
same with like rights.
Section 10.12. Authorization to Effect Subordination.
Each Holder of a Note by the Holder's acceptance thereof authorizes and
directs the Trustee on the Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in this
Article 10, and appoints the Trustee to act as the Holder's attorney-in-fact for
any and all such purposes, including without limitation the timely filing of a
claim for the unpaid balance of the Notes held by such Holder in the form
required in any Insolvency or Liquidation Proceeding and causing such claim to
be approved. If the Trustee does not file a proper proof of claim or proof of
debt in the form required in any proceeding referred to in Section 6.09 hereof
at least 30 days before the expiration of the time of such claim, the
Representatives of the Designated Senior Debt, including the Credit Agent, are
hereby authorized to file an appropriate claim for and on behalf of the Holders
of the Notes.
Section 10.13. Amendments.
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Any amendment to the provisions of this Article 10 shall require the
consent of the Holders of at least 75% in aggregate amount of Notes then
outstanding if such amendment would adversely affect the rights of the Holders
of Notes.
ARTICLE 11
GUARANTEE OF NOTES
Section 11.01. Note Guarantee.
Subject to Section 11.06 hereof, each of the Guarantors hereby, jointly and
severally, unconditionally guarantees to each Holder of a Note authenticated and
delivered by the Trustee and to the Trustee and its successors and assigns,
irrespective of the validity and enforceability of this Indenture, the Notes and
the Obligations of the Company hereunder and thereunder, that: (a) the principal
of, premium, if any, interest and Liquidated Damages, if any, on the Notes will
be promptly paid in full when due, subject to any applicable grace period,
whether at maturity, by acceleration, redemption or otherwise, and interest on
the overdue principal, premium, if any, (to the extent permitted by law)
interest on any interest, if any, and Liquidated Damages, if any, on the Notes,
and all other payment Obligations of the Company to the Holders or the Trustee
hereunder or thereunder will be promptly paid in full and performed, all in
accordance with the terms hereof and thereof; and (b) in case of any extension
of time of payment or renewal of any Notes or any of such other Obligations, the
same will be promptly paid in full when due or performed in accordance with the
terms of the extension or renewal, subject to any applicable grace period,
whether at stated maturity, by acceleration, redemption or otherwise. Failing
payment when so due of any amount so guaranteed for whatever reason the
Guarantors will be jointly and severally obligated to pay the same immediately.
An Event of Default under this Indenture or the Notes shall constitute an event
of default under the Subsidiary Guarantees, and shall entitle the Holders to
accelerate the Obligations of the Guarantors hereunder in the same manner and to
the same extent as the Obligations of the Company. The Guarantors hereby agree
that their Obligations hereunder shall be unconditional, irrespective of the
validity, regularity or enforceability of the Notes or this Indenture, the
absence of any action to enforce the same, any waiver or consent by any Holder
with respect to any provisions hereof or thereof, the recovery of any judgment
against the Company, any action to enforce the same or any other circumstance
which might otherwise constitute a legal or equitable discharge or defense of a
Guarantor. Each Guarantor hereby waives diligence, presentment, demand of
payment, filing of claims with a court in the event of insolvency or bankruptcy
of the Company, any right to require a proceeding first against the Company,
protest, notice and all demands whatsoever and covenants that this Note
Guarantee will not be discharged except by complete performance of the
Obligations contained in the Notes and this Indenture. If any Holder or the
Trustee is required by any court or otherwise to return
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to the Company, the Guarantors, or any Note Custodian, Trustee, liquidator or
other similar official acting in relation to either the Company or the
Guarantors, any amount paid by either to the Trustee or such Holder, this Note
Guarantee, to the extent theretofore discharged, shall be reinstated in full
force and effect. Each Guarantor agrees that it shall not be entitled to, and
hereby waives, any right of subrogation in relation to the Holders in respect of
any Obligations guaranteed hereby. Each Guarantor further agrees that, as
between the Guarantors, 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 this Note Guarantee,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the Obligations guaranteed hereby, and (y) in the
event of any declaration of acceleration of such Obligations as provided in
Article 6 hereof, such Obligations (whether or not due and payable) shall
forthwith become due and payable by the Guarantors for the purpose of this Note
Guarantee. The Guarantors shall have the right to seek contribution from any
non-paying Guarantor so long as the exercise of such right does not impair the
rights of the Holders under the Subsidiary Guarantees.
Section 11.02. Execution and Delivery of Subsidiary Guarantee.
To evidence its Subsidiary Guarantee set forth in Section 11.01, each
Guarantor hereby agrees that a notation of such Subsidiary Guarantee
substantially in the form of Exhibit D shall be endorsed by an Officer of such
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Guarantor on each Note authenticated and delivered by the Trustee and that this
Indenture shall be executed on behalf of such Guarantor, by manual or facsimile
signature, by an Officer of such Guarantor.
Each Guarantor hereby agrees that its Subsidiary Guarantee set forth in
Section 11.01 shall remain in full force and effect notwithstanding any failure
to endorse on each Note a notation of such Subsidiary Guarantee.
If an Officer whose signature is on this Indenture or on the Subsidiary
Guarantee no longer holds that office at the time the Trustee authenticates the
Note on which a Subsidiary Guarantee is endorsed, the Subsidiary Guarantee shall
be valid nevertheless.
The delivery of any Note by the Trustee, after the authentication thereof
hereunder, shall constitute due delivery of the Subsidiary Guarantee set forth
in this Indenture on behalf of the Guarantors.
Section 11.03. Guarantors May Consolidate, etc., on Certain Terms
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(a) Except as set forth in Articles 4 and 5 hereof, nothing contained
in this Indenture shall prohibit a merger between a Guarantor and another
Guarantor or a merger between a Guarantor and the Company.
(b) Subject to Section 11.04 hereof, no Guarantor may consolidate
with or merge with or into (whether or not such Guarantor is the surviving
Person), another corporation, Person or entity whether or not affiliated
with such Guarantor unless, subject to the provisions of the following
paragraph, (i) the Person formed by or surviving any such consolidation or
merger (if other than such Guarantor) assumes all the obligations of such
Guarantor pursuant to a supplemental indenture in form and substance
reasonably satisfactory to the Trustee, under this Indenture and the
Subsidiary Guarantees; and (ii) immediately after giving effect to such
transaction, no Default or Event of Default exists.
(c) In the case of any such consolidation, merger, sale or conveyance
and upon the assumption by the successor Person, by supplemental indenture,
executed and delivered to the Trustee and substantially in the form of
Exhibit E hereto, of the Subsidiary Guarantee endorsed upon the Notes and
---------
the due and punctual performance of all of the covenants and conditions of
this Indenture to be performed by the Guarantor, such successor Person
shall succeed to and be substituted for the Guarantor with the same effect
as if it had been named herein as a Guarantor; provided that, solely for
purposes of computing Consolidated Net Income for purposes of clause (b) of
the first paragraph of Section 4.07 hereof, the Consolidated Net Income of
any Person other than the Company and its Restricted Subsidiaries shall
only be included for periods subsequent to the effective time of such
merger, consolidation, combination or transfer of assets. Such successor
Person thereupon may cause to be signed any or all of the Subsidiary
Guarantees to be endorsed upon all of the Notes issuable hereunder which
theretofore shall not have been signed by the Company and delivered to the
Trustee. All of the Subsidiary Guarantees so issued shall in all
respects have the same legal rank and benefit under this Indenture as the
Subsidiary Guarantees theretofore and thereafter issued in accordance with
the terms of this Indenture as though all of such Subsidiary Guarantees had
been issued at the date of the execution hereof.
Section 11.04. Releases Following Sale of Assets, Merger, Sale of Capital Stock
Etc.
In the event (a) of a sale or other disposition of all of the assets of any
Guarantor, by way of merger, consolidation or otherwise, or a sale or other
disposition of all of the capital stock of any Guarantor, or (b) that the
Company designates a Guarantor that is a Restricted Subsidiary to be an
Unrestricted Subsidiary, or such Guarantor ceases to be a Subsidiary of the
Company, then such Guarantor (in the event of a sale or other disposition, by
way of such a merger, consolidation or
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otherwise, of all of the capital stock of such Guarantor or any such
designation) or the entity acquiring the property (in the event of a sale or
other disposition of all of the assets of such Guarantor) shall be released and
relieved of any obligations under its Subsidiary Guarantee. In the case of a
sale, assignment, lease, transfer, conveyance or other disposition of all or
substantially all of the assets of a Guarantor, upon the assumption provided for
in clause (i) of Section 11.03(b) hereof, such Guarantor shall be discharged
from all further liability and obligation under this Indenture. Upon delivery by
the Company to the Trustee of an Officers' Certificate to the effect of the
foregoing, the Trustee shall execute any documents reasonably required in order
to evidence the release of any Guarantor from its Obligation under its
Subsidiary Guarantee. Any Guarantor not released from its Obligations under its
Subsidiary Guarantee shall remain liable for the full amount of principal of,
premium, if any, interest and Liquidated Damages, if any, on the Notes and for
the other Obligations of such Guarantor under the Indenture as provided in this
Article 11.
Section 11.05. Additional Guarantors.
Any Person that was not a Guarantor on the date of this Indenture may
become a Guarantor by executing and delivering to the Trustee (a) a supplemental
indenture in substantially the form of Exhibit E, and (b) an Opinion of Counsel
---------
to the effect that such supplemental indenture has been duly authorized and
executed by such Person and constitutes the legal, valid, binding and
enforceable obligation of such Person (subject to such customary exceptions
concerning creditors rights', fraudulent transfers, public policy and equitable
principles as may be acceptable to the Trustee in its discretion).
Section 11.06. Limitation on Guarantor Liability.
For purposes hereof, each Guarantor's liability shall be limited to the
lesser of (i) the aggregate amount of the Obligations of the Company under the
Notes and this Indenture and (ii) the amount, if any, which would not have (A)
rendered such Guarantor "insolvent" (as such term is defined in the United
States Bankruptcy Code and in the Debtor and Creditor Law of the State of New
York) or (B) left such Guarantor with unreasonably small capital at the time its
Subsidiary Guarantee of the Notes was entered into; provided that, it will be a
presumption in any lawsuit or other proceeding in which a Guarantor is a party
that the amount guaranteed pursuant to the Subsidiary Guarantee is the amount
set forth in clause (i) above unless any creditor, or representative of
creditors of such Guarantor, or debtor in possession or trustee in bankruptcy of
the Guarantor, otherwise proves in such a lawsuit that the aggregate liability
of the Guarantor is the amount set forth in clause (ii) above. In making any
determination as to solvency or sufficiency of capital of a Guarantor in
accordance with the previous sentence, the right of such Guarantor to
contribution from other Guarantors, and any other rights such Guarantor may
have, contractual or otherwise, shall be taken into account.
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Section 11.07. "Trustee" to Include Paying Agent.
In case at any time any Paying Agent other than the Trustee shall have been
appointed by the Company and be then acting hereunder, the term "Trustee" as
used in this Article 11 shall in each case (unless the context shall otherwise
require) be construed as extending to and including such Paying Agent within its
meaning as fully and for all intents and purposes as if such Paying Agent were
named in this Article 11 in place of the Trustee.
ARTICLE 12
SUBORDINATION OF SUBSIDIARY GUARANTEE
Section 12.01. Agreement to Subordinate.
The Guarantors agree, and each Holder of Notes by accepting a Note agrees,
that the Indebtedness evidenced by the Note is subordinated in right of payment,
to the extent and in the manner provided in this Article, to the prior payment
in full of all Senior Debt (whether outstanding on the date hereof or hereafter
created, incurred, assumed or guaranteed), and that the subordination is for the
benefit of the holders of Senior Debt.
Section 12.02. Liquidation; Dissolution; Bankruptcy.
Upon any payment or distribution to creditors of the Guarantors of any
kind, whether in cash, property or securities in a liquidation or dissolution of
the Guarantors or in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to any Guarantor or its property, an assignment for
the benefit of creditors or any marshalling of such Guarantor's assets and
liabilities, whether voluntary or involuntary, the holders of Senior Debt will
be entitled to receive payment in full in cash of all Obligations due in respect
of such Senior Debt (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Debt whether or not
allowable as a claim in any such proceeding) before the Holders of Notes will be
entitled to receive any payment or distribution of any kind with respect to the
Notes, and until all Obligations with respect to Senior Debt are paid in full,
any payment or distribution to which the Holders of Notes would be entitled
shall be made to the holders of Senior Debt (except that Holders of Notes may
receive and retain Permitted Junior Securities and payments made from the trust
described under Sections 8.02 and 8.03).
Section 12.03. Default on Designated Senior Debt.
The Guarantors also shall not make any payment upon or in respect of the
Notes (except in Permitted Junior securities or from the trust described under
Sections 8.02 and 8.03) if (i) a default in the payment of the principal of
premium, if any, or interest on Designated Senior Debt occurs and is
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continuing or (ii) any other default occurs and is continuing with respect to
Designated Senior Debt that permits holders of the Designated Senior Debt as to
which such default relates to accelerate its maturity, and in the case of this
clause (ii) only, and the Trustee receives a notice of such default invoking the
provisions described in this paragraph (a "Payment Blockage Notice") from the
holders of any Designated Senior Debt or any agent or trustee therefor. Payments
on the Notes may and shall be resumed (a) in the case of a payment default, upon
the date on which such default is cured or waived and (b) in case of a
nonpayment default, the earlier of the date on which such nonpayment default is
cured or waived or 179 days after the date on which the applicable Payment
Blockage Notice is received, unless a payment default has occurred and is
continuing (as a result of the non-payment of a scheduled principal repayment
upon Designated Senior Debt, non-payment of principal upon the stated maturity
of any Designated Senior Debt or the acceleration of the maturity of any
Designated Senior Debt). No new period of payment blockage (other than for a
payment default) may be commenced unless and until 360 days have elapsed since
the effectiveness of the immediately prior Payment Blockage Notice. No
nonpayment default that existed or was continuing on the date of delivery of any
Payment Blockage Notice to the Trustee shall be, or be made, the basis for a
subsequent Payment Blockage Notice unless such default shall have been cured or
waived for a period of not less than 90 days.
Whenever a Guarantor is prohibited from making any payment in respect of
the Notes, the Guarantor also shall be prohibited from making, directly or
indirectly, any payment of any kind on account of the purchase or other
acquisition of the Notes. If any Holder receives any payment or distribution
that such Holder is not entitled to receive with respect to the Notes, such
Holder shall be required to pay the same over to the holders of Senior Debt.
Section 12.04. Acceleration of Notes.
If payment of the Notes is accelerated because of an Event of Default, the
Guarantors shall promptly notify holders of Senior Debt of the acceleration.
Section 12.05. When Distribution Must Be Paid Over.
In the event that the Trustee or any Holder of a Note receives any payment
of any Obligations with respect to the Notes at a time when such payment is
prohibited by Section 12.03 hereof, such payment shall be held by the Trustee or
such Holder, in trust for the benefit of, and shall be paid forthwith over and
delivered, upon written request, to, the holders of Senior Debt as their
interests may appear or their Representative under the indenture or other
agreement (if any) pursuant to which Senior Debt may have been issued, as their
respective interests may appear, for application to the payment of all
Obligations with respect to Senior Debt remaining unpaid to the extent necessary
to pay such
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Obligations in full in accordance with their terms, after giving effect to any
concurrent payment or distribution to or for the holders of Senior Debt.
With respect to the holders of Senior Debt, the Trustee undertakes to
perform only such obligations on the part of the Trustee as are specifically set
forth in this Article 12, and no implied covenants or obligations with respect
to the holders of Senior Debt shall be read into this Indenture against the
Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt, and shall not be liable to any such holders if the
Trustee shall pay over or distribute to or on behalf of Holders of the Notes or
the Guarantors or any other Person money or assets to which any holders of
Senior Debt shall be entitled by virtue of this Article 12, except if such
payment is made as a result of the willful misconduct or gross negligence of the
Trustee.
Section 12.06. Notice by Guarantor
The Guarantors shall promptly notify the Trustee and the Paying Agent of
any facts known to the Guarantors that would cause a payment of any Obligations
with respect to the Notes to violate this Article, which notice shall
specifically refer to this Article 12, but failure to give such notice shall not
affect the subordination of the Notes to the Senior Debt as provided in this
Article.
Section 12.07. Subrogation.
After all Senior Debt is paid in full and until the Notes are paid in full,
Holders of the Notes shall be subrogated (equally and ratably with all other
pari passu indebtedness) to the rights of holders of Senior Debt to receive
distributions applicable to Senior Debt to the extent that distributions
otherwise payable to the Holders of the Notes have been applied to the payment
of Senior Debt. A distribution made under this Article to holders of Senior
Debt that otherwise would have been made to Holders of the Notes is not, as
between the Guarantor and Holders of the Notes, a payment by the Guarantors on
the Notes.
Section 12.08. Relative Rights.
This Article defines the relative rights of Holders of the Notes and
holders of Senior Debt. Nothing in this Indenture shall:
(1) impair, as between the Guarantors and Holders of the Notes, the
obligations of the Guarantors, which are absolute and unconditional, to pay
principal of and interest on the Notes in accordance with their terms;
(2) affect the relative rights of Holders of the Notes and creditors
of the Guarantors other than their rights in relation to holders of Senior
Debt; or
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(3) prevent the Trustee or any Holder of the Notes from exercising
its available remedies upon a Default or Event of Default, subject to the
rights of holders and owners of Senior Debt to receive distributions and
payments otherwise payable to Holders of the Notes.
If the Guarantors fail because of this Article to pay principal of or
interest on a Note on the due date, the failure is still a Default or Event of
Default.
Section 12.09. Subordination May Not Be Impaired by the Guarantors.
No right of any holder of Senior Debt to enforce the subordination of the
Indebtedness evidenced by the Notes shall be impaired by any act or failure to
act by any Guarantor or any Holder or by the failure of any Guarantor or any
Holder to comply with this Indenture.
Without in any way limiting the generality of the foregoing paragraph, the
holders of Senior Debt, or any of them, may, at any time and from time to time,
without the consent of or notice to the Holders of the Notes, without incurring
any liabilities to any Holder of any Notes and without impairing or releasing
the subordination and other benefits provided in this Indenture or the
obligations of the Holders of the Notes to the holders of the Senior Debt, even
if any right of reimbursement or subrogation or other right or remedy of any
Holder of Notes is affected, impaired or extinguished thereby, do any one or
more of the following:
(1) change the manner, place or terms of payment or change or extend
the time of payment of, or renew, exchange, amend, increase or alter, the
terms of any Senior Debt, any security therefor or guaranty thereof or any
liability of any obligor thereon (including any guarantor) to such holder,
or any liability incurred directly or indirectly in respect thereof or
otherwise amend, renew, exchange, extend, modify, increase or supplement in
any manner any Senior Debt or any instrument evidencing or guaranteeing or
securing the same or any agreement under which Senior Debt is outstanding;
(2) sell, exchange, release, surrender, realize upon, enforce or
otherwise deal with in any manner and in any order any property pledged,
mortgaged or otherwise securing Senior Debt or any liability of any obligor
thereon, to such holder, or any liability incurred directly or indirectly
in respect thereof;
(3) settle or compromise any Senior Debt or any other liability of
any obligor of the Senior Debt to such holder or any security therefor or
any liability incurred directly or indirectly in respect thereof and apply
any sums by whomsoever paid and however realized to any liability
(including, without limitation, Senior Debt) in any manner or order; and
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(4) fail to take or to record or to otherwise perfect, for any reason
or for no reason, any lien or security interest securing Senior Debt by
whomsoever granted, exercise or delay in or refrain from exercising any
right or remedy against any obligor or any guarantor or any other person,
elect any remedy and otherwise deal freely with any obligor and any
security for the Senior Debt or any liability of any obligor to such holder
or any liability incurred directly or indirectly in respect thereof.
Section 12.10. Distribution or Notice to Representative.
Whenever a distribution is to be made or a notice given to holders of
Senior Debt, the distribution may be made and the notice given to their
Representative.
Upon any payment or distribution of assets of any Guarantor referred to in
this Article 12, the Trustee and the Holders of the Notes shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction or
upon any certificate of such Representative or of the liquidating trustee or
agent or other Person making any distribution to the Trustee or to the Holders
of the Notes for the purpose of ascertaining the Persons entitled to participate
in such distribution, the holders of the Senior Debt and other Indebtedness of
the Guarantor, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article
12.
Section 12.11. Rights of Trustee and Paying Agent.
Notwithstanding the provisions of this Article 12 or any other provision of
this Indenture, the Trustee shall not be charged with knowledge of the existence
of any facts that would prohibit the making of any payment or distribution by
the Trustee, and the Trustee and the Paying Agent may continue to make payments
on the Notes, unless the Trustee shall have received at its Corporate Trust
Office at least three Business Days prior to the date of such payment written
notice of facts that would cause the payment of any Obligations with respect to
the Notes to violate this Article, which notice shall specifically refer to this
Article 12. Only a Guarantor or a Representative may give the notice. Nothing
in this Article 12 shall impair the claims of, or payments to, the Trustee under
or pursuant to Section 7.07 hereof.
The Trustee in its individual or any other capacity may hold Senior Debt
with the same rights it would have if it were not Trustee. Any Agent may do the
same with like rights.
Section 12.12. Authorization to Effect Subordination.
Each Holder of a Note by the Holder's acceptance thereof authorizes and
directs the Trustee on the Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in this
Article 12, and appoints the Trustee to act as the Holder's
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attorney-in-fact for any and all such purposes, including without limitation the
timely filing of a claim for the unpaid balance of the Notes held by such Holder
in the form required in any Insolvency or Liquidation Proceeding and causing
such claim to be approved. If the Trustee does not file a proper proof of claim
or proof of debt in the form required in any proceeding referred to in Section
6.09 hereof at least 30 days before the expiration of the time of such claim,
the Representatives of the Designated Senior Debt, including the Credit Agent,
are hereby authorized to file an appropriate claim for and on behalf of the
Holders of Notes.
Section 12.13. Amendments.
Any amendment to the provisions of this Article 12 shall require the
consent of the Holders of at least 75% in aggregate amount of Notes then
outstanding if such amendment would adversely affect the rights of the Holders
of Notes.
ARTICLE 13
MISCELLANEOUS
Section 13.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by TIA (S)318(c), the imposed duties shall control.
Section 13.02. Notices.
Any notice or communication by the Company, the Guarantors or the Trustee
to the others is duly given if in writing and delivered in Person or mailed by
first class mail (registered or certified, return receipt requested), telecopier
or overnight air courier guaranteeing next day delivery, to the others' address:
If to the Company:
Diamond Brands Operating Corp.
1800 Cloquet Avenue
Cloquet, Minnesota 55720-2141
Telecopier No.: (218) 879-6369
Attention: Chief Executive Officer
With a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Telecopier No.: (212) 225-3999
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Attention: Paul J. Shim, Esq.
If to the Trustee:
State Street Bank and Trust Company
225 Asylum Street, 23rd Floor
Hartford, Connecticut 06103
Telecopier No.: (860) 244-1897
Attention: Corporate Trust Department
The Company or the Trustee, by notice to the others may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders) shall be
deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the mail, postage
prepaid, if mailed; when receipt acknowledged, if telecopied; and the next
Business Day after timely delivery to the courier, if sent by overnight air
courier promising next Business Day delivery.
Any notice or communication to a Holder shall be mailed by first class mail
or by overnight air courier promising next Business Day delivery to its address
shown on the register kept by the Registrar. Any notice or communication shall
also be so mailed to any Person described in TIA (S) 313(c), to the extent
required by the TIA. Failure to mail a notice or communication to a Holder or
any defect in it shall not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above within
the time prescribed, it is duly given, whether or not the addressee receives it.
If the Company mails a notice or communication to Holders, it shall mail a
copy to the Trustee and each Agent at the same time.
Section 13.03. Communication by Holders of Notes with Other Holders of
Notes.
Holders may communicate pursuant to TIA (S) 312(b) with other Holders with
respect to their rights under this Indenture or the Notes. 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.
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Upon any request or application by the Company or the Guarantors to the
Trustee to take any action under this Indenture (other than the initial issuance
of the Notes), the Company or Guarantor shall furnish to the Trustee upon
request:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 13.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and '
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 13.05 hereof) stating that, in the opinion of such counsel, all
such conditions precedent and covenants have been satisfied.
Section 13.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA (S) 314(a)(4)) shall comply with the provisions of TIA (S)
314(e) and shall include:
(a) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(b) 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;
(c) a statement that, in the opinion of such Person, he or she 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 satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
Section 13.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
Section 13.07. No Personal Liability of Directors, Officers, Employees and
Stockholders.
No director, officer, employee, incorporator or stockholder of the Company
or the Guarantors, as such, shall have any liability for any obligations of the
Company or any Guarantor under the Notes, this
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Indenture, the Subsidiary Guarantees or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder of Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes.
Section 13.08. Governing Law.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES.
Section 13.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture, loan or
debt agreement of the Company or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
Section 13.10. Successors.
All agreements of the Company and the Guarantors in this Indenture, the
Notes and the Subsidiary Guarantees shall bind their respective successors and
assigns. All agreements of the Trustee in this Indenture shall bind its
successors and assigns.
Section 13.11. Severability.
In case any provision in this Indenture or in the Notes 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 13.12. Counterpart 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.
Section 13.13. Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part of this Indenture and shall in no way
modify or restrict any of the terms or provisions hereof.
[SIGNATURES ON FOLLOWING PAGE]
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SIGNATURES
Dated as of April 21, 1998
DIAMOND BRANDS OPERATING CORP.
By:______________________________________
Name: Thomas W. Knuesel
Title: Vice President of Finance and
Chief Financial Officer
EMPIRE CANDLE, INC.
By:_________________________________________
Name: Thomas W. Knuesel
Title: Vice President of Finance and
Chief Financial Officer
FORSTER, INC.
By:_________________________________________
Name: Thomas W. Knuesel
Title: Vice President of Finance and
Chief Financial Officer
STATE STREET BANK AND TRUST COMPANY
as trustee
By:_______________________________
Name:
Title:
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Exhibit A-1
- -----------
(Face of note)
- --------------
10 1/8% Senior Subordinated Notes due 2008
No. __ $__________
CUSIP NO.___________
DIAMOND BRANDS OPERATING CORP.
promises to pay to _________________ or registered assigns, the principal sum of
________________________ ($ ) on April 15, 2008.
Interest Payment Dates: October 15 and April 15
Record Dates: October 1 and April 1
DIAMOND BRANDS OPERATING CORP.
By:_____________________________
Name:
Title:
By:______________________________
Name:
Title:
This is one of the 10 1/8% Senior Subordinated
Notes referred to in the within-mentioned
Indenture:
Dated: ____________________
State Street Bank and Trust Company,
as Trustee
By:_________________________________
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(Back of Note)
10 1/8% Senior Subordinated
Notes due 2008
[Unless and until it is exchanged in whole or in part for Notes in
definitive form, this Note may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New York, New
York) ("DTC"), to the issuer or its agent for registration of transfer, exchange
or payment, and any certificate issued is registered in the name of Cede & Co.
or such other name as may be requested by an authorized representative of DTC
(and any payment is made to Cede & Co. or such other entity as may be requested
by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL in as much as the
registered owner hereof, Cede & Co., has an interest herein.]1/
[THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE
SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER
MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY
EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY
MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a) INSIDE THE UNITED
STATES TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING
THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE
_______________________
1
This paragraph should be included only if the Note is issued in global
form.
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THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS
OF RULE 904 UNDER THE SECURITIES ACT, (d) TO AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF THE SECURITIES ACT
(AN "INSTITUTIONAL ACCREDITED INVESTOR"), THAT PRIOR TO SUCH TRANSFER, FURNISHES
THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
(THE FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN
RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF SECURITIES LESS THAN $250,000, AN
OPINION OF COUNSEL THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT,
OR (e) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT (AND, IN THE CASE OF CLAUSE (b), (c), (d) OR (e), BASED
UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR
(3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES
OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY
EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE.]2/
_______________________
2
This paragraph should be removed upon the exchange of Senior Subordinated
Notes for New Senior Subordinated Notes in the Exchange Offer or upon the
registration of the Senior Subordinated Notes pursuant to the terms of the
Registration Rights Agreement.
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<PAGE>
Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.
1. Interest. Diamond Brands Operating Corp., a Delaware corporation, or
its successor (the "Company"), promises to pay interest on the principal
amount of this Note at the rate of 10 1/8% per annum and shall pay the
Liquidated Damages, if any, payable pursuant to Section 5 of the
Registration Rights Agreement referred to below. The Company will pay
interest and Liquidated Damages, if any, in United States dollars (except
as otherwise provided herein) semi-annually in arrears on October 15 and
April 15, commencing on October 15, 1998, or if any such day is not a
Business Day, on the next succeeding Business Day (each an "Interest
Payment Date"). Interest on the Notes shall accrue from the most recent
date to which interest has been paid or, if no interest has been paid,
from April 21, 1998; provided that if there is no existing Default or
Event of Default in the payment of interest, and if this Note is
authenticated between a record date referred to on the face hereof and
the next succeeding Interest Payment Date, interest shall accrue from
such next succeeding Interest Payment Date, except in the case of the
original issuance of Notes, in which case interest shall accrue from
April 21, 1998. The Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal
at the rate equal to 1% per annum in excess of the then applicable
interest rate on the Notes to the extent lawful; it shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy
Law) on overdue installments of interest and Liquidated Damages (without
regard to any applicable grace period) at the same rate to the extent
lawful. Interest shall be computed on the basis of a 360-day year
comprised of twelve 30-day months.
2. Method of Payment. The Company will pay interest on the Notes (except
defaulted interest) and Liquidated Damages, if any, on the applicable
Interest Payment Date to the Persons who are registered Holders of Notes
at the close of business on the October 1 or April 1 next preceding the
Interest Payment Date, even if such Notes are canceled after such record
date and on or before such Interest Payment Date, except as provided in
Section 2.12 of the Indenture with respect to defaulted interest. The
Notes shall be payable as to principal, premium and Liquidated Damages,
if any, and interest at the office or agency of the Company maintained
for such purpose within or without the City and State of New York, or, at
the option of the Company, payment of interest and Liquidated Damages, if
any, may be made by check mailed to the Holders at their addresses set
forth in the register of Holders; provided that payment by wire transfer
of immediately available funds shall be required with respect to
principal of, premium and Liquidated Damages, if any, and interest on,
all Global Notes. Such payment shall be in such coin or currency of the
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United States of America as at the time of payment is legal tender for
payment of public and private debts.
3. Paying Agent and Registrar. Initially, State Street Bank and Trust
Company, the Trustee under the Indenture, shall act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without
notice to any Holder. The Company or any of its Subsidiaries may act in
any such capacity.
4. Indenture. The Company issued the Notes under an Indenture, dated as of
April 21, 1998 ("Indenture"), among the Company, the Guarantors and the
Trustee. The terms of the Notes include those stated in the Indenture and
those made a part of the Indenture by reference to the Trust Indenture
Act of 1939, as amended (15 U.S. Code (S)(S) 77aaa-77bbbb) (the "TIA").
The Notes are subject to all such terms, and Holders are referred to the
Indenture and such Act for a statement of such terms. The Notes are
general unsecured Obligations of the Company limited to $100.0 million in
aggregate principal amount, plus amounts, if any, sufficient to pay
premium or Liquidated Damages, if any, and interest on outstanding Notes
as set forth in Paragraph 2 hereof.
5. Optional Redemption.
Except as set forth in the next paragraph, the Notes shall not be
redeemable at the Company's option prior to April 15, 2003. Thereafter,
the Notes shall be subject to redemption at the option of the Company, in
whole or in part, upon not less than 30 nor more than 60 days' notice, at
the redemption prices (expressed as percentages of principal amount) set
forth below together with accrued and unpaid interest and any Liquidated
Damages, if any, thereon to the applicable redemption date, if redeemed
during the twelve-month period beginning on April 15 of the years
indicated below:
YEAR REDEMPTION PRICE
- ---- ----------------
2003 105.063%
2004 103.375%
2005 101.688%
2006 and thereafter 100.000%
Notwithstanding the foregoing, at any time prior to April 15,
2001, the Company may (but shall not have the obligation to) redeem, on
one or more occasions, up to an aggregate of 35% of the principal amount
of the Notes originally issued at a redemption price equal to 110.125% of
the principal amount thereof, plus accrued and unpaid interest
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and Liquidated Damages, if any, thereon to the redemption date, with the
net proceeds of one or more Equity Offerings; provided that at least 65%
of the aggregate principal amount of the Notes originally issued remains
outstanding immediately after the occurrence of such redemption; and
provided, further, that such redemption shall occur within 90 days of the
date of the closing of such Equity Offering.
6. Mandatory Redemption.
Except as set forth in paragraph 7 below, the Company shall not be
required to make mandatory redemption or sinking fund payments with
respect to the Notes.
7. Repurchase at Option of Holder.
(a) Upon the occurrence of a Change of Control, each Holder of Notes
will have the right to require the Company to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such Holder's Notes
pursuant to the offer described below (the "Change of Control Offer") at
an offer price in cash equal to 101% of the aggregate principal amount
thereof plus accrued and unpaid interest and Liquidated Damages, if any,
thereon, to the date of purchase. Within 30 days following any Change of
Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control setting
forth the procedures governing the Change of Control Offer required by
the Indenture.
(b) When the aggregate amount of Excess Proceeds from Asset Sales
exceeds $7.5 million, the Company will be required to make an offer to
all Holders of Notes and, to the extent required by the terms of any Pari
Passu Indebtedness, all holders of such Pari Passu Indebtedness (an
"Asset Sale Offer") to purchase the maximum principal amount of Notes and
any such Pari Passu Indebtedness that may be purchased out of the Excess
Proceeds, at an offer price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of repurchase, in accordance with
the procedures set forth in the Indenture or such Pari Passu
Indebtedness. To the extent that any Excess Proceeds remain after
consummation of the Asset Sale Offer, the Company may use any such Excess
Proceeds for any purposes not otherwise prohibited by this Indenture. If
the aggregate principal amount of Notes and any Pari Passu Indebtedness
tendered pursuant to an Asset Sale Offer exceeds the amount of Excess
Proceeds, the Trustee shall select the Notes to be purchased on a pro
rata basis. Upon completion of such Asset Sale Offer, the amount of
Excess Proceeds shall be reset at zero.
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<PAGE>
(c) Holders of the Notes that are the subject of an offer to purchase
will receive a notice relating to the Change of Control Offer or Asset
Sale Offer from the Company prior to any related purchase date and may
elect to have such Notes purchased by completing the form titled "Option
of Holder to Elect Purchase" appearing below.
8. Notice of Redemption. Notice of redemption shall be mailed at least 30
days but not more than 60 days before the redemption date to each Holder
whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in
whole multiples of $1,000, unless all of the Notes held by a Holder are
to be redeemed. On and after the redemption date, interest and Liquidated
Damages, if any, cease to accrue on the Notes or portions thereof called
for redemption unless the Company defaults in making the redemption
payment.
9. Subordination. The Notes are subordinated to Senior Debt, which is
Indebtedness outstanding under Credit Facilities and all Hedging
Obligations with respect thereto, and all other Indebtedness permitted to
be incurred under the terms of the Indenture unless the instrument under
which such Indebtedness is incurred expressly provides that it is on
parity with or subordinated in right of payment to the Notes. To the
extent provided in the Indenture, Senior Debt must be paid before the
Notes may be paid. The Company agrees, and each Holder by accepting a
Note agrees, to the subordination and authorizes the Trustee to give it
effect.
10. Denominations, Transfer, Exchange. The Notes are in registered form
without coupons in initial denominations of $1,000 and integral multiples
of $1,000. The transfer of the Notes may be registered and the Notes may
be exchanged as provided in the Indenture. The Registrar and the Trustee
may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and the Company may require a Holder
to pay any taxes and fees required by law or permitted by the Indenture.
The Company need not exchange or register the transfer of any Note or
portion of a Note selected for redemption, except for the unredeemed
portion of any Note being redeemed in part. Also, it need not exchange or
register the transfer of any Notes for a period of 15 days before a
selection of Notes to be redeemed or during the period between a record
date and the corresponding Interest Payment Date.
11. Persons Deemed Owners. The registered Holder of a Note may be treated
as its owner for all purposes.
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12. Amendment, Supplement and Waiver. Subject to the following paragraphs
and the provisions of the Indenture, the Indenture, the Notes and the
Subsidiary Guarantees may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the Notes then
outstanding (including, without limitation, consents obtained in
connection with a purchase of or, tender offer or exchange offer for
Notes), and any existing Default or Event of Default or compliance with
any provision of the Indenture, the Notes and the Subsidiary Guarantees
may be waived with the consent of the Holders of a majority in principal
amount of the then outstanding Notes (including consents obtained in
connection with a tender offer or exchange offer for Notes).
Without the consent of any Holder of Notes, the Company and the Trustee
may amend or supplement the Indenture, the Notes or the Subsidiary
Guarantees to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to Holders of
Notes in the case of a merger or consolidation, to make any change that
would provide any additional rights or benefits to the Holders of Notes
or that does not adversely affect the legal rights under the Indenture of
any such Holder, to comply with requirements of the Commission in order
to effect or maintain the qualification of the Indenture under the Trust
Indenture Act or to allow any Subsidiary to guarantee the Notes.
13. Defaults and Remedies. Events of Default include: (i) default for 30 days
in the payment when due of interest on, or Liquidated Damages, if any,
with respect to, the Notes; (ii) default in payment when due of the
principal of, or premium, if any, on, the Notes; (iii) failure by the
Company or any Restricted Subsidiary for 30 days after notice from the
Trustee or by the Holders of at least 25% in principal amount of Notes
then outstanding to comply with the provisions described in Sections
4.07, 4.09, 4.10 or 4.13 of the Indenture; (iv) failure by the Company or
any of its Restricted Subsidiaries for 60 days after notice from the
Trustee or by the Holders of at least 25% in principal amount of Notes
then outstanding to comply with its other agreements in the Indenture or
the Notes; (v) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by the
Company or any of its Restricted Subsidiaries) whether such Indebtedness
or guarantee now exists, or is created after the date of the Indenture,
which default (a) is caused by a failure to pay principal of such
Indebtedness after giving effect to any grace period provided in such
Indebtedness (a "Payment Default") or (b) results in the acceleration of
such Indebtedness prior to its stated maturity and, in each case, the
principal
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amount of any such Indebtedness, together with the principal amount of
any other such Indebtedness under which there has been a Payment Default
or the maturity of which has been so accelerated, aggregates $10.0
million or more; (vi) failure by the Company or any of its Restricted
Subsidiaries to pay final judgments aggregating in excess of $10.0
million (net of any amounts with respect to which a reputable and
creditworthy insurance company has acknowledged liability in writing),
which judgments are not paid, discharged or stayed for a period of 60
days; (vii) except as permitted by the Indenture, any Subsidiary
Guarantee shall be held in any judicial proceeding to be unenforceable or
invalid or shall cease for any reason to be in full force and effect or
any Guarantor, or any Person acting on behalf of any Guarantor, shall
deny or disaffirm its obligations under its Subsidiary Guarantee; and
(viii) certain events of bankruptcy or insolvency with respect to the
Company or any of its Significant Subsidiaries
If any Event of Default occurs and is continuing, the Trustee or
the Holders of at least 25% in principal amount of the then outstanding
Notes may declare all the Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising
from certain events of bankruptcy or insolvency with respect to the
Company or any Significant Subsidiary, all outstanding Notes will become
due and payable without further action or notice. Upon any acceleration
of maturity of the Notes, all principal of and accrued interest and
Liquidated Damages, if any, on the Notes shall be due and payable
immediately. Holders of Notes may not enforce the Indenture or the Notes
except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes
may direct the Trustee in its exercise of any trust or power. The Trustee
may withhold from Holders of the Notes notice of any continuing Default
or Event of Default (except a Default or Event of Default relating to the
payment of principal or interest) if it determines that withholding
notice is in their interest. In the event of a declaration of
acceleration of the Notes because an Event of Default has occurred and is
continuing as a result of the acceleration of any Indebtedness described
in clause (v) of the preceding paragraph, the declaration of acceleration
of the Notes shall be automatically annulled if the holders of any
Indebtedness described in clause (v) of the preceding paragraph have
rescinded the declaration of acceleration in respect of such Indebtedness
within 30 days of the date of such declaration and if (a) the annulment
of the acceleration of Notes would not conflict with any judgment or
decree of a court of competent jurisdiction and (b) all existing Events
of Default, except nonpayment of principal or interest on the Notes that
became due solely because of the acceleration of the Notes, have been
cured or waived.
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14. Trustee Dealings With Company. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform
services for the Company, the Guarantors or their respective
Affiliates, and may otherwise deal with the Company, the Guarantors or
their respective Affiliates, as if it were not the Trustee.
15. No Recourse Against Others. No director, officer, employee,
incorporator or stockholder, of the Company or any Guarantor as such,
shall have any liability for any obligations of the Company or any
Guarantor under the Notes, the Indenture or the Subsidiary Guarantees
or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a
Note waives and releases all such liability. The waiver and release
are part of the consideration for the issuance of the Notes.
16. Governing Law. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN
AND BE USED TO CONSTRUE THE NOTES AND THE SUBSIDIARY GUARANTEES.
17. Authentication. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
18. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and
U/G/M/A (= Uniform Gifts to Minors Act).
19. Additional Rights Of Holders of Transfer Restricted Securities. In
addition to the rights provided to Holders of the Notes under the
Indenture, Holders of Transfer Restricted Securities (as defined in
the Registration Rights Agreement) shall have all the rights set forth
in the Registration Rights Agreement, dated as of the date hereof,
among the Company, the Guarantors and the Initial Purchasers (the
"Registration Rights Agreement").
20. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company
has caused CUSIP numbers to be printed on the Notes and the Trustee
may use CUSIP numbers in notices of redemption as a convenience to the
Holders. No representation is made as to the accuracy of such numbers
either as printed on the Notes or as contained in any notice of
redemption and reliance may be placed only on the other identification
numbers placed thereon.
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ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint to transfer this Note on the books of the Company. The
agent may substitute another to act for him.
________________________________________________________________________________
Date:__
Your Signature:__________
(Sign exactly as your name appears on the face of
this Note)
Signature Guarantee:
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Option of Holder to Elect Purchase
If you want to elect to have this Note purchased by the Company pursuant to
Section 4.10 or 4.13 of the Indenture, check the box below:
Section 4.10
Section 4.13
If you want to elect to have only part of the Note purchased by the Company
pursuant to Section 4.10 or Section 4.13 of the Indenture, state the amount you
elect to have purchased:
$___________
Date:_____ Your Signature:________
(Sign exactly as your name appears on the
Note)
Tax Identification No.:
Signature Guarantee:
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SCHEDULE OF EXCHANGES OF NOTES3/
THE FOLLOWING EXCHANGES OF A PART OF THIS GLOBAL NOTE FOR OTHER NOTES HAVE BEEN
MADE:
<TABLE>
<CAPTION>
Principal Amount
Amount of Amount of of this Global Signature of
decrease in increase in Note following authorized
Date of Exchange Principal Amount Principal Amount such decrease (or officer of
of this Global of this Global increase) Trustee or Note
Note Note Custodian
<S> <C> <C> <C> <C>
</TABLE>
_____________________________
3
This should be included only if the Note is issued in global form.
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Exhibit A-2
- -----------
(Face of Regulation S Temporary Global Note)
10 1/8% Senior Subordinated Notes due 2008
No. ____ $______________
CUSIP NO.____________
DIAMOND BRANDS OPERATING CORP.
promises to pay to _________________ or registered assigns, the principal sum of
__________________ on April 15, 2008.
Interest Payment Dates: October 15 and April 15
Record Dates: October 1 and April 1
DIAMOND BRANDS OPERATING CORP.
By:________________________
Name:
Title:
By:________________________
Name:
Title:
This is one of the 10 1/8% Senior Subordinated
Notes referred to in the within-mentioned
Indenture:
Dated: ____________________
State Street Bank and Trust Company,
as Trustee
By:_____________________________________
110
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(Back of Regulation S Temporary Global Note)
10 1/8% Senior Subordinated Notes due 2008
[THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR DEFINITIVE SENIOR
SUBORDINATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN).]4/
[UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN
DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO
THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW
YORK) ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE
OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO.
OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC
(AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]5/
[THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE
SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER
MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY
EVIDENCED HEREBY
____________________________
4
These paragraphs should be removed upon the exchange of Regulation S
Temporary Global Notes for Regulation S Permanent Global Notes pursuant to
the terms of the Indenture.
5
This paragraph should be included only if the Note is issued in global
form.
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AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD,
PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a) INSIDE THE UNITED STATES TO A
PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT), IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT,
(d) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1),
(2), (3) OR (7) OF THE SECURITIES ACT (AN "INSTITUTIONAL ACCREDITED INVESTOR"),
THAT PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS (THE FORM OF WHICH CAN BE OBTAINED FROM
THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL
AMOUNT OF SECURITIES LESS THAN $250,000, AN OPINION OF COUNSEL THAT SUCH
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, OR (e) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND,
IN THE CASE OF CLAUSE (b), (c), (d) OR (e), BASED UPON AN OPINION OF COUNSEL IF
THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE
JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO,
NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH IN (A) ABOVE.]6/
Until this Regulation S Temporary Global Note is exchanged for Regulation S
Permanent Global Notes, the Holder hereof shall not be entitled to receive
payments of interest or Liquidated Damages, if any, hereon although interest and
Liquidated Damages, if any, will continue to accrue; until so exchanged in full,
this Regulation S Temporary Global Note shall in all other respects be entitled
to the same benefits as other Senior Subordinated Notes under the Indenture.
___________________________
6
This paragraph should be removed upon the exchange of Notes for Exchange
Senior Discount Notes in the Exchange Offer or upon the registration of the
Notes pursuant to the terms of the Registration Rights Agreement.
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<PAGE>
This Regulation S Temporary Global Note is exchangeable in whole or in part
for one or more Regulation S Permanent Global Notes or Rule 144A Global Notes
only (i) on or after the termination of the 40-day restricted period (as defined
in Regulation S) and (ii) upon presentation of certificates (accompanied by an
Opinion of Counsel, if applicable) required by Article 2 of the Indenture. Upon
exchange of this Regulation S Temporary Global Note for one or more Regulation S
Permanent Global Notes or Rule 144A Global Notes, the Trustee shall cancel this
Regulation S Temporary Global Note.
This Regulation S Temporary Global Note shall not become valid or
obligatory until the certificate of authentication hereon shall have been duly
manually signed by the Trustee in accordance with the Indenture. This
Regulation S Temporary Global Note shall be governed by and construed in
accordance with the laws of the State of the New York. All references to "$,"
"Dollars," "dollars" or "U.S. $" are to such coin or currency of the United
States of America as at the time shall be legal tender for the payment of public
and private debts therein.
Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.
1. Interest. Diamond Brands Operating Corp., a Delaware corporation, or
its successor (the "Company"), promises to pay interest on the principal
amount of this Note at the rate of 10 1/8% per annum and shall pay the
Liquidated Damages, if any, payable pursuant to Section 5 of the
Registration Rights Agreement referred to below. The Company will pay
interest and Liquidated Damages, if any, in United States dollars
(except as otherwise provided herein) semi-annually in arrears on
October 15 and April 15, commencing on October 15, 1998, or if any such
day is not a Business Day, on the next succeeding Business Day (each an
"Interest Payment Date"). Interest on the Notes shall accrue from the
most recent date to which interest has been paid or, if no interest has
been paid, from April 21, 1998; provided that if there is no existing
Default or Event of Default in the payment of interest, and if this Note
is authenticated between a record date referred to on the face hereof
and the next succeeding Interest Payment Date, interest shall accrue
from such next succeeding Interest Payment Date, except in the case of
the original issuance of Notes, in which case interest shall accrue from
April 21, 1998. The Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue
principal at the rate equal to 1% per annum in excess of the then
applicable interest rate on the Notes to the extent lawful; it shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest and Liquidated
Damages (without
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regard to any applicable grace period) at the same rate to the extent
lawful. Interest shall be computed on the basis of a 360-day year
comprised of twelve 30-day months.
2. Method of Payment. The Company will pay interest on the Notes (except
defaulted interest) and Liquidated Damages, if any, on the applicable
Interest Payment Date to the Persons who are registered Holders of Notes
at the close of business on the October 1 or April 1 next preceding the
Interest Payment Date, even if such Notes are canceled after such record
date and on or before such Interest Payment Date, except as provided in
Section 2.12 of the Indenture with respect to defaulted interest. The
Notes shall be payable as to principal, premium and Liquidated Damages,
if any, and interest at the office or agency of the Company maintained
for such purpose within or without the City and State of New York, or,
at the option of the Company, payment of interest and Liquidated
Damages, if any, may be made by check mailed to the Holders at their
addresses set forth in the register of Holders; provided that payment by
wire transfer of immediately available funds shall be required with
respect to principal of, premium and Liquidated Damages, if any, and
interest on, all Global Notes. Such payment shall be in such coin or
currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts.
3. Paying Agent and Registrar. Initially, State Street Bank and Trust
Company, the Trustee under the Indenture, shall act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without
notice to any Holder. The Company or any of its Subsidiaries may act in
any such capacity.
4. Indenture. The Company issued the Notes under an Indenture, dated as of
April 21, 1998 ("Indenture"), among the Company, the Guarantors and the
Trustee. The terms of the Notes include those stated in the Indenture
and those made a part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (15 U.S. Code (S)(S) 77aaa-77bbbb)
(the "TIA"). The Notes are subject to all such terms, and Holders are
referred to the Indenture and such Act for a statement of such terms.
The Notes are general unsecured Obligations of the Company limited to
$100.0 million in aggregate principal amount, plus amounts, if any,
sufficient to pay premium or Liquidated Damages, if any, and interest on
outstanding Notes as set forth in Paragraph 2 hereof.
5. Optional Redemption.
Except as set forth in the next paragraph, the Notes shall not be
redeemable at the Company's option prior to April 15, 2003. Thereafter,
the Notes shall be subject to
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redemption at the option of the Company, in whole or in part, upon not
less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below together
with accrued and unpaid interest and any Liquidated Damages, if any,
thereon to the applicable redemption date, if redeemed during the twelve-
month period beginning on April 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---- ----------------
<S> <C>
2003 105.063%
2004 103.375%
2005 101.688%
2006 and thereafter 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to April 15,
2001, the Company may (but shall not have the obligation to) redeem, on
one or more occasions, up to an aggregate of 35% of the principal amount
of the Notes originally issued at a redemption price equal to 110.125% of
the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the redemption date, with the net
proceeds of one or more Equity Offerings; provided that at least 65% of
the aggregate principal amount of the Notes originally issued remain
outstanding immediately after the occurrence of such redemption; and
provided, further, that such redemption shall occur within 90 days of the
date of the closing of such Equity Offering.
6. Mandatory Redemption.
Except as set forth in paragraph 7 below, the Company shall not be
required to make mandatory redemption or sinking fund payments with
respect to the Notes.
7. Repurchase at Option of Holder.
(a) Upon the occurrence of a Change of Control, each Holder of Notes
will have the right to require the Company to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such Holder's Notes
pursuant to the offer described below (the "Change of Control Offer") at
an offer price in cash equal to 101% of the aggregate principal amount
thereof plus accrued and unpaid interest and Liquidated Damages, if any,
thereon, to the date of purchase. Within 30 days following any Change of
Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control setting
forth the procedures governing the Change of Control Offer required by
the Indenture.
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(b) When the aggregate amount of Excess Proceeds from Asset Sales
exceeds $7.5 million, the Company will be required to make an offer to
all Holders of Notes and, to the extent required by the terms of any Pari
Passu Indebtedness, all holders of such Pari Passu Indebtedness (an
"Asset Sale Offer") to purchase the maximum principal amount of Notes and
any such Pari Passu Indebtedness that may be purchased out of the Excess
Proceeds, at an offer price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of repurchase, in accordance with
the procedures set forth in the Indenture or such Pari Passu
Indebtedness. To the extent that any Excess Proceeds remain after
consummation of the Asset Sale, the Company may use such Excess Proceeds
for any purposes not otherwise prohibited by this Indenture. If the
aggregate principal amount of Notes and any Pari Passu Indebtedness
tendered pursuant to an Asset Sale Offer exceeds the amount of Excess
Proceeds, the Trustee shall select the Notes to be purchased on a pro
rata basis. Upon completion of such Asset Sale Offer, the amount of
Excess Proceeds shall be reset at zero.
(c) Holders of the Notes that are the subject of an offer to purchase
will receive a notice relating to the Change of Control Offer or Asset
Sale Offer from the Company prior to any related purchase date and may
elect to have such Notes purchased by completing the form titled "Option
of Holder to Elect Purchase" appearing below.
8. Notice of Redemption. Notice of redemption shall be mailed at least 30
days but not more than 60 days before the redemption date to each Holder
whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in
whole multiples of $1,000, unless all of the Notes held by a Holder are
to be redeemed. On and after the redemption date, interest and
Liquidated Damages, if any, cease to accrue on the Notes or portions
thereof called for redemption unless the Company defaults in making the
redemption payment.
9. Subordination. The Notes are subordinated to Senior Debt, which is
Indebtedness outstanding under Credit Facilities and all Hedging
Obligations with respect thereto, and all other Indebtedness permitted
to be incurred under the terms of the Indenture unless the instrument
under which such Indebtedness is incurred expressly provides that it is
on parity with or subordinated in right of payment to the Notes. To the
extent provided in the Indenture, Senior Debt must be paid before the
Notes may be paid. The Company agrees, and each Holder by accepting a
Note agrees, to the subordination and authorizes the Trustee to give it
effect.
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10. Denominations, Transfer, Exchange. The Notes are in registered form
without coupons in initial denominations of $1,000 and integral
multiples of $1,000. The transfer of the Notes may be registered and
the Notes may be exchanged as provided in the Indenture. The Registrar
and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted
by the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption,
except for the unredeemed portion of any Note being redeemed in part.
Also, it need not exchange or register the transfer of any Notes for a
period of 15 days before a selection of Notes to be redeemed or during
the period between a record date and the corresponding Interest Payment
Date.
11. Persons Deemed Owners. The registered Holder of a Note may be treated
as its owner for all purposes.
12. Amendment, Supplement and Waiver. Subject to the following paragraphs
and to the provisions of the Indenture, the Indenture, the Notes and
the Subsidiary Guarantees may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of
the Notes then outstanding (including, without limitation, consents
obtained in connection with a purchase of or, tender offer or exchange
offer for Notes), and any existing Default or Event of Default or
compliance with any provision of the Indenture, the Notes and the
Subsidiary Guarantees may be waived with the consent of the Holders of
a majority in principal amount of the then outstanding Notes (including
consents obtained in connection with a tender offer or exchange offer
for Notes).
Without the consent of any Holder of Notes, the Company and the Trustee
may amend or supplement the Indenture, the Notes or the Subsidiary
Guarantees to cure any ambiguity, defect or inconsistency, to provide
for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Company's obligations to
Holders of Notes in the case of a merger or consolidation, to make any
change that would provide any additional rights or benefits to the
Holders of Notes or that does not adversely affect the legal rights
under the Indenture of any such Holder, to comply with requirements of
the Commission in order to effect or maintain the qualification of the
Indenture under the Trust Indenture Act or to allow any Subsidiary to
guarantee the Notes.
13. Defaults and Remedies. Events of Default include: (i) default for 30
days in the payment when due of interest on, or Liquidated Damages, if
any, with respect to, the Notes; (ii) default in payment when due of
the principal of, or premium, if any, on, the
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Notes; (iii) failure by the Company or any Restricted Subsidiary for 30
days after notice from the Trustee or at least 25% in principal amount
of the Notes then outstanding to comply with the provisions described
in Sections 4.07, 4.09, 4.10 or 4.13 of the Indenture; (iv) failure by
the Company or any of its Restricted Subsidiaries for 60 days after
notice from the Trustee or by the Holders of at least 25% in principal
amount of Notes then outstanding to comply with its other agreements in
the Indenture or the Notes; (v) default under any mortgage, indenture
or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Company
or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries)
whether such Indebtedness or guarantee now exists, or is created after
the date of the Indenture, which default (a) is caused by a failure to
pay principal of such Indebtedness after giving effect to any grace
period provided in such Indebtedness (a "Payment Default") or (b)
results in the acceleration of such Indebtedness prior to its stated
maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the
maturity of which has been so accelerated, aggregates $10.0 million or
more; (vi) failure by the Company or any of its Subsidiaries to pay
final judgments aggregating in excess of $10.0 million (net of any
amounts with respect to which a reputable and creditworthy insurance
company has acknowledged liability in writing), which judgments are not
paid, discharged or stayed for a period of 60 days; (vii) except as
permitted by the Indenture, any Subsidiary Guarantee shall be held in
any judicial proceeding to be unenforceable or invalid or shall cease
for any reason to be in full force and effect or any Guarantor, or any
Person acting on behalf of any Guarantor, shall deny or disaffirm its
obligations under its Subsidiary Guarantee; and (viii) certain events
of bankruptcy or insolvency with respect to the Company or any of its
Significant Subsidiaries
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding
Notes may declare all the Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency, with respect
to the Company or any Significant Subsidiary, all outstanding Notes
will become due and payable without further action or notice. Upon any
acceleration of maturity of the Notes, all principal of and accrued
interest and Liquidated Damages, if any, on the Notes shall be due and
payable immediately. Holders of the Notes may not enforce the Indenture
or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any
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trust or power. The Trustee may withhold from Holders of Notes notice of
any continuing Default or Event of Default (except a Default or Event of
Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest. In the event of
a declaration of acceleration of the Notes because an Event of Default
has occurred and is continuing as a result of the acceleration of any
Indebtedness described in clause (v) of the preceding paragraph, the
declaration of acceleration of the Notes shall be automatically annulled
if the holders of any Indebtedness described in clause (v) of the
preceding paragraph have rescinded the declaration of acceleration in
respect of such Indebtedness within 30 days of the date of such
declaration and if (a) the annulment of the acceleration of Notes would
not conflict with any judgment or decree of a court of competent
jurisdiction and (b) all existing Events of Default, except nonpayment of
principal or interest on the Notes that became due solely because of the
acceleration of the Notes, have been cured or waived.
14. Trustee Dealings with Company. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform
services for the Company, the Guarantors or their respective Affiliates,
and may otherwise deal with the Company, the Guarantors or their
respective Affiliates, as if it were not the Trustee.
15. No Recourse Against Others. No director, officer, employee, incorporator
or stockholder, of the Company or any Guarantor, as such, shall have any
liability for any obligations of the Company or any Guarantor under the
Notes or the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of Notes by
accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Notes.
16. Governing Law. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN
AND BE USED TO CONSTRUE THE NOTES AND THE SUBSIDIARY GUARANTEES.
17. Authentication. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
18. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and
U/G/M/A (= Uniform Gifts to Minors Act).
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19. Additional Rights of Holders of Transfer Restricted Securities. In
addition to the rights provided to Holders of the Notes under the
Indenture, Holders of Transfer Restricted Securities (as defined in the
Registration Rights Agreement) shall have all the rights set forth in the
Registration Rights Agreement, dated as of the date hereof, among the
Company, the Guarantors and the Initial Purchasers (the "Registration
Rights Agreement").
20. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee
on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to the Holders. No
representation is made as to the accuracy of such numbers either as
printed on the Notes or as contained in any notice of redemption and
reliance may be placed only on the other identification numbers placed
thereon.
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Exhibit B-1
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM RULE 144A GLOBAL NOTE TO REGULATION S GLOBAL NOTE
(Pursuant to Section 2.06(a)(1) of the Indenture)
State Street Bank and Trust Company
225 Asylum Street, 23rd Floor
Hartford, Connecticut 06103
Re: 10 1/8% Senior Subordinated Notes due 2008 of Diamond Brands Operating
Corp.
Reference is hereby made to the Indenture, dated as of April 21, 1998 (the
"Indenture"), between Diamond Brands Operating Corp., a Delaware corporation
(the "Company"), Empire Candle, Inc., a Kansas corporation, Forster, Inc., a
Maine corporation, together with any subsidiary that executes a Subsidiary
Guarantee and State Street Bank and Trust Company as trustee (the "Trustee").
Capitalized terms used but not defined herein shall have the meanings given to
them in the Indenture.
This letter relates to $ _______________ principal amount of Notes which
are evidenced by one or more Rule 144A Global Notes and held with the Depositary
in the name of ________________ (the "Transferor"). The Transferor has
requested a transfer of such beneficial interest in the Notes to a Person who
will take delivery thereof in the form of an equal principal amount of Notes
evidenced by one or more Regulation S Global Notes, which amount, immediately
after such transfer, is to be held with the Depositary through Euroclear or
Cedel or both.
In connection with such request and in respect of such Notes, the
Transferor hereby certifies that such transfer has been effected in compliance
with the transfer restrictions applicable to the Global Notes and pursuant to
and in accordance with Rule 903 or Rule 904 under the United States Securities
Act of 1933, as amended (the "Securities Act"), and accordingly the Transferor
hereby further certifies that:
(1) The offer of the Notes was not made to a person in the United States;
(2) either:
(a) at the time the buy order was originated, the transferee was
outside the United States or the Transferor and any person acting
on its behalf reasonably believed and believes that the
transferee was outside the United States; or
(b) the transaction was executed in, on or through the
facilities of a designated offshore securities market and neither
the Transferor nor any person acting on its behalf knows that the
transaction was prearranged with a buyer in the United States;
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(3) no directed selling efforts have been made in contravention of
the requirements of Rule 904(b) of Regulation S;
(4) the transaction is not part of a plan or scheme to evade the
registration provisions of the Securities Act; and
(5) upon completion of the transaction, the beneficial interest being
transferred as described above is to be held with the Depositary
through Euroclear or Cedel or both.
Upon giving effect to this request to exchange a beneficial interest in a
Rule 144A Global Note for a beneficial interest in a Regulation S Global Note,
the resulting beneficial interest shall be subject to the restrictions on
transfer applicable to Regulation S Global Notes pursuant to the Indenture and
the Securities Act and, if such transfer occurs prior to the end of the 40-day
restricted period associated with the initial offering of Notes, the additional
restrictions applicable to transfers of interest in the Regulation S Temporary
Global Note.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and Donaldson, Lufkin & Jenrette
Securities Corporation and Morgan Stanley & Co. Incorporated, the initial
purchasers of such Notes being transferred. Terms used in this certificate and
not otherwise defined in the Indenture have the meanings set forth in Regulation
S under the Securities Act.
[Insert Name of Transferor]
By:________________________
Name:
Title:
Dated:
cc: Diamond Brands Operating Corp.
Donaldson, Lufkin & Jenrette Securities Corporation
Morgan Stanley & Co. Incorporated
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<PAGE>
Exhibit B-2
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM REGULATION S GLOBAL NOTE TO RULE 144A GLOBAL NOTE
(Pursuant to Section 2.06(a)(ii) of the Indenture)
State Street Bank and Trust Company
225 Asylum Street, 23rd Floor
Hartford, Connecticut 06103
Re: 10 1/8% Senior Subordinated Notes due 2008 of Diamond Brands Operating
Corp.
Reference is hereby made to the Indenture, dated as of April 21, 1998 (the
"Indenture"), between Diamond Brands Operating Corp., a Delaware corporation
(the "Company"), Empire Candle, Inc., a Kansas corporation, Forster, Inc., a
Maine corporation, together with any subsidiary that executes a Subsidiary
Guarantee and State Street Bank and Trust Company as trustee (the "Trustee").
Capitalized terms used but not defined herein shall have the meanings given to
them in the Indenture.
This letter relates to $_________ principal amount at maturity of Notes
which are evidenced by one or more Regulation S Global Notes and held with the
Depositary through Euroclear or Cedel in the name of ______________ (the
"Transferor"). The Transferor has requested a transfer of such beneficial
interest in the Notes to a Person who will take delivery thereof in the form of
an equal principal amount of the Notes evidenced by one or more Rule 144A Global
Notes, to be held with the Depositary.
In connection with such request and in respect of such Notes, the
Transferor hereby certifies that:
[CHECK ONE]
[_] such transfer is being effected pursuant to and in accordance with
Rule 144A under the United States Securities Act of 1933, as amended
(the "Securities Act"), and, accordingly, the Transferor hereby
further certifies that the Notes are being transferred to a Person
that the Transferor reasonably believes is purchasing the Notes for
its own account, or for one or more accounts with respect to which
such Person exercises sole investment discretion, and such Person and
each such account is a "qualified institutional buyer" within the
meaning of Rule 144A in a transaction meeting the requirements of Rule
144A;
or
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[_] such transfer is being effected pursuant to and in accordance with
Rule 144 under the Securities Act;
or
[_] such transfer is being effected pursuant to an exemption under the
Securities Act other than Rule 144A, Rule 144 or Rule 904 and the
Transferor further certifies that the Transfer complies with the
transfer restrictions applicable to beneficial interests in Global
Notes and Definitive Notes bearing the Private Placement Legend and
the requirements of the exemption claimed, which certification is
supported by (x) if such transfer is in respect of a principal amount
of Notes at the time of Transfer of $250,000 or more, a certificate
executed by the Transferee in the form of Exhibit C to the Indenture,
---------
or (y) if such Transfer is in respect of a principal amount of Notes
at the time of transfer of less than $250,000, (1) a certificate
executed in the form of Exhibit C to the Indenture and (2) an Opinion
---------
of Counsel provided by the Transferor or the Transferee (a copy of
which the Transferor has attached to this certification), to the
effect that (1) such Transfer is in compliance with the Securities Act
and (2) such Transfer complies with any applicable blue sky securities
laws of any state of the United States;
or
[_] such transfer is being effected pursuant to an effective registration
statement under the Securities Act;
or
[_] such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A
or Rule 144, and the Transferor hereby further certifies that the
Notes are being transferred in compliance with the transfer
restrictions applicable to the Global Notes and in accordance with the
requirements of the exemption claimed, which certification is
supported by an Opinion of Counsel, provided by the transferor or the
transferee (a copy of which the Transferor has attached to this
certification) in form reasonably acceptable to the Company and to the
Registrar, to the effect that such transfer is in compliance with the
Securities Act;
and such Notes are being transferred in compliance with any applicable blue sky
securities laws of any state of the United States.
Upon giving effect to this request to exchange a beneficial interest in
Regulation S Global Notes for a
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beneficial interest in 144A Global Notes, the resulting beneficial interest
shall be subject to the restrictions on transfer applicable to Rule 144A Global
Notes pursuant to the Indenture and the Securities Act.
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<PAGE>
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and Donaldson, Lufkin & Jenrette
Securities Corporation and Morgan Stanley & Co. Incorporated, collectively the
initial purchasers of such Notes being transferred. Terms used in this
certificate and not otherwise defined in the Indenture have the meanings set
forth in Regulation S under the Securities Act.
[Insert Name of Transferor]
By:___________________________
Name:
Title:
Dated:
cc: Diamond Brands Operating Corp.
Donaldson, Lufkin & Jenrette Securities Corporation
Morgan Stanley & Co. Incorporated
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<PAGE>
Exhibit B-3
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
OF DEFINITIVE Senior Subordinated Notes
(Pursuant to Section 2.06(b) of the Indenture)
State Street Bank and Trust Company
225 Asylum Street, 23rd Floor
Hartford, Connecticut 06103
Re: 10 1/8% Senior Subordinated Notes due 2008 of Diamond Brands Operating
Corp.
Reference is hereby made to the Indenture, dated as of April 21, 1998 (the
"Indenture"), between Diamond Brands Operating Corp., a Delaware corporation
(the "Company"), Empire Candle, Inc., a Kansas corporation, Forster, Inc., a
Maine corporation, together with any subsidiary that executes a Subsidiary
Guarantee and State Street Bank and Trust Company, as trustee (the "Trustee").
Capitalized terms used but not defined herein shall have the meanings given to
them in the Indenture.
This relates to $ ___________ principal amount of Notes which are
evidenced by one or more Definitive Senior Subordinated Notes in the name of
__________________ (the "Transferor"). The Transferor has requested an exchange
or transfer of such Definitive Senior Subordinated Note(s) in the form of an
equal principal amount of Senior Subordinated Notes evidenced by one or more
Definitive Senior Subordinated Notes, to be delivered to the Transferor or, in
the case of a transfer of such Senior Subordinated Notes, to such Person as the
Transferor instructs the Trustee.
In connection with such request and in respect of the Senior Subordinated
Notes surrendered to the Trustee herewith for exchange (the "Surrendered Senior
Subordinated Notes"), the Holder of such Surrendered Senior Subordinated Notes
hereby certifies that:
[CHECK ONE]
[_] the Surrendered Senior Subordinated Notes are being acquired for the
Transferor's own account, without transfer;
or
[_] the Surrendered Senior Subordinated Notes are being transferred to the
Company;
or
[_] the Surrendered Senior Subordinated Notes are being transferred pursuant to
and in accordance with Rule 144A under the United States Securities Act of
1933, as amended (the "Securities
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<PAGE>
Act"), and, accordingly, the Transferor hereby further certifies that the
Surrendered Senior Subordinated Notes are being transferred to a Person
that the Transferor reasonably believes is purchasing the Surrendered
Senior Subordinated Notes for its own account, or for one or more accounts
with respect to which such Person exercises sole investment discretion, and
such Person and each such account is a "qualified institutional buyer"
within the meaning of Rule 144A, in each case in a transaction meeting the
requirements of Rule 144A;
or
[_] the Surrendered Senior Subordinated Notes are being transferred in a
transaction permitted by Rule 144 under the Securities Act;
or
[_] the Surrendered Senior Subordinated Notes are being transferred pursuant to
an exemption under the Securities Act other than Rule 144A, Rule 144 or
Rule 904 and the Transferor further certifies that the Transfer complies
with the transfer restrictions applicable to beneficial interests in Global
Notes and Definitive Senior Subordinated Notes bearing the Private
Placement Legend and the requirements of the exemption claimed, which
certification is supported by (x) if such transfer is in respect of a
principal amount of Senior Subordinated Notes at the time of Transfer of
$100,000 or more, a certificate executed by the Transferee in the form of
Exhibit C to the Indenture, or (y) if such Transfer is in respect of a
---------
principal amount of Senior Subordinated Notes at the time of transfer of
less than $100,000, (1) a certificate executed in the form of Exhibit C to
---------
the Indenture and (2) an Opinion of Counsel provided by the Transferor or
the Transferee (a copy of which the Transferor has attached to this
certification), to the effect that (1) such Transfer is in compliance with
the Securities Act and (2) such Transfer complies with any applicable blue
sky securities laws of any state of the United States;
or
[_] the Surrendered Senior Subordinated Notes are being transferred pursuant to
an effective registration statement under the Securities Act;
or
[_] such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A or
Rule 144, and the Transferor hereby further
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<PAGE>
certifies that the Senior Subordinated Notes are being transferred in
compliance with the transfer restrictions applicable to the Global Notes
and in accordance with the requirements of the exemption claimed, which
certification is supported by an Opinion of Counsel, provided by the
transferor or the transferee (a copy of which the Transferor has attached
to this certification) in form reasonably acceptable to the Company and to
the Registrar, to the effect that such transfer is in compliance with the
Securities Act;
and the Surrendered Senior Subordinated Notes are being transferred in
compliance with any applicable blue sky securities laws of any state of the
United States.
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<PAGE>
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and Donaldson, Lufkin & Jenrette
Securities Corporation and Morgan Stanley & Co. Incorporated, the initial
purchasers of such Senior Subordinated Notes being transferred. Terms used in
this certificate and not otherwise defined in the Indenture have the meanings
set forth in Regulation S under the Securities Act.
[Insert Name of Transferor]
By:_________________
Name:
Title:
Dated:
Dated:
cc: Diamond Brands Operating Corp.
Donaldson, Lufkin & Jenrette Securities Corporation
Morgan Stanley & Co. Incorporated
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<PAGE>
Exhibit B-4
-----------
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM RULE 144A GLOBAL NOTE OR REGULATION S
PERMANENT GLOBAL NOTE
TO DEFINITIVE SENIOR SUBORDINATED NOTE
(Pursuant to Section 2.06(c) of the Indenture)
State Street Bank and Trust Company
225 Asylum Street, 23rd Floor
Hartford, Connecticut 06103
Re: 10 1/8% Senior Subordinated Notes due 2008 of Diamond Brands Operating
Corp.
Reference is hereby made to the Indenture, dated as of April 21, 1998 (the
"Indenture"), between Diamond Brands Operating Corp., a Delaware corporation
(the "Company"), Empire Candle, Inc., a Kansas corporation, Forster, Inc., a
Maine corporation, together with any subsidiary that executes a Subsidiary
Guarantee and State Street Bank and Trust Company, as trustee (the "Trustee").
Capitalized terms used but not defined herein shall have the meanings given to
them in the Indenture.
This letter relates to $__________ principal amount of Senior Subordinated
Notes which are evidenced by a beneficial interest in one or more Rule 144A
Global Notes or Regulation S Permanent Global Notes in the name of
____________________ (the "Transferor"). The Transferor has requested an
exchange or transfer of such beneficial interest in the form of an equal
principal amount of Senior Subordinated Notes evidenced by one or more
Definitive Senior Subordinated Notes, to be delivered to the Transferor or, in
the case of a transfer of such Senior Subordinated Notes, to such Person as the
Transferor instructs the Trustee.
In connection with such request and in respect of the Senior Subordinated
Notes surrendered to the Trustee herewith for exchange (the "Surrendered Senior
Subordinated Notes"), the Holder of such Surrendered Senior Subordinated Notes
hereby certifies that:
[CHECK ONE]
[_] the Surrendered Senior Subordinated Notes are being transferred to the
beneficial owner of such Senior Subordinated Notes;
or
[_] the Surrendered Senior Subordinated Notes are being transferred pursuant to
and in accordance with Rule 144A under the United States Securities Act of
1933, as amended (the "Securities
131
<PAGE>
Act"), and, accordingly, the Transferor hereby further certifies that the
Surrendered Senior Subordinated Notes are being transferred to a Person
that the Transferor reasonably believes is purchasing the Surrendered
Senior Subordinated Notes for its own account, or for one or more accounts
with respect to which such Person exercises sole investment discretion, and
such Person and each such account is a "qualified institutional buyer"
within the meaning of Rule 144A, in each case in a transaction meeting they
requirements of Rule 144A;
or
[_] the Surrendered Senior Subordinated Notes are being transferred in a
transaction permitted by Rule 144 under the Securities Act;
or
[_] the Surrendered Senior Subordinated Notes are being transferred pursuant to
an effective registration statement under the Securities Act;
or
[_] the Surrendered Senior Subordinated Notes are being transferred pursuant to
an exemption under the Securities Act other than Rule 144A, Rule 144 or
Rule 904 and the Transferor further certifies that the Transfer complies
with the transfer restrictions applicable to beneficial interests in Global
Notes and Definitive Senior Subordinated Notes bearing the Private
Placement Legend and the requirements of the exemption claimed, which
certification is supported by (x) if such transfer is in respect of a
principal amount of Senior Subordinated Notes at the time of Transfer of
$250,000 or more, a certificate executed by the Transferee in the form of
Exhibit C to the Indenture, or (y) if such Transfer is in respect of a
---------
principal amount of Senior Subordinated Notes at the time of transfer of
less than $250,000, (1) a certificate executed in the form of Exhibit C to
---------
the Indenture and (2) an Opinion of Counsel provided by the Transferor or
the Transferee (a copy of which the Transferor has attached to this
certification), to the effect that (1) such Transfer is in compliance with
the Securities Act and (2) such Transfer complies with any applicable blue
sky securities laws of any state of the United States;
or
[_] such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A or
Rule 144, and the Transferor hereby further
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<PAGE>
certifies that the Senior Subordinated Notes are being transferred in
compliance with the transfer restrictions applicable to the Global Notes
and in accordance with the requirements of the exemption claimed, which
certification is supported by an Opinion of Counsel, provided by the
transferor or the transferee (a copy of which the Transferor has attached
to this certification) in form reasonably acceptable to the Company and to
the Registrar, to the effect that such transfer is in compliance with the
Securities Act;
and the Surrendered Senior Subordinated Notes are being transferred in
compliance with any applicable blue sky securities laws of any state of the
United States.
133
<PAGE>
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and Donaldson, Lufkin & Jenrette
Securities Corporation and Morgan Stanley & Co. Incorporated, the initial
purchasers of such Senior Subordinated Notes being transferred. Terms used in
this certificate and not otherwise defined in the Indenture have the meanings
set forth in Regulation S under the Securities Act.
[Insert Name of Transferor]
By:_________________
Name:
Title:
Dated:
Dated:
cc: Diamond Brands Operating Corp.
Donaldson, Lufkin & Jenrette Securities Corporation
Morgan Stanley & Co. Incorporated
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<PAGE>
Exhibit C
---------
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
State Street Bank and Trust Company
225 Asylum Street, 23rd Floor
Hartford, Connecticut 06103
Re: 10 1/8% Senior Subordinated Notes due 2008 of Diamond Brands Operating
Corp.
Reference is hereby made to the Indenture, dated as of April 21, 1998 (the
"Indenture"), between Diamond Brands Operating Corp., a Delaware corporation
(the "Company"), Empire Candle, Inc., a Kansas corporation, Forster, Inc., a
Maine corporation, together with any subsidiary that executes a Subsidiary
Guarantee and State Street Bank and Trust Company, as trustee (the "Trustee").
Capitalized terms used but not defined herein shall have the meanings given to
them in the Indenture.
In connection with our proposed purchase of $__________ aggregate principal
amount of:
(a)
Beneficial interests, or
(b)
Definitive Notes,
we confirm that:
1. We understand that any subsequent transfer of the Senior Subordinated
Notes of any interest therein is subject to certain restrictions and conditions
set forth in the Indenture and the undersigned agrees to be bound by, and not to
resell, pledge or otherwise transfer the Notes or any interest therein except in
compliance with, such restrictions and conditions and the Securities Act of
1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes and any interest therein
may not be offered or sold except as permitted in the following sentence. We
agree, on our own behalf and on behalf of any accounts for which we are acting
as hereinafter stated, that if we should sell the Notes or any interest therein,
(A) we will do so only (1)(a) to a person who the Seller reasonably believes is
a qualified institutional buyer (as defined in Rule 144A under the Securities
Act) in a transaction meeting the requirements of 144A, (b) in a transaction
meeting the requirements of Rule 144 under the Securities Act, (c) outside the
United States to a foreign
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<PAGE>
person in a transaction meeting the requirements of Rule 904 of the Securities
Act, or (d) in accordance with another exemption from the registration
requirements of the Securities Act (and based upon an opinion of counsel), (2)
to the Company or any of its subsidiaries or (3) pursuant to an effective
registration statement and, in each case, in accordance with any applicable
securities laws of any State of the United States or any other applicable
jurisdiction and (B) we will, and each subsequent holder will be required to,
notify any purchaser from it of the security evidenced hereby of the resale
restrictions set forth in (A) above."
3. We understand that, on any proposed resale of the Notes or beneficial
interests, we will be required to furnish to you and the Company such
certifications, legal opinions and other information as you and the Company may
reasonably require to confirm that the proposed sale complies with the foregoing
restrictions. We further understand that the Notes purchased by us will bear a
legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Notes, and we and
any accounts for which we are acting are each able to bear the economic risk of
our or its investment.
5. We are acquiring the Notes or beneficial interests therein purchased by
us for our own account or for one or more accounts (each of which is an
institutional "accredited investor") as to each of which we exercise sole
investment discretion.
6. We are not acquiring the Notes with a view to any distribution thereof
that would violate the Securities Act or the securities laws of any State of the
United States.
136
<PAGE>
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
________________________________
[Insert Name of Accredited
Investor]
By:_____________________________
Name:
Title
Dated: ____________,____
- -----
137
<PAGE>
Exhibit D
---------
Note Guarantee
Subject to Section 11.06 of the Indenture, each Guarantor hereby, jointly and
severally, unconditionally guarantees to each Holder of a Senior Subordinated
Note authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, irrespective of the validity and enforceability of the
Indenture, the Senior Subordinated Notes and the Obligations of the Company
under the Senior Subordinated Notes or under the Indenture, that: (a) the
principal of, premium, if any, interest and Liquidated Damages, if any, on the
Senior Subordinated Notes will be promptly paid in full when due, subject to any
applicable grace period, whether at maturity, by acceleration, redemption or
otherwise, and interest on overdue principal, premium, if any, (to the extent
permitted by law) interest on any interest, if any, and Liquidated Damages, if
any, on the Senior Subordinated Notes and all other payment Obligations of the
Company to the Holders or the Trustee under the Indenture or under the Senior
Subordinated Notes will be promptly paid in full and performed, all in
accordance with the terms thereof; and (b) in case of any extension of time of
payment or renewal of any Senior Subordinated Notes or any of such other payment
Obligations, the same will be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, subject to any applicable
grace period, whether at stated maturity, by acceleration, redemption or
otherwise. Failing payment when so due of any amount so guaranteed or any
performance so guaranteed for whatever reason, the Guarantors will be jointly
and severally obligated to pay the same immediately.
The obligations of the Guarantor to the Holders and to the Trustee
pursuant to this Note Guarantee and the Indenture are expressly set forth
in Article 11 of the Indenture, and reference is hereby made to such
Indenture for the precise terms of this Note Guarantee. The terms of
Article 11 of the Indenture are incorporated herein by reference. This
Note Guarantee is subject to release as and to the extent provided in
Section 11.04 of the Indenture.
This is a continuing Guarantee and shall remain in full force and
effect and shall be binding upon each Guarantor and its respective
successors and assigns to the extent set forth in the Indenture until full
and final payment of all of the Company's Obligations under the Senior
Subordinated Notes and the Indenture and shall inure to the benefit of the
successors and assigns of the Trustee and the Holders and, in the event of
any transfer or assignment of rights by any Holder or the Trustee, the
rights and privileges herein conferred upon that party shall automatically
extend to and be vested in such transferee or assignee, all subject to the
terms and conditions hereof. This is a Note Guarantee of payment and not a
guarantee of collection.
This Note Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Senior Subordinated Note to
which this Note Guarantee relates shall
138
<PAGE>
have been executed by the Trustee under the Indenture by the manual
signature of one of its authorized officers.
For purposes hereof, each Guarantor's liability shall be limited to
the lesser of (i) the aggregate amount of the Obligations of the Company
under the Senior Subordinated Notes and the Indenture and (ii) the amount,
if any, which would not have (A) rendered such Guarantor "insolvent" (as
such term is defined in the Bankruptcy Law and in the Debtor and Creditor
Law of the State of New York) or (B) left such Guarantor with unreasonably
small capital at the time its Note Guarantee of the Senior Subordinated
Notes was entered into; provided that, it will be a presumption in any
lawsuit or other proceeding in which a Guarantor is a party that the amount
guaranteed pursuant to the Note Guarantee is the amount set forth in clause
(i) above unless any creditor, or representative of creditors of such
Guarantor, or debtor in possession or trustee in bankruptcy of such
Guarantor, otherwise proves in such a lawsuit that the aggregate liability
of the Guarantor is limited to the amount set forth in clause (ii) above.
The Indenture provides that, in making any determination as to the solvency
or sufficiency of capital of a Guarantor in accordance with the previous
sentence, the right of such Guarantors to contribution from other
Guarantors and any other rights such Guarantors may have, contractual or
otherwise, shall be taken into account.
Capitalized terms used herein have the same meanings given in the
Indenture unless otherwise indicated.
Dated as of April 21, 1998 EMPIRE CANDLE, INC.
By:__________________________________
Name:
Title:
Dated as of April 21, 1998 FORSTER, INC.
By:__________________________________
Name:
Title:
139
<PAGE>
Exhibit E
---------
FORM OF SUPPLEMENTAL INDENTURE
Supplemental Indenture (this "Supplemental Indenture"), dated as of
___________, between Guarantor (the "New Guarantor"), a subsidiary of Diamond
Brands Operating Corp., a Delaware corporation (the "Company"), and State Street
Bank and Trust Company, as trustee under the indenture referred to below (the
"Trustee"). Capitalized terms used herein and not defined herein shall have the
meaning ascribed to them in the Indenture (as defined below).
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the Trustee
an indenture (the "Indenture"), dated as of April 21, 1998, providing for the
issuance of an aggregate principal amount of $100,000,000 of 10 1/8% Senior
Subordinated Notes due 2008 (the "Senior Subordinated Notes");
WHEREAS, Section 11.05 of the Indenture provides that under certain
circumstances the Company may cause, and Section 11.03 of the Indenture provides
that under certain circumstances the Company must cause, certain of its
subsidiaries to execute and deliver to the Trustee a supplemental indenture
pursuant to which such subsidiaries shall unconditionally guarantee all of the
Company's Obligations under the Senior Subordinated Notes pursuant to a Note
Guarantee on the terms and conditions set forth herein; and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the New
Guarantor and the Trustee mutually covenant and agree for the equal and ratable
benefit of the Holders of the Senior Subordinated Notes as follows:
1. Capitalized Terms. Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.
2. Agreement to Note Guarantee. The New Guarantor hereby agrees, jointly
and severally with all other Guarantors, to guarantee the Company's Obligations
under the Senior Subordinated Notes and the Indenture on the terms and subject
to the conditions set forth in Article 11 of the Indenture and to be bound by
all other applicable provisions of the Indenture.
140
<PAGE>
3. No Recourse Against Others. No past, present or future director,
officer, employee, incorporator, shareholder or agent of any Guarantor, as such,
shall have any liability for any obligations of the Company or any Guarantor
under the Senior Subordinated Notes, any Subsidiary Guarantees, the Indenture or
this Supplemental Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder by accepting a Senior
Subordinated Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Senior Subordinated Notes.
4. New York Law to Govern. The internal law of the State of New York
shall govern and be used to construe this Supplemental Indenture.
5. Counterparts The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
6. Effect of Headings. The Section headings herein are for convenience
only and shall not affect the construction hereof.
7. The Trustee. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the correctness of the recitals of fact
contained herein, all of which recitals are made solely by the New Guarantor.
141
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture
to be duly executed and attested, all as of the date first above written.
Dated: _________________ [NAME OF NEW GUARANTOR]
By:________________________________
Name:
Title:
Dated: ________________ STATE STREET BANK AND TRUST COMPANY
as Trustee
By:________________________________
Name:
Title:
142
<PAGE>
<TABLE>
<CAPTION>
CROSS-REFERENCE TABLE*
Trust Indenture
Act Section Indenture Section
<S> <C>
310(a)(1)............................................... 7.10
(a)(2)............................................... 7.10
(a)(3)............................................... N.A.
(a)(4)............................................... N.A.
(b).................................................. 7.03; 7.10
(c).................................................. N.A.
311(a).................................................. 7.11
(b).................................................. 7.11
(c).................................................. N.A.
312(a).................................................. 2.05
(b).................................................. 10.03
(c).................................................. 10.03
313(a).................................................. 7.06
(b)(1)............................................... 7.06
(b)(2)............................................... 7.06; 7.07
(c).................................................. 7.06; 10.02
(d).................................................. 7.06
314(a).................................................. 4.03; 10.05
(b).................................................. N.A.
(c)(1)............................................... 10.04
(c)(2)............................................... 10.04
(c)(3)............................................... N.A.
(d).................................................. N.A.
(e).................................................. 10.05
(f).................................................. N.A.
315(a).................................................. 7.05, 10.02
(b).................................................. 7.01
(c).................................................. 7.01
(d).................................................. 7.01
(e).................................................. 6.11
316(a)(last sentence)................................... 2.09
(a)(1)(A)............................................ 6.05
</TABLE>
143
<PAGE>
<TABLE>
<S> <C>
(a)(1)(B)............................................. 6.04
(a)(2)................................................ 2.13
(b)................................................... 6.07
(c)................................................... N.A.
317(a)(1)............................................... 6.08
(a)(2)................................................ 6.09
(b)................................................... 2.04
(c)................................................... 10.01
318(a).................................................. 10.01
(b)................................................... N.A.
(c)................................................... 10.01
</TABLE>
N.A. means not applicable
*This Cross-Reference is not part of the Indenture
144
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
ADVANCE \d 6ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE GOTOBUTTON A_Toc416589302 1
Section 1.01. Definitions GOTOBUTTON A_Toc416589303 1
Section 1.02. Other Definitions.................................... GOTOBUTTON A_Toc416589304 16
Section 1.03. Incorporation by Reference of Trust Indenture Act.... GOTOBUTTON A_Toc416589305 17
Section 1.04. Rules of Construction................................ GOTOBUTTON A_Toc416589306 17
ADVANCE \d 6ARTICLE 2 THE NOTES.................................... GOTOBUTTON A_Toc416589307 17
Section 2.01. Form and Dating...................................... GOTOBUTTON A_Toc416589308 17
Section 2.02. Execution and Authentication......................... GOTOBUTTON A_Toc416589309 19
Section 2.03. Registrar and Paying Agent........................... GOTOBUTTON A_Toc416589310 20
Section 2.04. Paying Agent to Hold Money in Trust.................. GOTOBUTTON A_Toc416589311 20
Section 2.05. Holder Lists......................................... GOTOBUTTON A_Toc416589312 20
Section 2.06. Transfer and Exchange................................ GOTOBUTTON A_Toc416589313 21
Section 2.07. Replacement Notes.................................... GOTOBUTTON A_Toc416589314 28
Section 2.08. Outstanding Notes.................................... GOTOBUTTON A_Toc416589315 29
Section 2.09. Treasury Notes....................................... GOTOBUTTON A_Toc416589316 29
Section 2.10. Temporary Notes...................................... GOTOBUTTON A_Toc416589317 29
Section 2.11. Cancellation......................................... GOTOBUTTON A_Toc416589318 29
Section 2.12. Defaulted Interest................................... GOTOBUTTON A_Toc416589319 30
Section 2.13. Record Date.......................................... GOTOBUTTON A_Toc416589320 30
Section 2.14. Computation of Interest.............................. GOTOBUTTON A_Toc416589321 30
Section 2.15. CUSIP Number......................................... GOTOBUTTON A_Toc416589322 30
ADVANCE \d 6ARTICLE 3. REDEMPTION AND PREPAYMENT................... GOTOBUTTON A_Toc416589323 30
Section 3.02. Selection of Notes to be Redeemed or Purchased....... GOTOBUTTON A_Toc416589324 31
Section 3.03. Section 3.03.Notice of Redemption.................... GOTOBUTTON A_Toc416589325 31
Section 3.04. Effect of Notice of Redemption....................... GOTOBUTTON A_Toc416589326 32
Section 3.05. Deposit of Redemption or Purchase Price.............. GOTOBUTTON A_Toc416589327 32
Section 3.06. Notes Redeemed in Part............................... GOTOBUTTON A_Toc416589328 33
Section 3.07. Optional Redemption.................................. GOTOBUTTON A_Toc416589329 33
Section 3.08. Mandatory Redemption................................. GOTOBUTTON A_Toc416589330 33
Section 3.09. Repurchase Offers.................................... GOTOBUTTON A_Toc416589331 33
ADVANCE \d 6ARTICLE 4 COVENANTS.................................... GOTOBUTTON A_Toc416589332 35
</TABLE>
145
<PAGE>
<TABLE>
<S> <C>
Section 4.01. Payment of Notes............................................................ GOTOBUTTON A_Toc416589334 35
Section 4.02. Maintenance of Office or Agency............................................. GOTOBUTTON A_Toc416589334 36
Section 4.03. Commission Reports.......................................................... GOTOBUTTON A_Toc416589335 36
Section 4.04. Compliance Certificate...................................................... GOTOBUTTON A_Toc416589336 37
Section 4.05. Taxes....................................................................... GOTOBUTTON A_Toc416589337 38
Section 4.06. Stay, Extension and Usury Laws.............................................. GOTOBUTTON A_Toc416589338 38
Section 4.07. Restricted Payments......................................................... GOTOBUTTON A_Toc416589339 38
Section 4.08. Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries... GOTOBUTTON A_Toc416589340 40
Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock.................. GOTOBUTTON A_Toc416589341 41
Section 4.10. Asset Sales................................................................. GOTOBUTTON A_Toc416589342 43
Section 4.11. Transactions With Affiliates................................................ GOTOBUTTON A_Toc416589343 44
Section 4.12. Liens....................................................................... GOTOBUTTON A_Toc416589344 45
Section 4.13. Offer to Purchase Upon Change of Control.................................... GOTOBUTTON A_Toc416589345 45
Section 4.14. Corporate Existence......................................................... GOTOBUTTON A_Toc416589346 46
Section 4.15. Business Activities......................................................... GOTOBUTTON A_Toc416589347 47
Section 4.16. Senior Subordinated Debt.................................................... GOTOBUTTON A_Toc416589348 47
Section 4.17. Limitation on Issuances of Guarantees of Indebtedness....................... GOTOBUTTON A_Toc416589349 47
ADVANCE \d 6ARTICLE 5 SUCCESSORS.......................................................... GOTOBUTTON A_Toc416589350 47
Section 5.01. Merger, Consolidation of Sale of Assets..................................... GOTOBUTTON A_Toc416589351 47
Section 5.02. Successor Corporation Substituted........................................... GOTOBUTTON A_Toc416589352 48
ADVANCE \d 6ARTICLE 6 DEFAULTS AND REMEDIES............................................... GOTOBUTTON A_Toc416589353 48
Section 6.01. Events of Default........................................................... GOTOBUTTON A_Toc416589354 49
Section 6.02. Acceleration................................................................ GOTOBUTTON A_Toc416589355 50
Section 6.03. Other Remedies.............................................................. GOTOBUTTON A_Toc416589356 51
Section 6.04. Waiver of Past Defaults..................................................... GOTOBUTTON A_Toc416589357 51
Section 6.05. Control by Majority......................................................... GOTOBUTTON A_Toc416589358 51
Section 6.06. Limitation on Suits......................................................... GOTOBUTTON A_Toc416589359 52
Section 6.07. Rights of Holders of Notes to Receive Payment............................... GOTOBUTTON A_Toc416589360 52
Section 6.08. Collection Suit by Trustee.................................................. GOTOBUTTON A_Toc416589361 52
Section 6.09. Trustee May File Proofs of Claim............................................ GOTOBUTTON A_Toc416589362 52
Section 6.10. Priorities.................................................................. GOTOBUTTON A_Toc416589363 53
Section 6.11. Undertaking for Costs....................................................... GOTOBUTTON A_Toc416589364 53
ADVANCE \d 6ARTICLE 7 TRUSTEE............................................................. GOTOBUTTON A_Toc416589365 53
Section 7.01. Duties of Trustee........................................................... GOTOBUTTON A_Toc416589366 54
</TABLE>
146
<PAGE>
<TABLE>
<S> <C>
Section 7.02. Rights of Trustee....................................................................... GOTOBUTTON A_Toc416589367 55
Section 7.03. Individual Rights of Trustee............................................................ GOTOBUTTON A_Toc416589368 55
Section 7.04. Trustee's Disclaimer.................................................................... GOTOBUTTON A_Toc416589369 55
Section 7.05. Notice of Defaults...................................................................... GOTOBUTTON A_Toc416589370 56
Section 7.06. Reports by Trustee to Holders of the Notes.............................................. GOTOBUTTON A_Toc416589371 56
Section 7.07. Compensation and Indemnity.............................................................. GOTOBUTTON A_Toc416589372 56
Section 7.08. Replacement of Trustee.................................................................. GOTOBUTTON A_Toc416589373 57
Section 7.09. Successor Trustee by Merger, etc........................................................ GOTOBUTTON A_Toc416589374 58
Section 7.10. Eligibility; Disqualification........................................................... GOTOBUTTON A_Toc416589375 58
Section 7.11. Preferential Collection of Claims Against the Company................................... GOTOBUTTON A_Toc416589376 58
ADVANCE \d 6ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE........................................ GOTOBUTTON A_Toc416589377 58
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance................................ GOTOBUTTON A_Toc416589378 58
Section 8.02. Legal Defeasance and Discharge.......................................................... GOTOBUTTON A_Toc416589379 58
Section 8.03. Covenant Defeasance..................................................................... GOTOBUTTON A_Toc416589380 59
Section 8.04. Conditions to Legal or Covenant Defeasance.............................................. GOTOBUTTON A_Toc416589381 59
Section 8.05. Deposited Money and U.S. Government Securities to be Held in Trust; Other Miscellaneous
Provisions............................................................................................ GOTOBUTTON A_Toc416589382 61
Section 8.06. Repayment to the Company................................................................ GOTOBUTTON A_Toc416589383 61
Section 8.07. Reinstatement........................................................................... GOTOBUTTON A_Toc416589384 61
ADVANCE \d 6ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER................................................ GOTOBUTTON A_Toc416589385 62
Section 9.01. Without Consent of Holders of the Notes................................................. GOTOBUTTON A_Toc416589386 62
Section 9.02. With Consent of Holders of Notes........................................................ GOTOBUTTON A_Toc416589387 62
Section 9.03. Compliance with Trust Indenture Act..................................................... GOTOBUTTON A_Toc416589388 64
Section 9.04. Revocation and Effect of Consents....................................................... GOTOBUTTON A_Toc416589389 64
Section 9.05. Notation on or Exchange of Notes........................................................ GOTOBUTTON A_Toc416589390 64
Section 9.06. Trustee to Sign Amendments, etc......................................................... GOTOBUTTON A_Toc416589391 64
ADVANCE \d 6ARTICLE 10 SUBORDINATION.................................................................. GOTOBUTTON A_Toc416589392 64
Section 10.01 Agreement to Subordinate................................................................ GOTOBUTTON A_Toc416589393 64
Section 10.02 Liquidation; Dissolution; Bankruptcy.................................................... GOTOBUTTON A_Toc416589394 65
Section 10.03 Default on Designated Senior Debt....................................................... GOTOBUTTON A_Toc416589395 65
Section 10.04. Acceleration of Notes.................................................................. GOTOBUTTON A_Toc416589396 66
Section 10.05. When Distribution Must Be Paid Over.................................................... GOTOBUTTON A_Toc416589397 66
Section 10.06. Notice by the Company.................................................................. GOTOBUTTON A_Toc416589398 66
Section 10.07. Subrogation............................................................................ GOTOBUTTON A_Toc416589399 66
Section 10.08. Relative Rights........................................................................ GOTOBUTTON A_Toc416589400 66
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Section 10.09. Subordination May Not Be Impaired by the Company...................... GOTOBUTTON A_Toc416589401 67
Section 10.10. Distribution or Notice to Representative.............................. GOTOBUTTON A_Toc416589402 68
Section 10.11. Rights of Trustee and Paying Agent.................................... GOTOBUTTON A_Toc416589403 68
Section 10.12. Authorization to Effect Subordination................................. GOTOBUTTON A_Toc416589404 68
Section 10.13. Amendments............................................................ GOTOBUTTON A_Toc416589405 68
ADVANCE \d 6ARTICLE 11 GUARANTEE OF NOTES............................................ GOTOBUTTON A_Toc416589406 69
Section 11.01. Note Guarantee........................................................ GOTOBUTTON A_Toc416589407 69
Section 11.02. Execution and Delivery of Subsidiary Guarantee........................ GOTOBUTTON A_Toc416589408 70
Section 11.03. Guarantors May Consolidate, etc., on Certain Terms.................... GOTOBUTTON A_Toc416589409 70
Section 11.04. Releases Following Sale of Assets, Merger, Sale of Capital Stock Etc.. GOTOBUTTON A_Toc416589410 71
Section 11.05. Additional Guarantors................................................. GOTOBUTTON A_Toc416589411 71
Section 11.06. Limitation on Guarantor Liability..................................... GOTOBUTTON A_Toc416589412 71
Section 11.07. "Trustee" to Include Paying Agent..................................... GOTOBUTTON A_Toc416589413 72
ADVANCE \d 6ARTICLE 12 SUBORDINATION OF SUBSIDIARY GUARANTEE......................... GOTOBUTTON A_Toc416589414 72
Section 12.01. Agreement to Subordinate.............................................. GOTOBUTTON A_Toc416589415 72
Section 12.02. Liquidation; Dissolution; Bankruptcy.................................. GOTOBUTTON A_Toc416589416 72
Section 12.03. Default on Designated Senior Debt..................................... GOTOBUTTON A_Toc416589417 72
Section 12.04. Acceleration of Notes................................................. GOTOBUTTON A_Toc416589418 73
Section 12.05. When Distribution Must Be Paid Over................................... GOTOBUTTON A_Toc416589419 73
Section 12.06. Notice by Guarantor................................................... GOTOBUTTON A_Toc416589420 73
Section 12.07. Subrogation........................................................... GOTOBUTTON A_Toc416589421 74
Section 12.08. Relative Rights....................................................... GOTOBUTTON A_Toc416589422 74
Section 12.09. Subordination May Not Be Impaired by the Guarantors................... GOTOBUTTON A_Toc416589423 74
Section 12.10. Distribution or Notice to Representative.............................. GOTOBUTTON A_Toc416589424 75
Section 12.11. Rights of Trustee and Paying Agent.................................... GOTOBUTTON A_Toc416589425 75
Section 12.12. Authorization to Effect Subordination................................. GOTOBUTTON A_Toc416589426 76
Section 12.13. Amendments............................................................ GOTOBUTTON A_Toc416589427 76
ADVANCE \d 6ARTICLE 13 MISCELLANEOUS................................................. GOTOBUTTON A_Toc416589428 76
Section 13.01. Trust Indenture Act Controls.......................................... GOTOBUTTON A_Toc416589429 76
Section 13.02. Notices............................................................... GOTOBUTTON A_Toc416589430 76
Section 13.03. Communication by Holders of Notes with Other Holders of Notes......... GOTOBUTTON A_Toc416589431 77
Section 13.04. Certificate and Opinion as to Conditions Precedent.................... GOTOBUTTON A_Toc416589432 77
Section 13.05. Statements Required in Certificate or Opinion......................... GOTOBUTTON A_Toc416589433 78
Section 13.06. Rules by Trustee and Agents........................................... GOTOBUTTON A_Toc416589434 78
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Section 13.07. No Personal Liability of Directors, Officers, Employees and Stockholders... GOTOBUTTON A_Toc416589435 78
Section 13.08. Governing Law.............................................................. GOTOBUTTON A_Toc416589436 78
Section 13.09. No Adverse Interpretation of Other Agreements.............................. GOTOBUTTON A_Toc416589437 78
Section 13.10. Successors................................................................. GOTOBUTTON A_Toc416589438 79
Section 13.11. Severability............................................................... GOTOBUTTON A_Toc416589439 79
Section 13.12. Counterpart Originals...................................................... GOTOBUTTON A_Toc416589440 79
Section 13.13. Table of Contents, Headings, etc........................................... GOTOBUTTON A_Toc416589441 79
</TABLE>
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EXECUTION COPY
================================================================================
U.S. $105,000,000
CREDIT AGREEMENT
DATED AS OF APRIL 21, 1998
AMONG
DIAMOND BRANDS OPERATING CORP.,
as Borrower,
THE LENDERS LISTED HEREIN,
as Lenders,
DLJ CAPITAL FUNDING, INC.,
as Syndication Agent,
WELLS FARGO BANK, N.A.,
as Administrative Agent,
and
MORGAN STANLEY SENIOR FUNDING, INC.,
as Documentation Agent
ARRANGED BY:
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
================================================================================
<PAGE>
_______________________________
CREDIT AGREEMENT
TABLE OF CONTENTS
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SECTION 1. DEFINITIONS................................................... 3
1.1 Certain Defined Terms......................................... 3
1.2 Accounting Terms; Utilization of GAAP for Purposes of
Calculations Under Agreement................................. 38
1.3 Other Definitional Provisions and Rules of Construction....... 39
SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS.................... 40
2.1 Commitments; Making of Loans; Notes........................... 40
2.2 Interest on the Loans......................................... 47
2.3 Fees.......................................................... 53
2.4 Repayments, Prepayments and Reductions in Revolving Loan
Commitments; General Provisions Regarding Payments........... 54
2.5 Use of Proceeds............................................... 68
2.6 Special Provisions Governing Eurodollar Rate Loans............ 69
2.7 Increased Costs; Taxes; Capital Adequacy...................... 72
2.8 Obligation of Lenders and Issuing Lenders to Mitigate......... 77
2.9 Replacement of Lender......................................... 77
SECTION 3. LETTERS OF CREDIT............................................. 79
3.1 Issuance of Letters of Credit and Lenders' Purchase of
Participations Therein....................................... 79
3.2 Letter of Credit Fees......................................... 85
3.3 Drawings and Reimbursement of Amounts Paid Under Letters
of Credit.................................................... 86
3.4 Obligations Absolute.......................................... 89
3.5 Indemnification; Nature of Issuing Lenders' Duties............ 90
3.6 Increased Costs and Taxes Relating to Letters of Credit....... 91
3.7 Conflict among Documents...................................... 92
3.8 Issuing Affiliate............................................. 92
SECTION 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT..................... 92
4.1 Conditions to Term Loans and Initial Revolving Loans and
Swing Line Loans............................................. 93
4.2 Conditions to All Loans....................................... 102
4.3 Conditions to Letters of Credit............................... 103
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4.4 Items to be Delivered After the Closing Date.................. 103
SECTION 5. COMPANY'S REPRESENTATIONS AND WARRANTIES...................... 104
5.1 Organization, Powers, Qualification, Good Standing,
Business and Subsidiaries.................................... 104
5.2 Authorization of Borrowing, etc............................... 105
5.3 Financial Condition........................................... 107
5.4 No Material Adverse Change; No Restricted Junior Payments..... 108
5.5 Title to Properties; Liens; Real Property..................... 108
5.6 Litigation; Adverse Facts..................................... 109
5.7 Payment of Taxes.............................................. 109
5.8 Performance of Agreements; Materially Adverse Agreements;
Material Contracts........................................... 110
5.9 Governmental Regulation....................................... 110
5.10 Securities Activities......................................... 110
5.11 Employee Benefit Plans........................................ 111
5.12 Certain Fees.................................................. 111
5.13 Environmental Protection...................................... 112
5.14 Employee Matters.............................................. 113
5.15 Solvency...................................................... 113
5.16 Matters Relating to Collateral................................ 113
5.17 Disclosure.................................................... 114
SECTION 6. COMPANY'S AFFIRMATIVE COVENANTS............................... 115
6.1 Financial Statements and Other Reports........................ 115
6.2 Legal Existence, etc.......................................... 122
6.3 Payment of Taxes and Claims; Tax Consolidation................ 122
6.4 Maintenance of Properties; Insurance; Application of Net
Insurance/Condemnation Proceeds............................. 123
6.5 Inspection Rights............................................. 124
6.6 Compliance with Laws, etc..................................... 124
6.7 Company's Actions Regarding Hazardous Materials Activities,
Environmental Claims and Violations of Environmental Laws.... 124
6.8 Execution of Subsidiary Guaranty and Personal Property
Collateral Documents by Certain Subsidiaries and Future
Subsidiaries; IP Collateral.................................. 127
6.9 Conforming Leasehold Interests; Matters Relating to
Additional Real Property Collateral.......................... 128
6.10 Interest Rate Protection...................................... 131
6.11 Year 2000 Covenant............................................ 131
SECTION 7. COMPANY'S NEGATIVE COVENANTS.................................. 131
7.1 Indebtedness.................................................. 131
7.2 Liens and Related Matters..................................... 133
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7.3 Investments; Joint Ventures................................... 134
7.4 Contingent Obligations........................................ 135
7.5 Restricted Junior Payments.................................... 136
7.6 Financial Covenants........................................... 137
7.7 Restriction on Fundamental Changes; Asset Sales and
Acquisitions................................................. 141
7.8 Consolidated Capital Expenditures............................. 143
7.9 Restriction on Leases......................................... 144
7.10 Sales and Lease-Backs......................................... 144
7.11 Sale or Discount of Receivables............................... 145
7.12 Transactions with Stockholders and Affiliates................. 145
7.13 Disposal of Subsidiary Equity................................. 145
7.14 Conduct of Business........................................... 145
7.15 Amendments of Documents Relating to Subordinated Indebtedness,
Holdings Discount Debentures and Holdings Preferred Stock;
Amendment to Recapitalization Agreement...................... 146
7.16 Fiscal Year................................................... 147
SECTION 8. EVENTS OF DEFAULT............................................. 147
8.1 Failure to Make Payments When Due............................. 147
8.2 Default in Other Agreements................................... 147
8.3 Breach of Certain Covenants................................... 148
8.4 Breach of Representations and Warranty........................ 148
8.5 Other Defaults Under Loan Documents........................... 148
8.6 Involuntary Bankruptcy; Appointment of Receiver, etc.......... 148
8.7 Voluntary Bankruptcy; Appointment of Receiver, etc............ 149
8.8 Judgments and Attachments..................................... 149
8.9 Dissolution................................................... 149
8.10 Employee Benefit Plans........................................ 149
8.11 Change in Control............................................. 150
8.12 Invalidity of Guaranties; Failure of Security; Repudiation
of Obligations............................................... 150
8.13 Action Relating to Certain Subordinated Indebtedness of
Company and Holdings Discount Debentures..................... 151
8.14 Failure to consummate the transactions under the
Recapitalization Agreement................................... 151
SECTION 9. THE AGENTS.................................................... 152
9.1 Appointment................................................... 152
9.2 Powers and Duties; General Immunity........................... 154
9.3 Representations and Warranties; No Responsibility For
Appraisal of Credit-worthiness............................... 156
9.4 Right to Indemnity............................................ 156
9.5 Successor Agents and Swing Line Lender........................ 157
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9.6 Collateral Documents and Guaranties........................... 158
SECTION 10. MISCELLANEOUS................................................. 159
10.1 Assignments and Participations in Loans and Letters of Credit. 159
10.2 Expenses...................................................... 162
10.3 Indemnity..................................................... 164
10.4 Set-Off; Security Interest in Deposit Accounts................ 165
10.5 Ratable Sharing............................................... 165
10.6 Amendments and Waivers........................................ 166
10.7 Independence of Covenants..................................... 168
10.8 Notices....................................................... 169
10.9 Survival of Representations, Warranties and Agreements........ 169
10.10 Failure or Indulgence Not Waiver; Remedies Cumulative......... 169
10.11 Marshalling; Payments Set Aside............................... 169
10.12 Severability.................................................. 170
10.13 Obligations Several; Independent Nature of Lenders' Rights.... 170
10.14 Headings...................................................... 170
10.15 Applicable Law................................................ 170
10.16 Successors and Assigns........................................ 171
10.17 Consent to Jurisdiction and Service of Process................ 171
10.18 Waiver of Jury Trial.......................................... 172
10.19 Confidentiality............................................... 172
10.20 Counterparts; Effectiveness................................... 173
Signature pages............................................... S-1
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(iv)
<PAGE>
EXHIBITS
I. FORM OF NOTICE OF BORROWING
II. FORM OF NOTICE OF CONVERSION/CONTINUATION
III. FORM OF NOTICE OF ISSUANCE OF LETTER OF CREDIT
IV. FORM OF TRANCHE A TERM NOTE
V. FORM OF TRANCHE B TERM NOTE
VI. FORM OF REVOLVING NOTE
VII. FORM OF SWING LINE NOTE
VIII. FORM OF COMPLIANCE CERTIFICATE
IX. FORM OF OPINION OF COUNSEL TO COMPANY
X. FORM OF OPINION OF O'MELVENY & MYERS LLP
XI. FORM OF ASSIGNMENT AGREEMENT
XII. FORM OF CERTIFICATE RE NON-BANK STATUS
XIII. FORM OF COMPANY PLEDGE AGREEMENT
XIV. FORM OF COMPANY SECURITY AGREEMENT
XV. FORM OF COMPANY COPYRIGHT SECURITY AGREEMENT
XVI. FORM OF COMPANY TRADEMARK SECURITY AGREEMENT
XVII. FORM OF COMPANY PATENT SECURITY AGREEMENT
XVIII. FORM OF SUBSIDIARY GUARANTY
XIX. FORM OF SUBSIDIARY PLEDGE AGREEMENT
XX. FORM OF SUBSIDIARY SECURITY AGREEMENT
XXI. FORM OF SUBSIDIARY COPYRIGHT SECURITY AGREEMENT
XXII. FORM OF SUBSIDIARY TRADEMARK SECURITY AGREEMENT
XXIII. FORM OF SUBSIDIARY PATENT SECURITY AGREEMENT
XXIV. FORM OF HOLDINGS PLEDGE AGREEMENT
XXV. FORM OF HOLDINGS GUARANTY
XXVI. FORM OF MORTGAGE
XXVII. FORM OF SOLVENCY CERTIFICATE
XXVIII. FORM OF OPINIONS OF LOCAL COUNSEL
XXIX. FORM OF COLLATERAL ACCOUNT AGREEMENT
(v)
<PAGE>
SCHEDULES
2.1 LENDERS' COMMITMENTS AND PRO RATA SHARES
3.1 EXISTING LETTERS OF CREDIT
4.1C CLOSING DATE MORTGAGED PROPERTIES
5.1 SUBSIDIARIES OF COMPANY
5.5 REAL PROPERTY
5.6 LITIGATION
5.8 MATERIAL CONTRACTS
5.13 ENVIRONMENTAL MATTERS
7.1 CERTAIN EXISTING INDEBTEDNESS
7.2 CERTAIN EXISTING LIENS
7.3 CERTAIN EXISTING INVESTMENTS
7.4 CERTAIN EXISTING CONTINGENT OBLIGATIONS
7.12 AFFILIATE TRANSACTIONS
(vi)
<PAGE>
DIAMOND BRANDS OPERATING CORP.
CREDIT AGREEMENT
This CREDIT AGREEMENT is dated as of April 21, 1998, and entered into by
and among DIAMOND BRANDS OPERATING CORP., a Delaware corporation ("COMPANY"),
THE LENDERS LISTED ON THE SIGNATURE PAGES HEREOF (each individually referred to
herein as a "LENDER" and collectively as "LENDERS"), DLJ CAPITAL FUNDING, INC.
("DLJ"), as syndication agent hereunder for Lenders (in such capacity,
"SYNDICATION AGENT"), and WELLS FARGO BANK, N.A., as administrative agent for
Lenders (in such capacity, "ADMINISTRATIVE AGENT"), and MORGAN STANLEY SENIOR
FUNDING, INC., as documentation agent for Lenders (in such capacity,
"DOCUMENTATION AGENT").
R E C I T A L S
- - - - - - - -
WHEREAS, Diamond Brands Incorporated, a Minnesota corporation ("Holdings"),
proposes to effect a recapitalization (the "Recapitalization") by, among other
things, redeeming all of its issued and outstanding common stock, $0.01 par
value per share (the "Holdings Common Stock") (other than the Holdings Common
Stock having an implied value, based on the per share price of the repurchase of
Holdings Common Stock, of $15,000,000 (such shares of Holdings Common Stock not
being redeemed, the "Retained Shares")) for an aggregate redemption price not
exceeding $211,503,000 (subject to certain working capital and debt adjustments)
from its existing shareholders (the "Existing Shareholders");
WHEREAS, the Retained Shares will represent 22.5% of the outstanding shares
of Holdings Common Stock after giving effect to the full exercise of the
Holdings Warrants (all capitalized terms used otherwise not defined shall have
the meanings assigned to such terms in subsection 1.1) and will be continued to
be held by certain of the Existing Shareholders;
WHEREAS, in connection with the Recapitalization, Holdings established
Company prior to the Closing Date;
WHEREAS, in connection with the Recapitalization, Holdings proposes to (i)
issue $84,000,000 aggregate principal amount at maturity of 12 7/8% Senior
Discount Debentures due 2009 (the "Holdings Discount Debentures"), the aggregate
gross proceeds of which will be $45,105,480; and (ii) issue 12% Paid-in-Kind
Preferred Stock of Holdings par value $1,000 per share (the "Holdings Preferred
Stock"), with a mandatory redemption date of October 15, 2009, to Seaver Kent-
TPG Partners, L.P. and
1
<PAGE>
Seaver Kent I Parallel, L.P. (collectively, the "Principals") and other
investors for an aggregate purchase price equal to $47,000,000, together with
warrants to purchase shares of Holdings Common Stock ("Holdings Warrants");
WHEREAS, the shares of Holdings Common Stock issuable upon the full
exercise of the Holdings Warrants would represent 77.5% of the outstanding
shares of Holdings Common Stock after giving effect to such issuance;
WHEREAS, in connection with the Recapitalization, Holdings proposes to
contribute all of its assets and the gross proceeds of the issuance of the
Holdings Discount Debentures and the Holdings Preferred Stock to Company;
WHEREAS, in connection with the Recapitalization, Company proposes to issue
$100,000,000 in aggregate principal amount of 10 1/8% Senior Subordinated
Notes due 2008 (the "Senior Subordinated Notes");
WHEREAS, in connection with the Recapitalization, Holdings expects that it
will repay substantially all of its and its Subsidiaries' funded debt
obligations existing immediately prior to the consummation of the
Recapitalization;
WHEREAS, upon the consummation of the Recapitalization, Holdings will own
all of the outstanding capital stock of Company and the Subsidiaries of Holdings
prior to the Closing Date will become direct Subsidiaries of Company (the
Recapitalization, the issuance of the Holdings Discount Debentures, the Holdings
Preferred Stock and the Senior Subordinated Notes and the repayment of the prior
Indebtedness of Holdings and its Subsidiaries being the "Transactions");
WHEREAS, Lenders have agreed to extend certain credit facilities to
Company, the proceeds of which will be used by Company, together with the
proceeds of the sale of the Senior Subordinated Notes, the Holdings Discount
Debentures and the Holdings Preferred Stock to (i) cause the redemption of all
of the issued and outstanding capital stock of Holdings (other than Retained
Shares) for an aggregate redemption price not exceeding $211,503,000; (ii) to
cause the payment in full of all of the existing indebtedness of Holdings and
its Subsidiaries in an aggregate principal amount not exceeding $49,497,000,
together with accrued interest and any prepayment penalties related thereto;
(iii) to pay the transaction costs in connection with the Transactions
(excluding those costs and expenses of the Existing Shareholders that will be
paid by Holdings but which will result in a decrease in the redemption price to
be paid to the Existing Shareholders by virtue of a working capital adjustment,
the "Transaction Costs") in an aggregate amount not exceeding $12,500,000; and
(iv) to provide for working capital and/or other general purposes of Company and
its Subsidiaries;
2
<PAGE>
WHEREAS, Company desires to secure all of the Obligations hereunder and
under the other Loan Documents by granting to Administrative Agent, on behalf of
Lenders, a first priority Lien on substantially all of its personal property and
its real property including a pledge of all of the capital stock of its Domestic
Subsidiaries and a pledge of 65% of the capital stock of its Foreign
Subsidiaries that are owned by Company or a Domestic Subsidiary;
WHEREAS, all of Company's Domestic Subsidiaries have agreed to guarantee
the Obligations hereunder and under the other Loan Documents and each of the
Domestic Subsidiaries has agreed to secure its guaranty by granting to
Administrative Agent on behalf of Lenders, a first priority Lien on
substantially all of its respective personal property and substantially all of
its respective real property including a pledge of all of the capital stock of
each of its Domestic Subsidiaries and 65% of the capital stock of each of its
Foreign Subsidiaries that is owned by Company or a Domestic Subsidiary; and
WHEREAS, Holdings has agreed to guarantee the Obligations hereunder and
under the other Loan Documents and Holdings has further agreed to secure its
guaranty by pledging to Administrative Agent on behalf of Lenders all of the
capital stock of Company.
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Company, Lenders, Syndication Agent
and Administrative Agent agree as follows:
SECTION 1. DEFINITIONS
1.1 CERTAIN DEFINED TERMS.
---------------------
The following terms used in this Agreement shall have the following
meanings:
"ADJUSTED EURODOLLAR RATE" means, for any Interest Rate Determination Date
with respect to an Interest Period for a Eurodollar Rate Loan, the rate per
annum obtained by dividing (i) the offered quotation to first class banks in the
--------
London interbank eurodollar market by Administrative Agent for U.S. dollar
deposits of amounts in same day funds comparable to the principal amount of the
Eurodollar Rate Loan of Administrative Agent for which the Adjusted Eurodollar
Rate is then being determined (which principal amount shall be deemed to be
$1,000,000 in the event Administrative Agent is not making, converting to or
continuing such a Eurodollar Rate Loan) with maturities comparable to such
Interest Period as of approximately 11:00 a.m. (London time) on such Interest
Rate Determination Date
3
<PAGE>
by (ii) a percentage equal to 100% minus the stated maximum rate of all reserve
- -- -----
requirements (including any marginal, emergency, supplemental, special or other
reserves) applicable on such Interest Rate Determination Date to any member bank
of the Federal Reserve System in respect of "Eurocurrency liabilities" as
defined in Regulation D (or any successor category of liabilities under
Regulation D).
"ADMINISTRATIVE AGENT" has the meaning assigned to that term in the
introduction to this Agreement and also means and includes any successor
Administrative Agent appointed pursuant to subsection 9.5A.
"AFFECTED LENDER" has the meaning assigned to that term in subsection 2.6C.
"AFFILIATE", as applied to any Person, means any other Person directly or
indirectly controlling, controlled by, or under common control with, that
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with"), as applied to any Person, means (i) the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that Person, whether through the ownership of voting securities or
by contract or otherwise, or (ii) the ownership of more than 10% of the voting
securities of that Person.
"AFFILIATED FUND" means, with respect to any Lender that is a fund that
invests in commercial loans, any other fund that invests in commercial loans and
is managed by the same investment advisor as such Lender or by an Affiliate of
such investment advisor.
"AGENTS" means, collectively, the Syndication Agent and Administrative
Agent.
"AGREEMENT" means this Credit Agreement dated as of April 21, 1998, as it
may be amended, supplemented or otherwise modified from time to time.
"APPLICABLE COMMITMENT FEE MARGIN" has the meaning assigned to such term in
subsection 2.3A.
"ARRANGER" means Donaldson, Lufkin & Jenrette Securities Corporation, as
arranger of the credit facilities described herein.
"ASSET SALE" means the sale by Company or any of its Subsidiaries to any
Person other than Company or any of its wholly-owned Subsidiaries of (i) any of
the equity ownership of any of Company's Subsidiaries (other than directors'
qualifying shares), (ii) substantially all of the assets of any division or
4
<PAGE>
line of business of Company or any of its Subsidiaries, or (iii) any other
assets (whether tangible or intangible) of Company or any of its Subsidiaries
(other than (a) inventory sold in the ordinary course of business, (b) Cash
Equivalents, (c) obsolete or surplus equipment sold for not in excess of
$2,000,000 in the aggregate for each Fiscal Year but only to the extent of any
Net Asset Sale Proceeds therefrom that are reinvested in any property, plant or
equipment of Company or its Subsidiary, and (d) any such other assets to the
extent that (i) the aggregate value of such assets sold in any single
transaction or related series of transactions is equal to $1,000,000 or less and
(ii) the aggregate value of such assets sold in any Fiscal Year is equal to
$2,000,000 or less).
"ASSIGNMENT AGREEMENT" means an Assignment Agreement in substantially the
form of Exhibit XI annexed hereto.
----------
"BANKRUPTCY CODE" means Title 11 of the United States Code entitled
"Bankruptcy", as now and hereafter in effect, or any successor statute.
"BASE RATE" means, at any time, the higher of (x) the Prime Rate or (y) the
rate which is 1/2 of 1% in excess of the Federal Funds Effective Rate.
"BASE RATE LOANS" means Loans bearing interest at rates determined by
reference to the Base Rate as provided in subsection 2.2A.
"BASE RATE MARGIN" has the meaning assigned to such term in subsection
2.2A(i)(a)(I).
"BUSINESS" means, at any time of determination, the business of Holdings
and its Subsidiaries as conducted immediately prior to the Closing Date. Upon
the consummation of the Transactions, Company and its Subsidiaries will engage
in the Business and other activities to the extent permitted under subsection
7.14.
"BUSINESS DAY" means for all purposes other than as covered by the
definition of Eurodollar Business Day, any day excluding Saturday, Sunday and
any day which is a legal holiday under the laws of New York, New York,
Minneapolis, Minnesota, San Francisco, California or is a day on which banking
institutions located in such state are authorized or required by law or other
governmental action to close.
"CAPITAL LEASE", as applied to any Person, means any lease of any property
(whether real, personal or mixed) by that Person as lessee that, in conformity
with GAAP, is accounted for as a capital lease on the balance sheet of that
Person.
5
<PAGE>
"CASH" means money, currency or a credit balance in a Deposit Account.
"CASH EQUIVALENTS" means, as at any date of determination, (i) marketable
securities (a) issued or directly and unconditionally guaranteed as to interest
and principal by the United States Government or (b) issued by any agency of the
United States the obligations of which are backed by the full faith and credit
of the United States, in each case maturing within one year after such date;
(ii) marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof, in each case maturing within one year after such date
and having, at the time of the acquisition thereof, the highest rating
obtainable from either Standard & Poor's Ratings Group ("S&P") or Moody's
Investors Service, Inc. ("MOODY'S"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and having, at the time of the
acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from
Moody's; (iv) certificates of deposit or bankers' acceptances maturing within
one year after such date and issued or accepted by any Lender or by any
commercial bank organized under the laws of the United States of America or any
state thereof or the District of Columbia that (a) is at least "adequately
capitalized" (as defined in the regulations of its primary Federal banking
regulator) and (b) has Tier 1 capital (as defined in such regulations) of not
less than $100,000,000; and (v) shares of any money market mutual fund that (a)
has at least 95% of its assets invested continuously in the types of investments
referred to in clauses (i) and (ii) above, (b) has net assets of not less than
$500,000,000, and (c) has the highest rating obtainable from either S&P or
Moody's.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. (S)(S) 9601 et seq.), as amended.
-- ---
"CERTIFICATE RE NON-BANK STATUS" means a certificate substantially in the
form of Exhibit XII annexed hereto delivered by a Lender to Administrative Agent
-----------
pursuant to subsection 2.7B(iii).
"CLOSING DATE" means April 21, 1998.
"COLLATERAL" means, collectively, all of the real, personal and mixed
property (including capital stock) in which Liens are purported to be granted
pursuant to the Collateral Documents as security for the Obligations.
"COLLATERAL DOCUMENTS" means the Holdings Pledge Agreement, the Company
Copyright Security Agreement, the Company Pledge Agreement, the Company Security
Agreement, the Company Patent Security Agreement, the Company Trademark Security
6
<PAGE>
Agreement, the Subsidiary Pledge Agreements, the Subsidiary Security Agreements,
the Subsidiary Copyright Security Agreements, the Subsidiary Patent Security
Agreements, the Subsidiary Trademark Security Agreements, the Mortgages and all
other instruments or documents delivered by any Loan Party pursuant to this
Agreement or any of the other Loan Documents in order to grant to Administrative
Agent, on behalf of Lenders, a Lien on any real, personal or mixed property of
that Loan Party as security for the Obligations.
"COMMERCIAL LETTER OF CREDIT" means any letter of credit payable on sight
or similar instrument issued for the purpose of providing the primary payment
mechanism in connection with the purchase of any materials, goods or services by
Company or any of its Subsidiaries in the ordinary course of business of Company
or such Subsidiary.
"COMMITMENTS" means the commitments of Lenders to make Loans as set forth
in subsection 2.1A.
"COMPANY" has the meaning assigned to that term in the introduction to this
Agreement.
"COMPANY COPYRIGHT SECURITY AGREEMENT" means the Company Copyright Security
Agreement executed and delivered by Company on the Closing Date, substantially
in the form of Exhibit XV annexed hereto, as such Company Copyright Security
----------
Agreement may thereafter be amended, supplemented or otherwise modified from
time to time.
"COMPANY PATENT SECURITY AGREEMENT" means the Company Patent Security
Agreement executed and delivered by Company on the Closing Date, substantially
in the form of Exhibit XVII annexed hereto, as such Company Patent Security
------------
Agreement may thereafter be amended, supplemented or otherwise modified from
time to time.
"COMPANY PLEDGE AGREEMENT" means the Company Pledge Agreement executed and
delivered by Company on the Closing Date, substantially in the form of Exhibit
-------
XIII annexed hereto, as such Company Pledge Agreement may thereafter be amended,
- ----
supplemented or otherwise modified from time to time.
"COMPANY SECURITY AGREEMENT" means the Company Security Agreement executed
and delivered by Company on the Closing Date, substantially in the form of
Exhibit XIV annexed hereto, as such Company Security Agreement may thereafter be
- -----------
amended, supplemented or otherwise modified from time to time.
"COMPANY TRADEMARK SECURITY AGREEMENT" means the Company Trademark Security
Agreement executed and delivered by Company on the Closing Date, substantially
in the form of Exhibit XVI annexed hereto, as such Company Trademark Security
-----------
Agreement
7
<PAGE>
may thereafter be amended, supplemented or otherwise modified from time to time.
"COMPLIANCE CERTIFICATE" means a certificate substantially in the form of
Exhibit VIII annexed hereto delivered to Administrative Agent and Lenders by
- ------------
Company pursuant to subsection 6.1(iv).
"CONFORMING LEASEHOLD INTEREST" means any Recorded Leasehold Interest as to
which the lessor has agreed in writing for the benefit of Administrative Agent
(which writing has been delivered to Administrative Agent), whether under the
terms of the applicable lease, under the terms of a Landlord Consent and
Estoppel, or otherwise, to the matters described in the definition of "Landlord
Consent and Estoppel," which interest, if a subleasehold or sub-subleasehold
interest, is not subject to any contrary restrictions contained in a superior
lease or sublease.
"CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, the sum of (i)
the aggregate of all expenditures (whether paid in cash or other consideration
or accrued as a liability and including that portion of Capital Leases which is
capitalized on the consolidated balance sheet of Company and its Subsidiaries)
by Company and its Subsidiaries during that period that, in conformity with
GAAP, are included in "purchases of property, plant and equipment" or comparable
items reflected in the consolidated statement of cash flows of Company and its
Subsidiaries plus (ii) to the extent not covered by clause (i) of this
----
definition, the aggregate of all expenditures by Company and its Subsidiaries
during that period to acquire (by purchase or otherwise) the business, property
or fixed assets of any Person, or the stock or other evidence of beneficial
ownership of any Person in accordance with the provisions of subsection 7.7(ii)
that, as a result of such acquisition, becomes a Subsidiary of Company.
"CONSOLIDATED CURRENT ASSETS" means, as at any date of determination, the
total assets of Company and its Subsidiaries on a consolidated basis which may
properly be classified as current assets in conformity with GAAP, excluding Cash
and Cash Equivalents.
"CONSOLIDATED CURRENT LIABILITIES" means, as at any date of determination,
the total liabilities of Company and its Subsidiaries on a consolidated basis
which may properly be classified as current liabilities in conformity with GAAP,
excluding the current portion of any Indebtedness.
"CONSOLIDATED EBITDA" means, for any period, without duplication, the sum
of the amounts for such period of (i) Consolidated Net Income, (ii) Consolidated
Interest Expense (excluding any interest income received by Company and its
8
<PAGE>
Subsidiaries to the extent included in Consolidated Net Income), (iii)
provisions for taxes based on income, (iv) total depreciation expense, (v) total
amortization expense (including, without limitation, non-cash financing fees,
goodwill, organization costs and expenses, inventory write-ups associated with
purchase accounting pursuant to APB No. 16 or 17), and (vi) other non-cash items
reducing Consolidated Net Income less other non-cash items increasing
----
Consolidated Net Income, all of the foregoing as determined on a consolidated
basis for Company and its Subsidiaries in conformity with GAAP.
"CONSOLIDATED EXCESS CASH FLOW" means, for any period, an amount (if
positive) equal to (i) the sum, without duplication, of the amounts for such
period of (a) Consolidated EBITDA and (b) the Consolidated Working Capital
Adjustment minus (ii) the sum, without duplication, of the amounts for such
-----
period of (a) mandatory and scheduled repayments of Consolidated Total Debt
(excluding repayments of Revolving Loans except to the extent the Revolving Loan
Commitments are permanently reduced in connection with such repayments), (b)
voluntary prepayments of Consolidated Total Debt permitted under this Agreement
to the extent such Consolidated Total Debt is permanently reduced in connection
with such repayments (excluding repayments of Revolving Loans except to the
extent the Revolving Loan Commitments are permanently reduced in connection with
such payments), (c) Consolidated Capital Expenditures paid in cash (without
duplication, net of any proceeds of any related debt or equity financings with
respect to such expenditures), (d) Consolidated Interest Expense, (e) the
payment of or provision for current taxes of Holdings and its Subsidiaries on a
consolidated basis, including those specified in the Tax Sharing Agreement, and
payable in cash with respect to such period, and (f) fees and expenses incurred
by Company relating to Hedge Agreements.
"CONSOLIDATED FIXED CHARGES" means, for any period, the sum (without
duplication) of the amounts for such period of (i) Consolidated Interest
Expense, (ii) Consolidated Capital Expenditures, (iii) scheduled principal
payments in respect of Consolidated Total Debt, and (iv) dividends made by
Company to Holdings permitted under subsection 7.5(ii) to allow Holdings to make
scheduled interest payments on the Holdings Discount Debentures after the fifth
anniversary of the Closing Date, all of the foregoing as determined on a
consolidated basis for Company and its Subsidiaries in conformity with GAAP;
provided that for the purposes of calculating the Consolidated Fixed Charges in
- --------
connection with the Minimum Fixed Charge Coverage Ratio in subsection 7.6A,
Consolidated Capital Expenditures shall be reduced by the amount of any
expenditures of Company or any of its Subsidiaries in connection with any
Permitted Acquisition permitted under subsection 7.7(ii) to the extent that such
expenditures are made at the time of such acquisition and constitute
Consolidated Capital Expenditures and any and all
9
<PAGE>
expenditures made in connection with such Permitted Acquisition thereafter shall
constitute Consolidated Capital Expenditures for the purposes of the foregoing.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, total interest
expense net of any interest income received by Company or any of its
Subsidiaries (including that portion of interest expense attributable to Capital
Leases in accordance with GAAP and capitalized interest) of Company and its
Subsidiaries on a consolidated basis with respect to all outstanding
Indebtedness of Company and its Subsidiaries, including all commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing and net costs under Interest Rate Agreements, but
excluding, however, any amounts referred to in subsection 2.3 payable to
Arranger and Agents on or before the Closing Date.
"CONSOLIDATED LEVERAGE RATIO" means, for any period, the ratio of (a)
Consolidated Total Debt to (b) Consolidated EBITDA for the consecutive four
Fiscal Quarters ending on the last day of any Fiscal Quarter; provided that for
--------
the calculation of the Consolidated Leverage Ratio under this Agreement for any
purpose, to the extent that during the period for which calculation is being
made, Company or any Subsidiary of Company has made a Permitted Acquisition
permitted under subsection 7.7(ii) or has disposed of any assets or operations
in an amount for any such transaction or series of related transactions
exceeding $5,000,000, (i) such calculation shall be made as if such Permitted
Acquisition or such disposition took place on the first day of such period on a
pro forma basis for the portion of such period prior to the date of such
- --- -----
Permitted Acquisition or after the date of such disposition and on an actual
basis for the portion of such period after the date of such Permitted
Acquisition or before the date of such disposition, (ii) such calculations shall
be made after giving effect to the incurrence, assumption or repayment of any
Indebtedness made in connection with such acquisition or disposition, and (iii)
such calculation shall be made after giving retroactive effect to demonstrable
net cost eliminations or net cost savings arising by virtue of such Permitted
Acquisition (such as inflated employee owner compensation), which cost
eliminations and cost savings are demonstrated in the Officer's Certificate
required under subsection 7.7 and (A) are consistent with standards and
practices for pro forma presentation pursuant to Regulation S-X as promulgated
--- -----
by the Securities and Exchange Commission and are reviewed by Company's
independent accountants, or (B) are reasonably satisfactory to Requisite
Lenders. With respect to any such Permitted Acquisition, such pro forma
--- -----
calculations shall be based on the audited or reviewed financial results
delivered in compliance with clause (d)(3) of subsection 7.7(ii).
"CONSOLIDATED NET INCOME" means, for any period, the net income (or loss)
of Company and its Subsidiaries on a
10
<PAGE>
consolidated basis for such period taken as a single accounting period
determined in conformity with GAAP; provided that there shall be excluded (i)
--------
the income (or loss) of any Person (other than a Subsidiary of Company) in which
any other Person (other than Company or any of its Subsidiaries) has a joint
interest, except to the extent of the amount of dividends or other distributions
actually paid to Company or any of its Subsidiaries by such Person during such
period, (ii) the income (or loss) of any Person accrued prior to the date it
becomes a Subsidiary of Company or is merged into or consolidated with Company
or any of its Subsidiaries or that Person's assets are acquired by Company or
any of its Subsidiaries, (iii) the income of any Subsidiary of Company to the
extent that the declaration or payment of dividends or similar distributions by
that Subsidiary of that income is not at the time permitted by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Subsidiary, (iv) any
after-tax gains or losses attributable to Asset Sales or returned surplus assets
of any Pension Plan, and (v) (to the extent not included in clauses (i) through
(iv) above) any net extraordinary gains or net non-cash extraordinary losses.
"CONSOLIDATED RENTAL PAYMENTS" means, for any period, the aggregate amount
of all rents paid or payable by Company and its Subsidiaries on a consolidated
basis during that period under all Capital Leases and Operating Leases to which
Company or any of its Subsidiaries is a party as lessee.
"CONSOLIDATED TOTAL DEBT" means, as at any date of determination, the
aggregate stated balance sheet amount of all Indebtedness of Company and its
Subsidiaries, determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED WORKING CAPITAL" means, as at any date of determination, the
excess (or deficit) of Consolidated Current Assets over Consolidated Current
Liabilities.
"CONSOLIDATED WORKING CAPITAL ADJUSTMENT" means, for any period on a
consolidated basis, the amount (which may be a negative number) by which
Consolidated Working Capital as of the beginning of such period exceeds (or is
less than) Consolidated Working Capital as of the end of such period.
"CONTINGENT OBLIGATION", as applied to any Person, means any direct or
indirect liability, contingent or otherwise, of that Person (i) with respect to
any Indebtedness, lease, dividend or other obligation of another if the primary
purpose or intent thereof by the Person incurring the Contingent Obligation is
to provide assurance to the obligee of such obligation of another that such
obligation of another will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such obligation
will be
11
<PAGE>
protected (in whole or in part) against loss in respect thereof, (ii) with
respect to any letter of credit issued for the account of that Person or as to
which that Person is otherwise liable for reimbursement of drawings, or (iii)
under Hedge Agreements. Contingent Obligations shall include (a) the direct or
indirect guaranty, endorsement (otherwise than for collection or deposit in the
ordinary course of business), co-making, discounting with recourse or sale with
recourse by such Person of the obligation of another, (b) the obligation to make
take-or-pay or similar payments if required regardless of non-performance by any
other party or parties to an agreement, and (c) any liability of such Person for
the obligation of another through any agreement (contingent or otherwise) (X) to
purchase, repurchase or otherwise acquire such obligation or any security
therefor, or to provide funds for the payment or discharge of such obligation
(whether in the form of loans, advances, stock purchases, capital contributions
or otherwise) or (Y) to maintain the solvency or any balance sheet item, level
of income or financial condition of another if, in the case of any agreement
described under subclauses (X) or (Y) of this sentence, the primary purpose or
intent thereof is as described in the preceding sentence. The amount of any
Contingent Obligation shall be equal to the amount of the obligation so
guaranteed or otherwise supported or, if less, the amount to which such
Contingent Obligation is specifically limited.
"CONTRACTUAL OBLIGATION", as applied to any Person, means any provision of
any Security issued by that Person or of any material indenture, mortgage, deed
of trust, contract, undertaking, agreement or other instrument to which that
Person is a party or by which it or any of its properties is bound or to which
it or any of its properties is subject.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement, futures contract, option contract, synthetic cap or other similar
agreement or arrangement to which Company or any of its Subsidiaries is a party.
"COMMODITY AGREEMENT" means any commodity swap agreement, futures contract,
option contract or other similar agreement or arrangement to which Company or
any of its Subsidiaries is a party.
"DEPOSIT ACCOUNT" means a demand, time, savings, passbook or like account
with a bank, savings and loan association, credit union or like organization,
other than an account evidenced by a negotiable certificate of deposit.
"DLJ" has the meaning assigned to that term in the introduction to this
Agreement.
"DOLLARS" and the sign "$" mean the lawful money of the United States of
America.
12
<PAGE>
"DOMESTIC SUBSIDIARY" means a Subsidiary organized under the laws of the
United States or any state or territory thereof or the District of Columbia.
"ELIGIBLE ASSIGNEE" means (A) (i) a commercial bank organized under the
laws of the United States or any state thereof; (ii) a savings and loan
association or savings bank organized under the laws of the United States or any
state thereof; (iii) a commercial bank organized under the laws of any other
country or a political subdivision thereof; provided that such bank is acting
--------
through a branch or agency located in the United States; and (iv) any other
entity which is an "accredited investor" (as defined in Regulation D under the
Securities Act) which extends credit or buys loans as one of its businesses
including insurance companies, mutual funds and lease financing companies; and
(B) any Lender and any Affiliate of any Lender; provided that no Affiliate of
--------
Company shall be an Eligible Assignee. Notwithstanding the foregoing, no direct
competitor of Holdings or any of its Subsidiaries should be an Eligible Assignee
for purposes of this Agreement.
"EMPLOYEE BENEFIT PLAN" means any "employee benefit plan" as defined in
Section 3(3) of ERISA which is or was maintained or contributed to by Company,
any of its Subsidiaries or any of their respective ERISA Affiliates.
"ENVIRONMENTAL CLAIM" means any investigation, notice, notice of violation
(including, without limitation, any notice of violation of or non-compliance
with the terms of any permit, license, or other required approval from a
governmental agency or notice of a failure to obtain any such permit, license,
or other required approval), claim, action, suit, proceeding, demand, abatement
order or other order or directive (conditional or otherwise), by any
governmental authority or any other Person, arising (i) pursuant to or in
connection with any actual or alleged violation of any Environmental Law, (ii)
in connection with any Hazardous Materials or any actual or alleged Hazardous
Materials Activity, or (iii) in connection with any actual or alleged damage,
injury, threat or harm to health, safety, natural resources or the environment.
"ENVIRONMENTAL LAWS" means any and all current or future statutes,
ordinances, orders, rules, regulations, judgments, Governmental Authorizations,
or any other requirements of governmental authorities relating to (i)
environmental matters, including those relating to any Hazardous Materials
Activity, (ii) the generation, use, storage, transportation or disposal of
Hazardous Materials, or (iii) occupational safety and health, industrial
hygiene, land use or the protection of human, plant or animal health or welfare,
in any manner applicable to Company or any of its Subsidiaries or any Facility,
including CERCLA, the Hazardous Materials Transportation Act (49 U.S.C. (S) 1801
et seq.), the Resource Conservation and Recovery Act (42
- -- ---
13
<PAGE>
U.S.C. (S) 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. (S)
-- ---
1251 et seq.), the Clean Air Act (42 U.S.C. (S) 7401 et seq.), the Toxic
-- --- -- ---
Substances Control Act (15 U.S.C. (S) 2601 et seq.), the Federal Insecticide,
-- ---
Fungicide and Rodenticide Act (7 U.S.C. (S)136 et seq.), the Occupational Safety
-- ---
and Health Act (29 U.S.C. (S) 651 et seq.), the Oil Pollution Act (33 U.S.C. (S)
-- ---
2701 et seq) and the Emergency Planning and Community Right-to-Know Act (42
------
U.S.C. (S) 11001 et seq.)("EPCRA"), the Maine Toxics Use Reduction Act (38 Maine
-- ---
Rev'd Stat (S) 2303, et seq.), each as amended or supplemented, any analogous
------
present or future state or local statutes or laws, and any regulations
promulgated pursuant to any of the foregoing.
"EQUITY DISTRIBUTIONS" has the meaning assigned to such term in subsection
4.1.F(iii).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor thereto.
"ERISA AFFILIATE" means, as applied to any Person, (i) any corporation
which is a member of a controlled group of corporations within the meaning of
Section 414(b) of the Internal Revenue Code of which that Person is a member;
(ii) any trade or business (whether or not incorporated) which is a member of a
group of trades or businesses under common control within the meaning of Section
414(c) of the Internal Revenue Code of which that Person is a member; and (iii)
any member of an affiliated service group within the meaning of Section 414(m)
or (o) of the Internal Revenue Code of which that Person, any corporation
described in clause (i) above or any trade or business described in clause (ii)
above is a member. Any former ERISA Affiliate of Company or any of its
Subsidiaries shall continue to be considered an ERISA Affiliate of Company or
such Subsidiary within the meaning of this definition with respect to the period
such entity was an ERISA Affiliate of Company or such Subsidiary and with
respect to liabilities arising after such period for which Company or such
Subsidiary could be liable under the Internal Revenue Code or ERISA.
"ERISA EVENT" means (i) a "reportable event" within the meaning of Section
4043 of ERISA and the regulations issued thereunder with respect to any Pension
Plan (excluding those for which the provision for 30-day notice to the PBGC has
been waived by regulation); (ii) the failure to meet the minimum funding
standard of Section 412 of the Internal Revenue Code with respect to any Pension
Plan (whether or not waived in accordance with Section 412(d) of the Internal
Revenue Code) or the failure to make by its due date a required installment
under Section 412(m) of the Internal Revenue Code with respect to any Pension
Plan or the failure to make any required contribution to a Multiemployer Plan;
(iii) the provision by the administrator of any Pension Plan pursuant to Section
4041(a)(2) of ERISA of a notice of
14
<PAGE>
intent to terminate such plan in a distress termination described in Section
4041(c) of ERISA; (iv) the withdrawal by Company, any of its Subsidiaries or any
of their respective ERISA Affiliates from any Pension Plan with two or more
contributing sponsors or the termination of any such Pension Plan resulting in
liability pursuant to Section 4063 or 4064 of ERISA; (v) the institution by the
PBGC of proceedings to terminate any Pension Plan, or the occurrence of any
event or condition which might constitute grounds under ERISA for the
termination of, or the appointment of a trustee to administer, any Pension Plan;
(vi) the imposition of liability on Company, any of its Subsidiaries or any of
their respective ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA
or by reason of the application of Section 4212(c) of ERISA; (vii) the
withdrawal of Company, any of its Subsidiaries or any of their respective ERISA
Affiliates in a complete or partial withdrawal (within the meaning of Sections
4203 and 4205 of ERISA) from any Multiemployer Plan if there is any potential
liability therefor, or the receipt by Company, any of its Subsidiaries or any of
their respective ERISA Affiliates of notice from any Multiemployer Plan that it
is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or
that it intends to terminate or has terminated under Section 4041A or 4042 of
ERISA; (viii) the occurrence of an act or omission which could give rise to the
imposition on Company, any of its Subsidiaries or any of their respective ERISA
Affiliates of fines, penalties, taxes or related charges under Chapter 43 of the
Internal Revenue Code or under Section 409, Section 502(c), (i) or (l), or
Section 4071 of ERISA in respect of any Employee Benefit Plan which,
individually or in the aggregate, will have a reasonable possibility of giving
rise to a Material Adverse Effect; (ix) the assertion of a material claim (other
than routine claims for benefits) against any Employee Benefit Plan other than a
Multiemployer Plan or the assets thereof which could result in a claim against
Company or any of its Subsidiaries, or against Company, any of its Subsidiaries
or any of their respective ERISA Affiliates in connection with any Employee
Benefit Plan; (x) receipt from the Internal Revenue Service of notice of the
failure of any Pension Plan (or any other Employee Benefit Plan intended to be
qualified under Section 401(a) of the Internal Revenue Code) to qualify under
Section 401(a) of the Internal Revenue Code, or the failure of any trust forming
part of any Pension Plan to qualify for exemption from taxation under Section
501(a) of the Internal Revenue Code; or (xi) the imposition of a Lien pursuant
to Section 401(a)(29) or 412(n) of the Internal Revenue Code or pursuant to
ERISA with respect to any Pension Plan.
"EURODOLLAR BUSINESS DAY" means any day (i) excluding Saturday, Sunday and
any day that is a legal holiday under the laws of the State of California or is
a day on which banking institutions located in such State are authorized or
required by law, or other governmental action to close and (ii) on which
15
<PAGE>
commercial banks are open for trading in Dollar deposits in the London interbank
eurodollar market.
"EURODOLLAR RATE LOANS" means Loans bearing interest at rates determined by
reference to the Adjusted Eurodollar Rate as provided in subsection 2.2A.
"EURODOLLAR RATE MARGIN" has the meaning assigned to such term in
subsection 2.2A(i)(a)(II).
"EVENT OF DEFAULT" means each of the events set forth in Section 8.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from
time to time, and any successor statute.
"EXISTING CREDIT AGREEMENT" means that certain Credit Agreement dated as of
March 2, 1995 by and between Holdings and First Bank National Association, as
amended, supplemented or otherwise modified prior to the Closing Date.
"EXISTING INDEBTEDNESS" means all Indebtedness of Holdings and its
Subsidiaries outstanding under (i) the Existing Credit Agreement, (ii) Existing
IRB Loan Agreement, (iii) the Existing Tax Increment Financing Agreement and
(iv) Existing Smart E Bond Loan Agreement.
"EXISTING LETTERS OF CREDIT" has the meaning assigned to such term in
subsection 3.1B(v).
"EXISTING SHAREHOLDERS" has the meaning assigned to such term in the
recitals to this Agreement.
"EXISTING IRB LOAN AGREEMENT" means that certain Loan Agreement dated as of
December 1, 1986, by and between Holdings and City of Cloquet, as amended,
supplemented or otherwise modified prior to the Closing Date.
"EXISTING SMART E BOND LOAN AGREEMENT" means that certain Loan Agreement
dated as of November 20, 1990, by and among Forster Mfg., Key Bank of Maine,
Shawmut Bank and the Finance Authority of Maine, as amended, supplemented or
otherwise modified prior to the Closing Date.
"EXISTING TAX INCREMENT FINANCING AGREEMENT" means that certain Credit
Agreement dated as of December 15, 1990 by and between Key Bank of Maine and
Forster Mfg., as amended, supplemented or otherwise modified prior to the
Closing Date.
"FACILITIES" means any and all real property (including all buildings,
fixtures or other improvements located thereon) now, hereafter or heretofore
owned, leased, operated or used by
16
<PAGE>
Company or any of its Subsidiaries or any of their respective predecessors.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any period, a fluctuating
interest rate equal for each day during such period to the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by Administrative Agent from three Federal funds brokers
of recognized standing selected by Administrative Agent.
"FINANCIAL PLAN" has the meaning assigned to that term in subsection
6.1(xiii).
"FIRST PRIORITY" means, with respect to any Lien purported to be created in
any Collateral pursuant to any Collateral Document, that (i) such Lien has
priority over any other Lien on such Collateral (other than Permitted
Encumbrances and Liens permitted pursuant to subsection 7.2A) and (ii) such Lien
is the only Lien (other than Permitted Encumbrances and Liens permitted pursuant
to subsection 7.2A) to which such Collateral is subject.
"FISCAL QUARTER" means a fiscal quarter of any Fiscal Year.
"FISCAL YEAR" means the fiscal year of Holdings and its Subsidiaries ending
on December 31 of each calendar year.
"FLOOD HAZARD PROPERTY" means a Mortgaged Property located in an area
designated by the Federal Emergency Management Agency as having special flood or
mud slide hazards.
"FOREIGN SUBSIDIARY" means any Subsidiary that is not a Domestic
Subsidiary.
"FORSTER MFG." means Forster Mfg. Co., Inc., a Maine corporation and (i)
prior to the Closing Date and the consummation of the Recapitalization, a direct
wholly-owned Subsidiary of Holdings, and (ii) upon the consummation of the
Recapitalization, a direct wholly-owned Subsidiary of Company.
"FUNDING AND PAYMENT OFFICE" means (i) the office of Administrative Agent
and Swing Line Lender located at 201 Third Street, 8th Floor, San Francisco,
California 94103, or (ii) such other office of Administrative Agent and Swing
Line Lender as may from time to time hereafter be designated as such in a
written notice delivered by Administrative Agent and Swing Line Lender to
Company and each Lender.
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<PAGE>
"FUNDING DATE" means the date of the funding of a Loan.
"GAAP" means, subject to the limitations on the application thereof set
forth in subsection 1.2, generally accepted accounting principles set forth in
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession, in each case as the same are applicable to the circumstances as of
the date of determination.
"GOVERNMENTAL AUTHORIZATION" means any permit, license, authorization,
plan, directive, consent order or consent decree of or from any federal, state
or local governmental authority, agency or court.
"GUARANTIES" means the Holdings Guaranty and the Subsidiary Guaranty.
"HAZARDOUS MATERIALS" means (i) any chemical, material or substance at any
time defined as or included in the definition of "hazardous substances",
"hazardous wastes", "hazardous materials", "extremely hazardous waste", acutely
hazardous waste", "radioactive waste", "biohazardous waste", "pollutant", "toxic
pollutant", "contaminant", "restricted hazardous waste", "infectious waste",
"toxic substances", or any other term or expression intended to define, list or
classify substances by reason of properties harmful to health, safety or the
indoor or outdoor environment (including harmful properties such as
ignitability, corrosivity, reactivity, carcinogenicity, toxicity, reproductive
toxicity, "TCLP toxicity" or "EP toxicity" or words of similar import under any
applicable Environmental Laws); (ii) any oil, petroleum, petroleum fraction or
petroleum derived substance; (iii) any drilling fluids, produced waters and
other wastes associated with the exploration, development or production of crude
oil, natural gas or geothermal resources; (iv) any flammable substances or
explosives; (v) any radioactive materials including radon; (vi) any asbestos-
containing or lead-containing materials; (vii) urea formaldehyde foam
insulation; (viii) electrical equipment which contains any oil or dielectric
fluid containing polychlorinated biphenyls; (ix) pesticides; (x) any underground
storage tank; (xi) any electromagnetic fields and (xii) any other chemical,
material or substance, exposure to which is prohibited, limited or regulated by
any governmental authority or which may or could pose a hazard to the health and
safety of the owners, occupants or any Persons in the vicinity of any Facility
or to the indoor or outdoor environment.
"HAZARDOUS MATERIALS ACTIVITY" means any past, current, proposed or
threatened activity, event or occurrence involving any Hazardous Materials,
including the use, manufacture,
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possession, storage, holding, presence, existence, location, Release, threatened
Release, discharge, placement, generation, transportation, processing,
construction, treatment, abatement, removal, remediation, disposal, disposition
or handling of any Hazardous Materials, and any corrective action or response
action with respect to any of the foregoing.
"HEDGE AGREEMENT" means an Interest Rate Agreement, a Currency Agreement or
a Commodity Agreement designed to hedge against fluctuations in interest rates,
currency values or commodity prices, respectively, entered into by Company or
any of its Subsidiaries in the ordinary course of business and not for purposes
of speculation.
"HOLDINGS" has the meaning assigned to such term in the recitals to this
Agreement.
"HOLDINGS CERTIFICATE OF DESIGNATION" means the Certificate of the Powers,
Designations, Preferences and Rights of the Series A Cummulative Preferred
Stock, par value $.01 per share, of Holdings Preferred Stock, as in effect on
the Closing Date and as such Holdings Certificate of Designation may be amended
from time to time to the extent permitted under subsection 7.15.
"HOLDINGS COMMON STOCK" has the meaning assigned to such term in the
recitals to this Agreement.
"HOLDINGS GUARANTY" means the Holdings Guaranty executed and delivered by
Holdings on the Closing Date, substantially in the form of Exhibit XXV annexed
-----------
hereto, as such Holdings Guaranty may be amended, supplemented or otherwise
modified from time to time.
"HOLDINGS DISCOUNT DEBENTURES" has the meaning assigned to such term in the
recitals to this Agreement and shall also include any notes evidencing such
Indebtedness incurred to refinance the Holdings Discount Debentures to the
extent permitted under subsection 7.1(viii).
"HOLDINGS DISCOUNT DEBENTURES INDENTURE" means the Indenture dated as of
April 21 between Holdings and State Street Bank and Trust Company, as trustee,
in respect of the Holdings Discount Debentures, as in effect on the Closing Date
and as such Holdings Discount Debentures Indenture may be amended from time to
time to the extent permitted under subsection 7.15. "Holdings Discount
Debentures Indenture" shall also include any other indenture or agreement in
respect of any Indebtedness incurred to refinance the Holdings Discount
Debentures pursuant to subsection 7.1(viii).
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"HOLDINGS DISCOUNT DEBENTURES MATERIAL " means the Confidential Offering
Memorandum dated April 15, 1998 relating to the Holdings Discount Debentures.
"HOLDINGS PLEDGE AGREEMENT" means the Pledge Agreement executed and
delivered by Holdings on the Closing Date, substantially in the form of Exhibit
-------
XXIV annexed hereto, as such Holdings Pledge Agreement may be amended,
- ----
supplemented or otherwise modified from time to time.
"HOLDINGS PREFERRED STOCK" has the meaning assigned to such term in the
recitals to this Agreement.
"HOLDINGS WARRANTS" has the meaning assigned to such term in the recitals
to this Agreement.
"INDEBTEDNESS", as applied to any Person, means (i) all indebtedness for
borrowed money, (ii) that portion of obligations with respect to Capital Leases
that is properly classified as a liability on a balance sheet in conformity with
GAAP, (iii) notes payable and drafts accepted representing extensions of credit
whether or not representing obligations for borrowed money, (iv) any obligation
owed for all or any part of the deferred purchase price of property or services
(excluding any such obligations incurred under ERISA), which purchase price is
(a) due more than six months from the date of incurrence of the obligation in
respect thereof or (b) evidenced by a note or similar written instrument, and
(v) all indebtedness secured by any Lien on any property or asset owned or held
by that Person regardless of whether the indebtedness secured thereby shall have
been assumed by that Person or is nonrecourse to the credit of that Person.
Obligations under Interest Rate Agreements, Currency Agreements and Commodity
Agreements constitute (X) in the case of Hedge Agreements, Contingent
Obligations, and (Y) in all other cases, Investments, and in neither case
constitute Indebtedness.
"INDEMNITEE" has the meaning assigned to that term in subsection 10.3.
"INTELLECTUAL PROPERTY" means all patents, trademarks, tradenames,
copyrights, technology, know-how and processes used in or necessary for the
conduct of the business of Company and its Subsidiaries (as conducted on or
after the date hereof by Holdings and its Subsidiaries) that are material to the
condition (financial or otherwise), business or operations of Company and its
Subsidiaries, taken as a whole.
"INTEREST PAYMENT DATE" means (i) with respect to any Base Rate Loan, the
last day of each March, June, September and December of each year, commencing on
the first such date to occur after the Closing Date, and (ii) with respect to
any Eurodollar Rate Loan, the last day of each Interest Period applicable to
20
<PAGE>
such Loan; provided that in the case of each Interest Period of longer than
--------
three months "Interest Payment Date" shall also include each date that is three
months, or a multiple thereof, after the commencement of such Interest Period.
"INTEREST PERIOD" has the meaning assigned to that term in subsection 2.2B.
"INTEREST RATE AGREEMENT" means any interest rate swap agreement, interest
rate cap agreement, interest rate collar agreement or other similar agreement or
arrangement to which Company or any of its Subsidiaries is a party.
"INTEREST RATE DETERMINATION DATE" means, with respect to any Interest
Period, the second Eurodollar Business Day prior to the first day of such
Interest Period.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended
to the date hereof and from time to time hereafter, and any successor statute.
"INVENTORY" means, with respect to any Person as of any date of
determination, all goods, merchandise and other personal property which are then
held by such Person for sale or lease, including raw materials and work in
process.
"INVESTMENT" means (i) any direct or indirect purchase or other acquisition
by Company or any of its Subsidiaries of, or of a beneficial interest in, any
Securities of any other Person (other than a Person that, prior to such purchase
or acquisition, was a Subsidiary of Company), (ii) any direct or indirect
redemption, retirement, purchase or other acquisition for value, by any
Subsidiary of Company from any Person other than Company or any of its
Subsidiaries, of any equity Securities of such Subsidiary, (iii) any direct or
indirect loan, advance (other than advances to employees for moving,
entertainment and travel expenses, drawing accounts and similar expenditures in
the ordinary course of business) or capital contribution by Company or any of
its Subsidiaries to any other Person (other than to a wholly-owned Subsidiary of
Company (in the case of Company) or to Company (in the case of Subsidiaries of
Company)), including all indebtedness and accounts receivable from that other
Person that are not current assets or did not arise from sales to that other
Person in the ordinary course of business, or (iv) Interest Rate Agreements,
Currency Agreements or Commodity Agreements not constituting Hedge Agreements.
The amount of any Investment shall be the original cost of such Investment plus
----
the cost of all additions thereto, without any adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment.
"IP COLLATERAL" means, collectively, the Collateral under the Company
Copyright Security Agreement, the Company
21
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Patent Security Agreement, the Company Trademark Security Agreement, the
Subsidiary Copyright Security Agreements, the Subsidiary Patent Security
Agreements, and the Subsidiary Trademark Security Agreements.
"IPO EVENT" means the public offering of Holdings Common Stock for an
aggregate offering price of no less than $25,000,000 in a single transaction.
"ISSUE" means, with respect to any Letter of Credit, to issue or to extend
the expiry of, or to renew or increase the amount of, such Letter of Credit; and
the terms "ISSUED," "ISSUING" and "ISSUANCE" have corresponding meanings.
"ISSUING LENDER" means, with respect to any Letter of Credit, the Revolving
Lender that agrees or is otherwise obligated to issue such Letter of Credit,
determined as provided in subsection 3.1B(ii).
"JOINT VENTURE" means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership or other legal form; provided
--------
that in no event shall any corporate Subsidiary of any Person be considered to
be a Joint Venture to which such Person is a party.
"LANDLORD CONSENT AND ESTOPPEL" means, with respect to any Leasehold
Property, a letter, certificate or other instrument in writing from the lessor
under the related lease, reasonably satisfactory in form and substance to
Syndication Agent (on or prior to the Closing Date) or Administrative Agent
(after the Closing Date), pursuant to which such lessor agrees, for the benefit
of Administrative Agent, (i) that without any further consent of such lessor or
any further action on the part of the Loan Party holding such Leasehold
Property, such Leasehold Property may be encumbered pursuant to a Mortgage and
may be assigned to the purchaser at a foreclosure sale or in a transfer in lieu
of such a sale (and to a subsequent third party assignee if Administrative
Agent, any Lender, or an Affiliate of either so acquires such Leasehold
Property), (ii) that such lessor shall not terminate such lease as a result of a
default by such Loan Party thereunder without first giving Administrative Agent
notice of such default and at least 30 days (or, if such default cannot
reasonably be cured by Administrative Agent within such period, such longer
period as may reasonably be required) to cure such default, and (iii) to such
other matters relating to such Leasehold Property as Administrative Agent may
reasonably request.
"L/C AMENDMENT APPLICATION" means an application form for amendment of
outstanding standby and commercial letters of credit as shall at any time be in
use at the Issuing Lender, as the Issuing Lender shall request.
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<PAGE>
"L/C-RELATED DOCUMENTS" means the Letters of Credit, the Notice of Issuance
of Letter of Credit, the L/C Amendment Applications and any other document
relating to any Letter of Credit, including any of the Issuing Lender's standard
form documents for letter of credit issuances.
"LEASEHOLD PROPERTY" means any leasehold interest of any Loan Party as
lessee under any lease of real property located in the United States of America.
"LENDER" and "LENDERS" means the persons identified as "Lenders" and listed
on the signature pages of this Agreement, together with their successors and
permitted assigns pursuant to subsection 10.1, and the term "Lenders" shall
include Swing Line Lender unless the context otherwise requires.
"LETTER OF CREDIT" or "LETTERS OF CREDIT" means Commercial Letters of
Credit and Standby Letters of Credit issued or to be issued by Issuing Lenders
for the account of Company or any wholly-owned Subsidiary of Company pursuant to
subsection 3.1.
"LETTER OF CREDIT USAGE" means, as at any date of determination, the sum of
(i) the maximum aggregate amount which is or at any time thereafter may become
available for drawing under all Letters of Credit then outstanding plus (ii) the
----
aggregate amount of all drawings under Letters of Credit honored by Issuing
Lenders and not theretofore reimbursed by Company (including any such
reimbursement out of the proceeds of Revolving Loans pursuant to subsection
3.3B).
"LIEN" means any lien, mortgage, pledge, assignment, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof, and any agreement to give
any security interest) and any option, trust or other preferential arrangement
having the practical effect of any of the foregoing.
"LOAN" or "LOANS" means one or more of the Tranche A Term Loans, Tranche B
Term Loans, Revolving Loans or Swing Line Loans or any combination thereof.
"LOAN DOCUMENTS" means this Agreement, the Notes, the Letters of Credit
(and any applications for, or reimbursement agreements or other documents or
certificates executed by Company in favor of an Issuing Lender relating to, the
Letters of Credit), the Guaranties and the Collateral Documents.
"LOAN PARTY" means each of Company, Holdings and any of Company's
Subsidiaries from time to time executing a Loan Document, and "LOAN PARTIES"
means all such Persons, collectively.
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<PAGE>
"MARGIN DETERMINATION CERTIFICATE" means an Officer's Certificate of
Company delivered pursuant to 6.1(iv) setting forth in reasonable detail the
Consolidated Leverage Ratio for the four-Fiscal Quarter period ending as of the
last day of the Fiscal Quarter during which such Officer's Certificate is
delivered.
"MARGIN STOCK" has the meaning assigned to that term in Regulation U of the
Board of Governors of the Federal Reserve System as in effect from time to time.
"MATERIAL ADVERSE EFFECT" means (i) a material adverse effect on the
business, properties, financial condition, results of operation, assets,
prospects of the Business or the liabilities of Holdings and its Subsidiaries,
taken as a whole; provided that, in no event shall the foregoing apply with
--------
respect to any matter which would not reasonably be likely to result in a net
cost in excess of $5,000,000 following the Closing Date (excluding any cost
reflected in the Working Capital Adjustment (as such term is defined in the
Recapitalization Agreement)), or (ii) a material impairment of the operations of
the Business or the right and ability of any Loan Party to perform, or of
Administrative Agent or any Lender to enforce, the Obligations (other than any
such impairment resulting from Administrative Agent's or any such Lender's
actions or failure to act).
"MATERIAL CONTRACT" means any contract or other arrangement to which
Company or any of its Subsidiaries is a party (other than the Loan Documents)
for which breach, nonperformance, cancellation or failure to renew could have a
Material Adverse Effect.
"MATERIAL LEASEHOLD PROPERTY" means a Leasehold Property reasonably
determined by Syndication Agent (on or prior to the Closing Date) or
Administrative Agent (after the Closing Date) to be of material value as
Collateral or of material importance to the operations of Company or any of its
Subsidiaries.
"MORTGAGE" means (i) a security instrument (whether designated as a deed of
trust or a mortgage or by any similar title) executed and delivered by any Loan
Party, substantially in the form of Exhibit XXVI annexed hereto or in such other
------------
form as may be approved by Syndication Agent (on or prior to the Closing Date)
or Administrative Agent (after the Closing Date) in its sole discretion, in each
case with such changes thereto as may be recommended by Administrative Agent's
local counsel based on local laws or customary local mortgage or deed of trust
practices, or (ii) at the option of Administrative Agent, in the case of an
Additional Mortgaged Property (as defined in subsection 6.9), an amendment to an
existing Mortgage, in form satisfactory to Administrative Agent, adding such
Additional Mortgaged Property to the Real Property Assets encumbered by such
24
<PAGE>
existing Mortgage, in either case as such security instrument or amendment may
be amended, supplemented or otherwise modified from time to time. "MORTGAGES"
means all such instruments, including any Additional Mortgages (as defined in
subsection 6.9), collectively.
"MORTGAGED PROPERTY" means a Closing Date Mortgaged Property (as defined in
subsection 4.1C) or an Additional Mortgaged Property (as defined in subsection
6.9).
"MULTIEMPLOYER PLAN" means any Employee Benefit Plan which is a
"multiemployer plan" as defined in Section 3(37) of ERISA.
"NET ASSET SALE PROCEEDS" means, with respect to any Asset Sale, Cash
payments (including any Cash received by way of deferred payment pursuant to, or
by monetization of, a note receivable or otherwise, but only as and when so
received) received from such Asset Sale, net of any bona fide direct costs or
expenses incurred in connection with such Asset Sale, including (i) income taxes
reasonably estimated to be actually payable within two years of the date of such
Asset Sale as a result of any gain recognized in connection with such Asset
Sale, (ii) payment of the outstanding principal amount of, premium or penalty,
if any, and interest on any Indebtedness (other than the Loans) that is secured
by a Lien on the stock or assets in question and that is required to be repaid
under the terms thereof, or by applicable law, as a result of such Asset Sale,
(iii) all distributions and other payments required to be and actually made to
minority interest holders in Subsidiaries of Company or Joint Ventures to which
Company or any of its Subsidiaries is a party as a result of such Asset Sale,
and (iv) any amounts held in an escrow account as a reserve against any
liabilities of Company or its Subsidiaries associated with the asset disposed in
such Asset Sale.
"NET INSURANCE/CONDEMNATION PROCEEDS" means any Cash payments or proceeds
received by Company or any of its Subsidiaries (i) under any business
interruption or casualty insurance policy in respect of a covered loss
thereunder or (ii) as a result of the taking of any assets of Company or any of
its Subsidiaries by any Person pursuant to the power of eminent domain,
condemnation or otherwise, or pursuant to a sale of any such assets to a
purchaser with such power under threat of such a taking, in each case net of any
actual and reasonable documented costs incurred by Company or any of its
Subsidiaries in connection with the adjustment or settlement of any claims of
Company or such Subsidiary in respect thereof.
"NOTES" means one or more of the Tranche A Term Notes, Tranche B Term
Notes, Revolving Notes or Swing Line Notes or any combination thereof.
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"NOTICE OF BORROWING" means a notice substantially in the form of Exhibit I
---------
annexed hereto delivered by Company to Administrative Agent pursuant to
subsection 2.1B with respect to a proposed borrowing.
"NOTICE OF CONVERSION/CONTINUATION" means a notice substantially in the
form of Exhibit II annexed hereto delivered by Company to Administrative Agent
----------
pursuant to subsection 2.2D with respect to a proposed conversion or
continuation of the applicable basis for determining the interest rate with
respect to the Loans specified therein.
"NOTICE OF ISSUANCE OF LETTER OF CREDIT" means a notice substantially in
the form of Exhibit III annexed hereto delivered by Company to Administrative
-----------
Agent pursuant to subsection 3.1B(i) with respect to the proposed issuance of a
Letter of Credit.
"OBLIGATIONS" means all obligations of every nature of each Loan Party from
time to time owed to Arranger, Agents, Lenders or any of them under the Loan
Documents, whether for principal, interest, reimbursement of amounts drawn under
Letters of Credit, fees, expenses, indemnification or otherwise.
"OFFICER'S CERTIFICATE" means, as applied to any corporation, a certificate
executed on behalf of such corporation by its president, its chief financial
officer (or if there is no chief financial officer, its chief accounting
officer) or any one of its executive vice presidents; provided that every
--------
Officer's Certificate with respect to the compliance with a condition precedent
to the making of any Loans hereunder shall include (i) a statement that the
officer or officers making or giving such Officer's Certificate have read such
condition and any definitions or other provisions contained in this Agreement
relating thereto, (ii) a statement that, in the opinion of the signers, they
have made or have caused to be made such examination or investigation as is
necessary to enable them to express an informed opinion as to whether or not
such condition has been complied with, and (iii) a statement as to whether, in
the opinion of the signers, such condition has been complied with.
"OPERATING LEASE" means, as applied to any Person, any lease (including
leases that may be terminated by the lessee at any time) of any property
(whether real, personal or mixed) that is not a Capital Lease in accordance with
GAAP other than any such lease under which that Person is the lessor.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
thereto.
"PENSION PLAN" means any Employee Benefit Plan, other than a Multiemployer
Plan, which is subject to Section 412 of the Internal Revenue Code or Section
302 of ERISA.
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<PAGE>
"PERMITTED ACQUIRED INDEBTEDNESS" means the Indebtedness of any of
Company's Subsidiaries permitted under subsection 7.1(vii).
"PERMITTED ACQUISITION" has the meaning assigned to that term in subsection
7.7(ii).
"PERMITTED ENCUMBRANCES" means the following types of Liens (excluding any
such Lien imposed pursuant to Section 401(a)(29) or 412(n) of the Internal
Revenue Code or by ERISA, any such Lien relating to or imposed in connection
with any Environmental Claim, and any such Lien expressly prohibited by any
applicable terms of any of the Collateral Documents):
(i) Liens for taxes, assessments or governmental charges or claims the
payment of which is not, at the time, required by subsection 6.3;
(ii) statutory Liens of landlords, statutory Liens of banks and rights
of set-off, statutory Liens of carriers, warehousemen, mechanics, repairmen,
workmen and materialmen, and other Liens imposed by law, in each case incurred
in the ordinary course of business (a) for amounts not yet overdue or (b) for
amounts that are overdue and that (in the case of any such amounts overdue for
a period in excess of 15 days) are being contested in good faith by
appropriate proceedings, so long as (1) such reserves or other appropriate
provisions, if any, as shall be required by GAAP shall have been made for any
such contested amounts, and (2) in the case of a Lien with respect to any
portion of the Collateral, such contest proceedings conclusively operate to
stay the sale of any portion of the Collateral on account of such Lien;
(iii) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types
of social security, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
trade contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money), so
long as no foreclosure, sale or similar proceedings have been commenced with
respect to any portion of the Collateral on account thereof (unless such
foreclosure, sale or similar proceedings are being contested in good faith by
appropriate proceedings and such foreclosure, sale or similar proceedings have
been stayed as a result thereof);
(iv) any attachment or judgment Lien not constituting an Event of Default
under subsection 8.8;
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<PAGE>
(v) leases or subleases granted to third parties in accordance with any
applicable terms of the Collateral Documents and not interfering in any
material respect with the ordinary conduct of the business of Company or any
of its Subsidiaries, taken as a whole, or resulting in a material diminution
in the value of any material portion of the Collateral as security for the
Obligations;
(vi) easements, rights-of-way, restrictions, encroachments, and other
minor defects or irregularities in title, in each case which do not and will
not interfere in any material respect with the ordinary conduct of the
business of Company or any of its Subsidiaries, taken as a whole, or result in
a material diminution in the value of any material portion of the Collateral
as security for the Obligations;
(vii) any (a) interest or title of a lessor or sublessor under any
lease permitted by subsection 7.9, (b) restriction or encumbrance that the
interest or title of such lessor or sublessor may be subject to, or (c)
subordination of the interest of the lessee or sublessee under such lease to
any restriction or encumbrance referred to in the preceding clause (b), so
long as the holder of such restriction or encumbrance agrees to recognize the
rights of such lessee or sublessee under such lease;
(viii) Liens arising from filing UCC financing statements relating solely
to leases not prohibited by this Agreement;
(ix) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(x) any zoning or similar law or right reserved to or vested in any
governmental office or agency to control or regulate the use of any real
property;
(xi) Liens securing obligations (other than obligations representing
Indebtedness for borrowed money) under operating, reciprocal easement or
similar agreements entered into in the ordinary course of business of Company
and its Subsidiaries; and
(xii) licenses of patents, trademarks and other intellectual property
rights granted by Company or any of its Subsidiaries in the ordinary course of
business and not interfering in any material respect with the ordinary conduct
of the business of Company and its Subsidiaries, taken as a whole.
"PERSON" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, limited
liability partnerships, joint stock
28
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companies, Joint Ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and governments (whether federal, state or local, domestic or
foreign, and including political subdivisions thereof) and agencies or other
administrative or regulatory bodies thereof.
"PLEDGED COLLATERAL" means, collectively, the "Pledged Collateral" as
defined in the Company Pledge Agreement, the Holdings Pledge Agreement and the
Subsidiary Pledge Agreements.
"POTENTIAL EVENT OF DEFAULT" means a condition or event that, after
notice or lapse of time or both, would constitute an Event of Default.
"PRIME RATE" means the rate that Administrative Agent announces from
time to time as its prime lending rate, as in effect from time to time. The
Prime Rate is a reference rate and does not necessarily represent the lowest or
best rate actually charged to any customer. Wells Fargo Bank, N.A. or any other
Lender may make commercial loans or other loans at rates of interest at, above
or below the Prime Rate.
"PRINCIPALS" has the meaning assigned to such term in the recitals to
this Agreement.
"PRO RATA SHARE" means (i) with respect to all payments, computations
and other matters relating to the Tranche A Term Loan Commitment or the Tranche
A Term Loan of any Lender, the percentage obtained by dividing (x) the Tranche A
--------
Term Loan Exposure of that Lender by (y) the aggregate Tranche A Term Loan
--
Exposure of all Lenders, (ii) with respect to all payments, computations and
other matters relating to the Tranche B Term Loan Commitment or the Tranche B
Term Loan of any Lender, the percentage obtained by dividing (x) the Tranche B
--------
Term Loan Exposure of that Lender by (y) the aggregate Tranche B Term Loan
--
Exposure of all Lenders, (iii) with respect to all payments, computations and
other matters relating to the Revolving Loan Commitment or the Revolving Loans
of any Lender or any Letters of Credit issued or participations therein
purchased by any Lender or any participations in any Swing Line Loans purchased
or deemed purchased by any Revolving Lender, the percentage obtained by dividing
--------
(x) the Revolving Loan Exposure of that Lender by (y) the aggregate Revolving
--
Loan Exposure of all Lenders, and (iv) for all other purposes with respect to
each Lender, the percentage obtained by dividing (x) the sum of the Tranche A
--------
Term Loan Exposure of that Lender plus the Tranche B Term Loan Exposure of that
----
Lender plus the Revolving Loan Exposure of that Lender by (y) the sum of the
---- --
aggregate Tranche A Term Loan Exposure of all Lenders plus the aggregate Tranche
----
B Term Loan Exposure of all Lenders plus the aggregate Revolving Loan Exposure
----
of all Lenders, in any such case as the applicable percentage may be adjusted by
assignments permitted pursuant to
29
<PAGE>
subsection 10.1. The initial Pro Rata Share of each Lender for purposes of each
of clauses (i), (ii) and (iii) of the preceding sentence is set forth opposite
the name of that Lender in Schedule 2.1 annexed hereto.
------------
"PTO" means the United States Patent and Trademark Office or any
successor or substitute office in which filings are necessary or, in the opinion
of Administrative Agent, desirable in order to create or perfect Liens on any IP
Collateral.
"REAL PROPERTY ASSET" means, at any time of determination, any
interest then owned by any Loan Party in any real property.
"RECAPITALIZATION" has the meaning assigned to such term in the
recitals to this Agreement.
"RECAPITALIZATION AGREEMENT" means that certain recapitalization
agreement dated as of March 3, 1998 by and among the Principals, Holdings and
the equity holders set forth in Exhibit A thereto.
"RECORDED LEASEHOLD INTEREST" means a Leasehold Property with respect
to which a Record Document (as hereinafter defined) has been recorded in all
places necessary or desirable, in the reasonable judgment of Syndication Agent
(on or prior to the Closing Date) or Administrative Agent (after the Closing
Date), to give constructive notice of such Leasehold Property to third-party
purchasers and encumbrances of the affected real property. For purposes of this
definition, the term "RECORD DOCUMENT" means, with respect to any Leasehold
Property, (a) the lease evidencing such Leasehold Property or a memorandum
thereof, executed and acknowledged by the owner of the affected real property,
as lessor, or (b) if such Leasehold Property was acquired or subleased from the
holder of a Recorded Leasehold Interest, the applicable assignment or sublease
document, executed and acknowledged by such holder, in each case in form
sufficient to give such constructive notice upon recordation and otherwise in
form reasonably satisfactory to Administrative Agent.
"REFUNDED SWING LINE LOANS" has the meaning assigned to that term in
subsection 2.1A(iv).
"REGULATION D" means Regulation D of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"REIMBURSEMENT DATE" has the meaning assigned to that term in
subsection 3.3B.
"RELATED PARTIES" with respect to any Principal means (i) any
controlling stockholder or a majority of (or more) owned
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Subsidiary of such Principal or, in the case of an individual, any spouse or
immediate family member of such Principal, or (ii) any trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners, owners
or Persons beneficially holding a majority (or more) controlling interest of
which consist of such Principal and/or such other Persons referred to in the
immediately preceding clause (i). Without limiting the generality of the
foregoing, each of SKC GenPar LLC, TPG Advisors II, Inc. and their respective
Affiliates shall be deemed to be Related Parties of the Principals.
"RELEASE" means any release, spill, emission, leaking, pumping,
pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping,
leaching or migration of Hazardous Materials into the indoor or outdoor
environment (including the abandonment or disposal of any barrels, containers or
other closed receptacles containing any Hazardous Materials), including the
movement of any Hazardous Materials through the air, soil, sediment, surface
water or groundwater.
"REPLACED LENDER" has the meaning assigned to such term in subsection
2.9.
"REPLACEMENT EVENT" has the meaning assigned to such term in
subsection 2.9.
"REPLACEMENT LENDER" has the meaning assigned to such term in
subsection 2.9.
"REQUISITE LENDERS" means Lenders having or holding at least 51% of
the sum of (i) the aggregate Tranche A Term Loan Exposure of all Lenders plus
----
(ii) the aggregate Tranche B Term Loan Exposure of all Lenders plus (iii) the
----
aggregate Revolving Loan Exposure of all Lenders.
"RESTRICTED JUNIOR PAYMENT" means (i) any distribution, direct or
indirect, on account of any class of stock of Company now or hereafter
outstanding, except a distribution payable solely in shares of that class of
stock payable solely to holders of that class, (ii) any redemption, retirement,
sinking fund or similar payment, purchase or other acquisition for value, direct
or indirect, of any class of stock of Company now or hereafter outstanding,
(iii) any payment made to retire, or to obtain the surrender of, any outstanding
warrants, options or other rights to acquire shares of any class of stock of
Company now or hereafter outstanding, and (iv) any payment or prepayment of
principal of, premium, if any, or interest on, or redemption, purchase,
retirement, defeasance (including in-substance or legal defeasance), sinking
fund or similar payment with respect to, any Subordinated Indebtedness that is
not approved by Syndication Agent (on or prior to the Closing Date) or
Administrative Agent (after the Closing Date) and Requisite Lenders.
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<PAGE>
"RETAINED SHARES" has the meaning assigned to such term in the
recitals to this Agreement.
"REVOLVING LENDER" means a Lender having a Revolving Loan Commitment.
"REVOLVING LOAN COMMITMENT" means the commitment of a Lender to make
Revolving Loans to Company pursuant to subsection 2.1A(iii), and "REVOLVING LOAN
COMMITMENTS" means such commitments of all Lenders in the aggregate.
"REVOLVING LOAN COMMITMENT TERMINATION DATE" means March 31, 2004.
"REVOLVING LOAN EXPOSURE" means, with respect to any Revolving Lender
as of any date of determination (i) prior to the termination of the Revolving
Loan Commitments, that Revolving Lender's Revolving Loan Commitment and (ii)
after the termination of the Revolving Loan Commitments, the sum of (a) the
aggregate outstanding principal amount of the Revolving Loans of that Revolving
Lender plus (b) in the event that Revolving Lender is an Issuing Lender, the
----
aggregate Letter of Credit Usage in respect of all Letters of Credit issued by
that Revolving Lender (in each case net of any participations purchased by other
Revolving Lenders in such Letters of Credit or any unreimbursed drawings
thereunder) plus (c) the aggregate amount of all participations purchased by
----
that Revolving Lender in any outstanding Letters of Credit or any unreimbursed
drawings under any Letters of Credit plus (d) in the case of Swing Line Lender,
----
the aggregate outstanding principal amount of all Swing Line Loans (net of any
participations therein purchased by other Revolving Lenders) plus (e) the
----
aggregate amount of all participations purchased by that Revolving Lender in any
outstanding Swing Line Loans.
"REVOLVING LOANS" means the Loans made by Revolving Lenders to Company
pursuant to subsection 2.1A(iii).
"REVOLVING NOTES" means (i) the promissory notes of Company issued
pursuant to subsection 2.1D(iii) on the Closing Date and (ii) any promissory
notes issued by Company pursuant to the last sentence of subsection 10.1B(i) in
connection with assignments of the Revolving Loan Commitments and Revolving
Loans of any Revolving Lenders, in each case substantially in the form of
Exhibit VI annexed hereto, as they may be amended, supplemented or otherwise
- ----------
modified from time to time.
"SECURITIES" means any stock, shares, partnership interests, voting
trust certificates, certificates of interest or participation in any profit-
sharing agreement or arrangement, options, warrants, bonds, debentures, notes,
or other evidences of indebtedness, secured or unsecured, convertible,
subordinated or otherwise, or in general any instruments commonly known as
32
<PAGE>
"securities" or any certificates of interest, shares or participations in
temporary or interim certificates for the purchase or acquisition of, or any
right to subscribe to, purchase or acquire, any of the foregoing.
"SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time, and any successor statute.
"SENIOR SUBORDINATED INDENTURE" means the Indenture dated April 21
between Company and State Street Bank and Trust Company, as trustee, in respect
of the Senior Subordinated Notes, as in effect on the Closing Date and as such
indenture may be amended from time to time to the extent permitted under
subsection 7.15.
"SENIOR SUBORDINATED NOTE MATERIAL" means the Confidential Offering
Memorandum dated April 15, 1998 relating to the Senior Subordinated Notes.
"SENIOR SUBORDINATED NOTES" has the meaning assigned to such term in
the recitals to this Agreement.
"SKC" has the meaning assigned to such term in the recitals to this
Agreement.
"SOLVENCY CERTIFICATE" means an Officer's Certificate substantially
in the form of Exhibit XXVII annexed hereto.
-------------
"SOLVENT" means, with respect to any Person, that as of the date of
determination both (A) (i) the then fair saleable value of the property of such
Person is (y) greater than the total amount of liabilities (including contingent
liabilities) of such Person and (z) not less than the amount that will be
required to pay the probable liabilities on such Person's then existing debts as
they become absolute and matured considering all financing alternatives and
potential asset sales reasonably available to such Person; (ii) such Person's
capital is not unreasonably small in relation to its business or any
contemplated or undertaken transaction; and (iii) such Person does not intend to
incur, or believe (nor should it reasonably believe) that it will incur, debts
beyond its ability to pay such debts as they become due; and (B) such Person is
"solvent" within the meaning given that term and similar terms under applicable
laws relating to fraudulent transfers and conveyances. For purposes of this
definition, the amount of any contingent liability at any time shall be computed
as the amount that, in light of all of the facts and circumstances existing at
such time, represents the amount that can reasonably be expected to become an
actual or matured liability (after giving effect to any limitation contained
therein).
"STANDBY LETTER OF CREDIT" means any standby letter of credit or
similar instrument issued for the purpose of supporting
33
<PAGE>
(i) Indebtedness of Company or any of its Subsidiaries in respect of industrial
revenue or development bonds or financings, (ii) workers' compensation
liabilities of Company or any of its Subsidiaries, (iii) the obligations of
third party insurers of Company or any of its Subsidiaries, (iv) obligations
with respect to Capital Leases or Operating Leases of Company or any of its
Subsidiaries, and (v) performance, payment, deposit or surety obligations of
Company or any of its Subsidiaries, in any case if required by law or
governmental rule or regulation or in accordance with custom and practice in the
industry; provided that Standby Letters of Credit may not be issued for the
--------
purpose of supporting (a) trade payables or (b) any Indebtedness constituting
"antecedent debt" (as that term is used in Section 547 of the Bankruptcy Code).
"STOCKHOLDERS' AGREEMENT" means the Stockholders' Agreement dated as
of the Closing Date by and among Holdings, the Principals, certain Related
Parties and the holders of the Retained Shares.
"SUBORDINATED INDEBTEDNESS" means Indebtedness of Company (i)
represented by the Senior Subordinated Notes and (ii) any other Indebtedness
subordinated in right of payment to the Obligations pursuant to documentation
containing maturities, amortization schedules, covenants, defaults, remedies,
subordination provisions and other material terms in form and substance
reasonably satisfactory to Syndication Agent (on or prior to the Closing Date)
or Administrative Agent (after the Closing Date) and Requisite Lenders.
"SUBSIDIARY" means, with respect to any Person, any corporation,
partnership, limited liability company, association, joint venture or other
business entity of which more than 50% of the total voting power of shares of
stock or other ownership interests entitled (without regard to the occurrence of
any contingency) to vote in the election of the Person or Persons (whether
directors, managers, trustees or other Persons performing similar functions)
having the power to direct or cause the direction of the management and policies
thereof is at the time owned or controlled, directly or indirectly, by that
Person or one or more of the other Subsidiaries of that Person or a combination
thereof.
"SUBSIDIARY COPYRIGHT SECURITY AGREEMENT" means the Subsidiary
Copyright Security Agreement executed and delivered by an existing Subsidiary
Guarantor on the Closing Date or executed and delivered by any additional
Subsidiary Guarantor from time to time thereafter in accordance with subsection
6.8, in each case substantially in the form attached as Exhibit XXI annexed
-----------
hereto, as such Subsidiary Copyright Security Agreement may be amended,
supplemented or otherwise modified from time to time, and "SUBSIDIARY COPYRIGHT
SECURITY AGREEMENTS" means all such Subsidiary Copyright Security Agreements,
collectively.
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<PAGE>
"SUBSIDIARY GUARANTOR" means any Subsidiary of Company that executes
and delivers a counterpart of the Subsidiary Guaranty on the Closing Date or
from time to time thereafter pursuant to subsection 6.8.
"SUBSIDIARY GUARANTY" means the Subsidiary Guaranty executed and
delivered by existing Subsidiaries of Company on the Closing Date and to be
executed and delivered by additional Subsidiaries of Company from time to time
thereafter in accordance with subsection 6.8, substantially in the form of
Exhibit XVIII annexed hereto, as such Subsidiary Guaranty may hereafter be
- -------------
amended, supplemented or otherwise modified from time to time.
"SUBSIDIARY PATENT SECURITY AGREEMENT" means the Subsidiary Patent
Security Agreement executed and delivered by an existing Subsidiary Guarantor on
the Closing Date or executed and delivered by any additional Subsidiary
Guarantor from time to time thereafter in accordance with subsection 6.8, in
each case substantially in the forms attached as Exhibit XXIII annexed hereto,
-------------
as such Subsidiary Patent Security Agreement may be amended, supplemented or
otherwise modified from time to time, and "SUBSIDIARY PATENT SECURITY
AGREEMENTS" means all such Subsidiary Patent Security Agreements, collectively.
"SUBSIDIARY PLEDGE AGREEMENT" means each Subsidiary Pledge Agreement
executed and delivered by an existing Subsidiary Guarantor on the Closing Date
or executed and delivered by any additional Subsidiary Guarantor from time to
time thereafter in accordance with subsection 6.8, in each case substantially in
the form of Exhibit XVIII annexed hereto, as such Subsidiary Pledge Agreement
-------------
may be amended, supplemented or otherwise modified from time to time, and
"SUBSIDIARY PLEDGE AGREEMENTS" means all such Subsidiary Pledge Agreements,
collectively.
"SUBSIDIARY SECURITY AGREEMENT" means each Subsidiary Security
Agreement executed and delivered by an existing Subsidiary Guarantor on the
Closing Date or executed and delivered by any additional Subsidiary Guarantor
from time to time thereafter in accordance with subsection 6.8, in each case
substantially in the form of Exhibit XIX annexed hereto, as such Subsidiary
-----------
Security Agreement may be amended, supplemented or otherwise modified from time
to time, and "SUBSIDIARY SECURITY AGREEMENTS" means all such Subsidiary Security
Agreements, collectively.
"SUBSIDIARY TRADEMARK SECURITY AGREEMENT" means the Subsidiary
Trademark Security Agreement executed and delivered by an existing Subsidiary
Guarantor on the Closing Date or executed and delivered by any additional
Subsidiary Guarantor from time to time thereafter in accordance with subsection
6.8, in each case substantially in the forms attached as Exhibit XXII annexed
------------
hereto, as such Subsidiary Trademark Security Agreement may be
35
<PAGE>
amended, supplemented or otherwise modified from time to time, and "SUBSIDIARY
TRADEMARK SECURITY AGREEMENTS" means all such Subsidiary Trademark Security
Agreements, collectively.
"SUPPLEMENTAL COLLATERAL AGENT" has the meaning assigned to that term
in subsection 9.1B.
"SWING LINE LENDER" means Administrative Agent, or any Person serving
as a successor Administrative Agent hereunder, in its capacity as Swing Line
Lender hereunder.
"SWING LINE LOAN COMMITMENT" means the commitment of Swing Line Lender
to make Swing Line Loans to Company pursuant to subsection 2.1A(iv).
"SWING LINE LOANS" means the Loans made by Swing Line Lender to
Company pursuant to subsection 2.1A(iv).
"SWING LINE NOTE" means (i) the promissory note of Company issued
pursuant to subsection 2.1D(iv) on the Closing Date and (ii) any promissory note
issued by Company to any successor Administrative Agent and Swing Line Lender
pursuant to the last sentence of subsection 9.5B, in each case substantially in
the form of Exhibit VII annexed hereto, as it may be amended, supplemented or
-----------
otherwise modified from time to time.
"SYNDICATION AGENT" has the meaning assigned to that term in the
introduction to this Agreement.
"TAX" or "TAXES" means any present or future tax, levy, impost, duty,
charge, fee, deduction or withholding of any nature and whatever called, by
whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or
assessed; provided that "TAX ON THE OVERALL NET INCOME OR FRANCHISE" of a Person
--------
shall be construed as a reference to a tax imposed by the jurisdiction in which
that Person is organized or in which that Person's principal office (and/or, in
the case of a Lender, its lending office) is located or in which that Person
(and/or, in the case of a Lender, its lending office) is deemed to be doing
business on all or part of the net income, profits or gains (whether worldwide,
or only insofar as such income, profits or gains are considered to arise in or
to relate to a particular jurisdiction, or otherwise) of that Person (and/or, in
the case of a Lender, its lending office).
"TAX SHARING AGREEMENT" means the Tax Sharing Agreement dated April
21, 1998 between Company and Holdings, in the form entered into on the Closing
Date.
"TERM LOANS" means, collectively, the Tranche A Term Loans and the
Tranche B Term Loans.
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<PAGE>
"TITLE COMPANY" means one or more title insurance companies selected
by Company and reasonably satisfactory to Syndication Agent (on or prior to the
Closing Date) or Administrative Agent (after the Closing Date).
"TOTAL UTILIZATION OF REVOLVING LOAN COMMITMENTS" means, as at any
date of determination, the sum of (i) the aggregate principal amount of all
outstanding Revolving Loans (other than Revolving Loans made, but not yet
applied, for the purpose of repaying any Refunded Swing Line Loans or
reimbursing the applicable Issuing Lender for any amount drawn under any Letter
of Credit) plus (ii) the aggregate principal amount of all outstanding Swing
----
Line Loans plus (iii) the Letter of Credit Usage.
----
"TRANCHE A TERM LOAN COMMITMENT" means the commitment of a Lender to
make a Tranche A Term Loan to Company pursuant to subsection 2.1A(i), and
"TRANCHE A TERM LOAN COMMITMENTS" means such commitments of all Lenders in the
aggregate.
"TRANCHE A TERM LOAN EXPOSURE" means, with respect to any Tranche A
Term Loan Lender as of any date of determination (i) prior to the funding of the
Tranche A Term Loans, that Lender's Tranche A Term Loan Commitment and (ii)
after the funding of the Tranche A Term Loans, the outstanding principal amount
of the Tranche A Term Loan of that Lender.
"TRANCHE A TERM LOAN LENDER" means any Lender who holds a Tranche A
Term Loan Commitment, or who has made a Tranche A Term Loan hereunder and any
assignee of such Lender pursuant to subsection 10.1B.
"TRANCHE A TERM LOANS" means the Tranche A Term Loans made by Tranche
A Term Loan Lenders to Company pursuant to subsection 2.1A(i).
"TRANCHE A TERM NOTES" means (i) the promissory notes of Company
issued pursuant to subsection 2.1D(i) on the Closing Date and (ii) any
promissory notes issued by Company pursuant to the last sentence of subsection
10.1B(i) in connection with assignments of the Tranche A Term Loan Commitments
or Tranche A Term Loans of any Tranche A Term Loan Lenders, in each case
substantially in the form of Exhibit IV annexed hereto, as they may be amended,
----------
supplemented or otherwise modified from time to time.
"TRANCHE B TERM LOAN COMMITMENT" means the commitment of a Lender to
make a Tranche B Term Loan to Company pursuant to subsection 2.1A(i), and
"TRANCHE B TERM LOAN COMMITMENTS" means such commitments of all Lenders in the
aggregate.
"TRANCHE B TERM LOAN EXPOSURE" means, with respect to any Tranche B
Term Loan Lender as of any date of determination
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<PAGE>
(i) prior to the funding of the Tranche B Term Loans, that Lender's Tranche B
Term Loan Commitment and (ii) after the funding of the Tranche B Term Loans, the
outstanding principal amount of the Tranche B Term Loan of that Lender.
"TRANCHE B TERM LOAN LENDER" means any Lender who holds a Tranche B
Term Loan Commitment or who has made a Tranche B Term Loan hereunder, and any
assignee of such Lender pursuant to subsection 10.1B.
"TRANCHE B TERM LOANS" means the Tranche B Term Loans made by Tranche
B Term Loan Lenders to Company pursuant to subsection 2.1A(ii).
"TRANCHE B TERM NOTES" means (i) the promissory notes of Company
issued pursuant to subsection 2.1D(ii) on the Closing Date and (ii) any
promissory notes issued by Company pursuant to the last sentence of subsection
10.1B(i) in connection with assignments of the Tranche B Term Loan Commitments
or Tranche B Term Loans of any Tranche B Term Loan Lenders, in each case
substantially in the form of Exhibit V annexed hereto, as they may be amended,
---------
supplemented or otherwise modified from time to time.
"TRANSACTION COSTS" has the meaning assigned to such term in the
recitals to this Agreement.
"TRANSACTIONS" has the meaning assigned to such term in the recitals
to this Agreement.
"UCC" means the Uniform Commercial Code (or any similar or equivalent
legislation) as in effect in any applicable jurisdiction.
1.2 ACCOUNTING TERMS; UTILIZATION OF GAAP FOR PURPOSES OF CALCULATIONS
------------------------------------------------------------------
UNDER AGREEMENT.
---------------
Except as otherwise expressly provided in this Agreement, all
accounting terms not otherwise defined herein shall have the meanings assigned
to them in conformity with GAAP. Financial statements and other information
required to be delivered by Company to Lenders pursuant to clauses (i), (ii),
(iii) and (xiii) of subsection 6.1 shall be prepared in accordance with GAAP as
in effect at the time of such preparation (and delivered together with the
reconciliation statements provided for in subsection 6.1(v)). Calculations in
connection with the definitions, covenants and other provisions of this
Agreement shall utilize (i) accounting principles and policies in conformity
with those used to prepare the financial statements referred to in subsection
5.3, or (ii) if any amendments to the provisions set forth in Sections 1, 6 and
7 are made pursuant to negotiations conducted by operation of the following
sentence, accounting principles and policies in effect at the time of the
38
<PAGE>
effectiveness of such amendments. If any changes in accounting principles from
those used in the preparation of the financial statements referred to in
subsection 5.3 hereafter occasioned by the promulgation of rules, regulations,
pronouncements or opinions by or required by the Financial Accounting Standards
Board or the American Institute of Certified Public Accountants (or successors
thereto or agencies with similar functions) result in a change in the method of
calculation of financial covenants, standards or terms found in Sections 1, 6
and 7 hereof, the parties hereto agree to enter into good faith negotiations in
order to amend such provisions so as to equitably reflect such changes with the
desired result that the criteria for evaluating Holdings', Company's and each of
its Subsidiaries' financial conditions shall be the same after such changes as
if such changes had not been made. During the period of such negotiations, but
in no event for a period longer than 60 days after the effectiveness of any such
change, Company shall not be required to deliver the additional financial
statements required pursuant to subsection 6.1(v). After the earlier of (i) the
effectiveness of any amendments to the provisions of Sections 1, 6, and 7
resulting from such negotiations or (ii) 60 days following the effectiveness of
any such change, Company shall, if requested by Requisite Lenders, deliver the
additional financial statements required pursuant to subsection 6.1(v) with
respect to such changes.
1.3 OTHER DEFINITIONAL PROVISIONS AND RULES OF CONSTRUCTION.
-------------------------------------------------------
A. Any of the terms defined herein may, unless the context otherwise
requires, be used in the singular or the plural, depending on the reference.
B. References to "Sections" and "subsections" shall be to Sections and
subsections, respectively, of this Agreement unless otherwise specifically
provided.
C. The use in any of the Loan Documents of the word "include" or
"including", when following any general statement, term or matter, shall not be
construed to limit such statement, term or matter to the specific items or
matters set forth immediately following such word or to similar items or
matters, whether or not nonlimiting language (such as "without limitation" or
"but not limited to" or words of similar import) is used with reference thereto,
but rather shall be deemed to refer to all other items or matters that fall
within the broadest possible scope of such general statement, term or matter.
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<PAGE>
SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS
2.1 COMMITMENTS; MAKING OF LOANS; NOTES.
-----------------------------------
A. COMMITMENTS. Subject to the terms and conditions of this Agreement
and in reliance upon the representations and warranties of Company herein set
forth, each Tranche A Term Loan Lender hereby severally agrees to make the
Tranche A Term Loans described in subsection 2.1A(i), each Tranche B Term Loan
Lender hereby severally agrees to make the Tranche B Term Loans described in
subsection 2.1A(ii), each Revolving Lender hereby severally agrees to make the
Revolving Loans described in subsection 2.1A(iii) and Swing Line Lender hereby
agrees to make the Swing Line Loans described in subsection 2.1A(iv).
(i) Tranche A Term Loans. Each Tranche A Term Loan Lender severally
--------------------
agrees to lend to Company on the Closing Date an amount not exceeding its
Pro Rata Share of the aggregate amount of the Tranche A Term Loan
Commitments to be used for the purposes identified in subsection 2.5A. The
amount of each Tranche A Term Loan Lender's Tranche A Term Loan Commitment
is set forth opposite its name on Schedule 2.1 annexed hereto and the
------------
aggregate amount of the Tranche A Term Loan Commitments is $30,000,000;
provided that the Tranche A Term Loan Commitments of the Tranche A Term
--------
Loan Lenders shall be adjusted to give effect to any assignments of the
Tranche A Term Loan Commitments pursuant to subsection 10.1B. Each Tranche
A Term Loan Lender's Term Loan Commitment shall expire immediately and
without further action on the Closing Date if the Tranche A Term Loans are
not made on or before that date. Company may make only one borrowing under
the Tranche A Term Loan Commitments. Amounts borrowed under this
subsection 2.1A(i) and subsequently repaid or prepaid may not be
reborrowed.
(ii) Tranche B Term Loans. Each Tranche B Term Loan Lender severally
--------------------
agrees to lend to Company on the Closing Date an amount not exceeding its
Pro Rata Share of the aggregate amount of the Tranche B Term Loan
Commitments to be used for the purposes identified in subsection 2.5A. The
amount of each Tranche B Term Loan Lender's Tranche B Term Loan Commitment
is set forth opposite its name on Schedule 2.1 annexed hereto and the
------------
aggregate amount of the Tranche B Term Loan Commitments is $50,000,000;
provided that the Tranche B Term Loan Commitments of Tranche B Term Loan
--------
Lenders shall be adjusted to give effect to any assignments of the Tranche
B Term Loan Commitments pursuant to subsection 10.1B. Each Tranche B Term
Loan Lender's Tranche B Term Loan Commitment shall expire immediately and
without further action on the Closing Date, if the Tranche B Term Loans are
not made on or before that date. Company may make only one borrowing under
the Tranche B Term Loan Commitments. Amounts borrowed under this
40
<PAGE>
subsection 2.1A(ii) and subsequently repaid or prepaid may not be
reborrowed.
(iii) Revolving Loans. Each Revolving Lender severally agrees,
---------------
subject to the limitations set forth below with respect to the maximum
amount of Revolving Loans permitted to be outstanding from time to time, to
lend to Company from time to time during the period from the Closing Date
to but excluding the Revolving Loan Commitment Termination Date an
aggregate amount not exceeding its Pro Rata Share of the aggregate amount
of the Revolving Loan Commitments to be used for the purposes identified in
subsections 2.5A and 2.5B. The original amount of each Revolving Lender's
Revolving Loan Commitment is set forth opposite its name on Schedule 2.1
------------
annexed hereto and the aggregate original amount of the Revolving Loan
Commitments is $25,000,000; provided that the Revolving Loan Commitments of
--------
the Revolving Lenders shall be adjusted to give effect to any assignments
of the Revolving Loan Commitments pursuant to subsection 10.1B; and
provided, further that the amount of the Revolving Loan Commitments shall
-------- -------
be reduced from time to time by the amount of any reductions thereto made
pursuant to subsections 2.4B(ii) and 2.4B(iii). Each Revolving Lender's
Revolving Loan Commitment shall expire on the Revolving Loan Commitment
Termination Date and all Revolving Loans and all other amounts owed
hereunder with respect to the Revolving Loans and the Revolving Loan
Commitments shall be paid in full no later than that date; provided that
--------
each Revolving Lender's Revolving Loan Commitment shall expire immediately
and without further action on the Closing Date, if the Tranche A Term
Loans, the Tranche B Term Loans and the initial Revolving Loans are not
made on or before that date. Amounts borrowed under this subsection
2.1A(iii) may be repaid and reborrowed to but excluding the Revolving Loan
Commitment Termination Date.
Anything contained in this Agreement to the contrary notwithstanding
in no event shall the total Utilization of Revolving Loan Commitments at
any time exceed the Revolving Loan Commitments then in effect.
(iv) Swing Line Loans. Swing Line Lender hereby agrees, subject to
----------------
the limitations set forth below with respect to the maximum amount of Swing
Line Loans permitted to be outstanding from time to time, to make a portion
of the Revolving Loan Commitments available to Company from time to time
during the period from the Closing Date to but excluding the Revolving Loan
Commitment Termination Date by making Swing Line Loans to Company in an
aggregate amount not exceeding the amount of the Swing Line Loan Commitment
to be used for the purposes identified in subsection 2.5B, notwithstanding
the fact that such Swing Line Loans, when aggregated with Swing Line
Lender's outstanding Revolving
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<PAGE>
Loans and Swing Line Lender's Pro Rata Share of the Letter of Credit Usage
then in effect, may exceed Swing Line Lender's Revolving Loan Commitment.
The original amount of the Swing Line Loan Commitment is $5,000,000;
provided that any reduction of the Revolving Loan Commitments made pursuant
--------
to subsection 2.4B(ii) or 2.4B(iii) which reduces the aggregate Revolving
Loan Commitments to an amount less than the then current amount of the
Swing Line Loan Commitment shall result in an automatic corresponding
reduction of the Swing Line Loan Commitment to the amount of the Revolving
Loan Commitments, as so reduced, without any further action on the part of
Company, Administrative Agent or Swing Line Lender. The Swing Line Loan
Commitment shall expire on the Revolving Loan Commitment Termination Date
and all Swing Line Loans and all other amounts owed hereunder with respect
to the Swing Line Loans shall be paid in full no later than that date;
provided that the Swing Line Loan Commitment shall expire immediately and
--------
without further action on the Closing Date, if the Tranche A Term Loans and
the Tranche B Term Loans are not made on or before that date. Amounts
borrowed under this subsection 2.1A(iv) may be repaid and reborrowed to but
excluding the Revolving Loan Commitment Termination Date.
Anything contained in this Agreement to the contrary notwithstanding,
the Swing Line Loans and the Swing Line Loan Commitment shall be subject to
the limitation that in no event shall the Total Utilization of Revolving
Loan Commitments at any time exceed the Revolving Loan Commitments then in
effect.
With respect to any Swing Line Loans which have not been voluntarily
prepaid by Company pursuant to subsection 2.4B(i)(a), Swing Line Lender
may, at any time in its sole and absolute discretion, deliver to
Administrative Agent (with a copy to Company), no later than 9:00 A.M. (San
Francisco time) on the first Business Day in advance of the proposed
Funding Date, a notice (which shall be deemed to be a Notice of Borrowing
given by Company) requesting Revolving Lenders to make Revolving Loans that
are Base Rate Loans on such Funding Date in an amount equal to the amount
of such Swing Line Loans (the "REFUNDED SWING LINE LOANS") outstanding on
the date such notice is given which Swing Line Lender requests Revolving
Lenders to prepay. Anything contained in this Agreement to the contrary
notwithstanding, (i) the proceeds of such Revolving Loans made by Revolving
Lenders other than Swing Line Lender shall be immediately delivered by
Administrative Agent to Swing Line Lender (and not to Company) and applied
to repay a corresponding portion of the Refunded Swing Line Loans and (ii)
on the day such Revolving Loans are made, Swing Line Lender's Pro Rata
Share of the Refunded Swing Line Loans shall be deemed to be paid with the
proceeds of a Revolving Loan made by Swing Line
42
<PAGE>
Lender, and such portion of the Swing Line Loans deemed to be so paid shall
no longer be outstanding as Swing Line Loans and shall no longer be due
under the Swing Line Note of Swing Line Lender (if any) but shall instead
constitute part of Swing Line Lender's outstanding Revolving Loans and
shall be due under the Revolving Note (if any) of Swing Line Lender.
Company hereby authorizes Administrative Agent and Swing Line Lender to
charge Company's accounts with Administrative Agent and Swing Line Lender
(up to the amount available in each such account) in order to immediately
pay Swing Line Lender the amount of the Refunded Swing Line Loans to the
extent the proceeds of such Revolving Loans made by Revolving Lenders,
including the Revolving Loan deemed to be made by Swing Line Lender, are
not sufficient to repay in full the Refunded Swing Line Loans. If any
portion of any such amount paid (or deemed to be paid) to Swing Line Lender
should be recovered by or on behalf of Company from Swing Line Lender in
bankruptcy, by assignment for the benefit of creditors or otherwise, the
loss of the amount so recovered shall be ratably shared among all Revolving
Lenders in the manner contemplated by subsection 10.5.
If for any reason (a) Revolving Loans are not made upon the request of
Swing Line Lender as provided in the immediately preceding paragraph in an
amount sufficient to repay any amounts owed to Swing Line Lender in respect
of any outstanding Swing Line Loans or (b) the Revolving Loan Commitments
are terminated at a time when any Swing Line Loans are outstanding, each
Revolving Lender shall be deemed to, and hereby agrees to, have purchased a
participation in such outstanding Swing Line Loans in an amount equal to
its Pro Rata Share (calculated, in the case of the foregoing clause (b),
immediately prior to such termination of the Revolving Loan Commitments) of
the unpaid amount of such Swing Line Loans together with accrued interest
thereon. Upon one Business Day's notice from Swing Line Lender, each
Revolving Lender shall deliver to Swing Line Lender an amount equal to its
respective participation in same day funds at the Funding and Payment
Office. In order to further evidence such participation (and without
prejudice to the effectiveness of the participation provisions set forth
above), each Revolving Lender agrees to enter into a separate participation
agreement at the request of Swing Line Lender in form and substance
reasonably satisfactory to Swing Line Lender and the other Revolving
Lenders. In the event any Revolving Lender fails to make available to
Swing Line Lender the amount of such Revolving Lender's participation as
provided in this paragraph, Swing Line Lender shall be entitled to recover
such amount on demand from such Revolving Lender together with interest
thereon at the rate customarily used by Swing Line Lender for the
correction of errors among banks for three Business Days and thereafter at
43
<PAGE>
the Base Rate. In the event Swing Line Lender receives a payment of any
amount in which other Revolving Lenders have purchased participations as
provided in this paragraph, Swing Line Lender shall promptly distribute to
each such other Revolving Lender its Pro Rata Share of such payment.
Anything contained herein to the contrary notwithstanding, each
Revolving Lender's obligation to make Revolving Loans for the purpose of
repaying any Refunded Swing Line Loans pursuant to the second preceding
paragraph and each Revolving Lender's obligation to purchase a
participation in any unpaid Swing Line Loans pursuant to the immediately
preceding paragraph shall be absolute and unconditional and shall not be
affected by any circumstance, including (a) any set-off, counterclaim,
recoupment, defense or other right which such Revolving Lender may have
against Swing Line Lender, Company or any other Person for any reason
whatsoever; (b) the occurrence or continuation of an Event of Default or a
Potential Event of Default; (c) any adverse change in the business,
operations, properties, assets, condition (financial or otherwise) or
prospects of Company or any of its Subsidiaries; (d) any breach of this
Agreement or any other Loan Document by any party thereto; or (e) any other
circumstance, happening or event whatsoever, whether or not similar to any
of the foregoing; provided that such obligations of each Revolving Lender
--------
are subject to the condition that (X) Swing Line Lender believed in good
faith that all conditions under Section 4 to the making of the applicable
Refunded Swing Line Loans or other unpaid Swing Line Loans, as the case may
be, were satisfied at the time such Refunded Swing Line Loans or unpaid
Swing Line Loans were made or (Y) the satisfaction of any such condition
not satisfied had been waived in accordance with subsection 10.6 prior to
or at the time such Refunded Swing Line Loans or other unpaid Swing Line
Loans were made. For the purposes of the immediately preceding proviso,
the Swing Line Lender shall be entitled to rely on the representations made
by Company in the applicable Notice of Borrowing for the related Swing Line
Loans unless notified to the contrary by Company or Requisite Lenders prior
to the funding of such Swing Line Loans.
B. BORROWING MECHANICS. Tranche A Term Loans, Tranche B Term Loans or
Revolving Loans made on any Funding Date (other than Revolving Loans made
pursuant to a request by Swing Line Lender pursuant to subsection 2.1A(iv) for
the purpose of repaying any Refunded Swing Line Loans or Revolving Loans made
pursuant to subsection 3.3B for the purpose of reimbursing any Issuing Lender
for the amount of a drawing under a Letter of Credit issued by it) shall be in
an aggregate minimum amount of $500,000 and multiples of $100,000 in excess of
that amount. Swing Line Loans made on any Funding Date shall be in an aggregate
minimum amount of $250,000 and multiples of $50,000 in
44
<PAGE>
excess of that amount. Whenever Company desires that Lenders make Term Loans or
Revolving Loans it shall deliver to Administrative Agent a Notice of Borrowing
no later than 10:00 A.M. (San Francisco time) at least three Eurodollar Business
Days in advance of the proposed Funding Date (in the case of a Eurodollar Rate
Loan) or at least one Business Day in advance of the proposed Funding Date (in
the case of a Base Rate Loan). Whenever Company desires that Swing Line Lender
make a Swing Line Loan, it shall deliver to Administrative Agent a Notice of
Borrowing no later than 10:00 A.M. (San Francisco time) on the proposed Funding
Date. The Notice of Borrowing shall specify (i) the proposed Funding Date
(which shall be a Business Day), (ii) the amount and type of Loans requested,
(iii) in the case of Swing Line Loans and any Loans made on the Closing Date,
that such Loans shall be Base Rate Loans, (iv) in the case of Revolving Loans
not made on the Closing Date, whether such Loans shall be Base Rate Loans or
Eurodollar Rate Loans, and (v) in the case of any Loans requested to be made as
Eurodollar Rate Loans, the initial Interest Period requested therefor. Term
Loans and Revolving Loans may be continued as or converted into Base Rate Loans
and Eurodollar Rate Loans in the manner provided in subsection 2.2D. In lieu of
delivering the above-described Notice of Borrowing, Company may give
Administrative Agent telephonic notice by the required time of any proposed
borrowing under this subsection 2.1B; provided that such notice shall be
--------
promptly confirmed in writing by delivery of a Notice of Borrowing to
Administrative Agent on or before the applicable Funding Date.
Neither Administrative Agent nor any Lender shall incur any liability
to Company in acting upon any telephonic notice referred to above that
Administrative Agent believes in good faith to have been given by a duly
authorized officer or other person authorized to borrow on behalf of Company,
and upon funding of Loans by Lenders in accordance with this Agreement pursuant
to any such telephonic notice Company shall have effected Loans hereunder.
Company shall notify Administrative Agent prior to the funding of any
Loans in the event that any of the matters to which Company is required to
certify in the applicable Notice of Borrowing is no longer true and correct as
of the applicable Funding Date, and the acceptance by Company of the proceeds of
any Loans shall constitute a re-certification by Company, as of the applicable
Funding Date, as to the matters to which Company is required to certify in the
applicable Notice of Borrowing.
Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a
Notice of Borrowing for a Eurodollar Rate Loan (or telephonic notice in lieu
thereof) shall be irrevocable on and after the related Interest Rate
Determination Date, and Company shall be bound to make a borrowing in accordance
therewith.
45
<PAGE>
C. DISBURSEMENT OF FUNDS. All Term Loans and Revolving Loans under this
Agreement shall be made by Lenders simultaneously and proportionately to their
respective Pro Rata Shares, it being understood that no Lender shall be
responsible for any default by any other Lender in that other Lender's
obligation to make a Loan requested hereunder nor shall the Commitment of any
Lender to make the particular type of Loan requested be increased or decreased
as a result of a default by any other Lender in that other Lender's obligation
to make a Loan requested hereunder. Promptly after receipt by Administrative
Agent of a Notice of Borrowing pursuant to subsection 2.1B (or telephonic notice
in lieu thereof), Administrative Agent shall notify each Lender or Swing Line
Lender, as the case may be, of the proposed borrowing. Each Lender shall make
the amount of its Loan available to Administrative Agent not later than 12:00
Noon (San Francisco time) on the applicable Funding Date, and Swing Line Lender
shall make the amount of its Swing Line Loan available to Administrative Agent
not later than 2:00 P.M.(San Francisco time) on the applicable Funding Date, in
each case in same day funds in Dollars, at the Funding and Payment Office.
Except as provided in subsection 2.1A(iv) or subsection 3.3B with respect to
Revolving Loans used to repay Refunded Swing Line Loans or to reimburse any
Issuing Lender for the amount of a drawing under a Letter of Credit issued by
it, upon satisfaction or waiver of the conditions precedent specified in
subsections 4.1 (in the case of Loans made on the Closing Date) and 4.2 (in the
case of all Loans), Administrative Agent shall make the proceeds of such Loans
available to Company on the applicable Funding Date by causing an amount of same
day funds in Dollars equal to the proceeds of all such Loans received by
Administrative Agent from Lenders or Swing Line Lender, as the case may be, to
be credited to the account of Company at the Funding and Payment Office.
Unless Administrative Agent shall have been notified by any Lender
prior to the Funding Date for any Loans that such Lender does not intend to make
available to Administrative Agent the amount of such Lender's Loan requested on
such Funding Date, Administrative Agent may assume that such Lender has made
such amount available to Administrative Agent on such Funding Date and
Administrative Agent may, in its sole discretion, but shall not be obligated to,
make available to Company a corresponding amount on such Funding Date. If such
corresponding amount is not in fact made available to Administrative Agent by
such Lender, Administrative Agent shall be entitled to recover such
corresponding amount on demand from such Lender together with interest thereon,
for each day from such Funding Date until the date such amount is paid to
Administrative Agent, at the rate customarily used by Administrative Agent for
the correction of errors among banks for three Business Days and thereafter at
the Base Rate. If such Lender does not pay such corresponding amount forthwith
upon Administrative Agent's demand therefor, Administrative Agent shall promptly
notify Company and Company
46
<PAGE>
shall immediately pay such corresponding amount to Administrative Agent together
with interest thereon, for each day from such Funding Date until the date such
amount is paid to Administrative Agent, at the rate payable under this Agreement
for Base Rate Loans. Nothing in this subsection 2.1C shall be deemed to relieve
any Lender from its obligation to fulfill its Commitments hereunder or to
prejudice any rights that Company may have against any Lender as a result of any
default by such Lender hereunder.
D. NOTE OPTION. If so requested by any Lender by written notice to
Company (with a copy to Administrative Agent) at least two Business Days prior
to the Closing Date or at any time thereafter, Company shall execute and deliver
to such Lender (and/or, if so specified in such notice, any Person who is an
assignee of such Lender pursuant to subsection 10.1 hereof) on the Closing Date
(or, if such notice is delivered after the Closing Date, within three Business
Days of Company's receipt of such notice) a promissory note or promissory notes
to evidence such Lender's Tranche A Term Loans, Tranche B Term Loans, Revolving
Loans or Swing Line Loans, substantially in the form of Exhibit IV, Exhibit V,
---------- ---------
Exhibit VI or Exhibit VII hereto, respectively.
- ---------- -----------
2.2 INTEREST ON THE LOANS.
---------------------
A. RATE OF INTEREST. Subject to the provisions of subsections 2.6 and
2.7, each Term Loan and each Revolving Loan shall bear interest on the unpaid
principal amount thereof from the date made through maturity (whether by
acceleration or otherwise) at a rate determined by reference to the Base Rate or
the Adjusted Eurodollar Rate. Subject to the provisions of subsection 2.7, each
Swing Line Loan shall bear interest on the unpaid principal amount thereof from
the date made through maturity (whether by acceleration or otherwise) at a rate
determined by reference to the Base Rate. The applicable basis for determining
the rate of interest with respect to any Term Loan or any Revolving Loan shall
be selected by Company initially at the time a Notice of Borrowing is given (or
telephonic notice followed by a Notice of Borrowing) with respect to such Loan
pursuant to subsection 2.1B, and the basis for determining the interest rate
with respect to any Term Loan or any Revolving Loan may be changed from time to
time pursuant to subsection 2.2D. If on any day a Term Loan or Revolving Loan
is outstanding with respect to which notice has not been delivered to
Administrative Agent in accordance with the terms of this Agreement specifying
the applicable basis for determining the rate of interest, then for that day
that Loan shall bear interest determined by reference to the Base Rate.
(i) (a) Subject to the provisions of subsections 2.2E and 2.7, the
Tranche A Term Loans and the Revolving Loans shall bear interest through
maturity as follows:
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<PAGE>
(I) if a Base Rate Loan, then at the sum of the Base Rate
plus the base rate margin (the "BASE RATE MARGIN") set forth in the
----
table below opposite the Consolidated Leverage Ratio for the four-
Fiscal Quarter period for which the applicable Margin Determination
Certificate has been delivered pursuant to subsection 6.1(iv);
(II) if a Eurodollar Rate Loan, then at the sum of the
Adjusted Eurodollar Rate plus the Eurodollar rate margin (the
----
"EURODOLLAR RATE MARGIN") set forth in the table below opposite the
Consolidated Leverage Ratio for the four-Fiscal Quarter period for
which the applicable Margin Determination Certificate has been
delivered pursuant to subsection 6.1(iv):
<TABLE>
<CAPTION>
Applicable
Eurodollar Applicable
Rate Base
Consolidated Leverage Ratio Margin Rate Margin
- ----------------------------- ------------ ------------
<S> <C> <C>
Greater than or
equal to 5.00:1.00 2.00% 1.00%
Greater than or
equal to 4.25:1.00
but less than 5.00:1.00 1.75% 0.75%
Greater than or
equal to 3.00:1.00
but less than 4.25:1.00 1.50% 0.50%
Less than 3.00:1.00 1.25% 0.25%
</TABLE>
provided that, for the first six months after the Closing Date, the applicable
- --------
Eurodollar Rate Margin for Tranche A Term Loans and Revolving Loans shall be
2.00% per annum and the applicable Base Rate Margin for Tranche A Term Loans and
Revolving Loans shall be 1.00% per annum.
(b) Subject to the provisions of subsections 2.2E and 2.7, the
Tranche B Term Loans shall bear interest through maturity as follows:
(I) if a Base Rate Loan, then at the sum of the Base Rate
plus the Base Rate Margin set forth in the table below opposite the
----
Consolidated Leverage Ratio for the four-Fiscal Quarter period for
which the applicable Margin Determination Certificate has been
delivered pursuant to subsection 6.1(iv); or
48
<PAGE>
(II) if a Eurodollar Rate Loan, then at the sum of the
Adjusted Eurodollar Rate plus the Eurodollar Rate Margin set forth in
----
the table below opposite the Consolidated Leverage Ratio for the four-
Fiscal Quarter period for which the applicable Margin Determination
Certificate has been delivered pursuant to subsection 6.1(iv):
<TABLE>
<CAPTION>
Applicable
Eurodollar Applicable
Rate Base
Consolidated Leverage Ratio Margin Rate Margin
--------------------------- ------------ -------------
<S> <C> <C>
Greater than or
equal to 4.50:1.00 2.25% 1.25%
Less than 4.50:1.00 2.00% 1.00%
</TABLE>
provided that, for the first six months after the Closing Date, the applicable
- --------
Eurodollar Rate Margin for Tranche B Term Loans shall be 2.25% per annum and the
applicable Base Rate Margin for Tranche B Term Loans shall be 1.25% per annum.
Upon receipt of the Margin Determination Certificate by Administrative Agent
delivered by Company pursuant to subsection 6.1(iv), the Applicable Base Rate
Margin and the Applicable Eurodollar Rate Margin shall automatically be adjusted
in accordance with such Margin Determination Certificate, such adjustment to
become effective on the next succeeding Business Day following the receipt by
Administrative Agent of such Margin Determination Certificate; provided that for
--------
the period commencing on the Business Day following the sixth month anniversary
of the Closing Date, the Applicable Base Rate Margin and the Applicable
Eurodollar Rate Margin shall be such percentage as determined using the
information set forth in the most recent Margin Determination Certificate
received by Administrative Agent pursuant to subsection 6.1(iv); and provided
--------
further that, if at any time a Margin Determination Certificate is not delivered
- -------
at the time required pursuant to subsection 6.1(iv), from the time such Margin
Determination Certificate was required to be delivered until delivery of such
Margin Determination Certificate, such applicable margins shall be the maximum
percentage amount for the relevant Loan set forth above; and provided still
-------- -----
further that the change in the Applicable Eurodollar Rate Margin as provided
- -------
above shall not be applied retroactively to any Eurodollar Rate Loans within any
Interest Period.
(ii) Subject to the provisions of subsections 2.2E and 2.7, the Swing
Line Loans shall bear interest through maturity at the sum of the Base Rate
plus the Applicable Base Rate Margin for Revolving Loans minus a rate equal
---- -----
to
49
<PAGE>
the Commitment Fee percentage then in effect as determined pursuant to
subsection 2.3A.
B. INTEREST PERIODS. In connection with each Eurodollar Rate Loan,
Company may, pursuant to the applicable Notice of Borrowing or Notice of
Conversion/Continuation, as the case may be, select an interest period (each an
"INTEREST PERIOD") to be applicable to such Loan, which Interest Period shall
be, at Company's option, either a one, two, three or six month period; provided
--------
that:
(i) the initial Interest Period for any Eurodollar Rate Loan shall
commence on the Funding Date in respect of such Loan, in the case of a Loan
initially made as a Eurodollar Rate Loan, or on the date specified in the
applicable Notice of Conversion/Continuation, in the case of a Loan
converted to a Eurodollar Rate Loan;
(ii) in the case of immediately successive Interest Periods
applicable to a Eurodollar Rate Loan continued as such pursuant to a Notice
of Conversion/Continuation, each successive Interest Period shall commence
on the day on which the next preceding Interest Period expires;
(iii) if an Interest Period would otherwise expire on a day that is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; provided that, if any Interest Period would
--------
otherwise expire on a day that is not a Business Day but is a day of the
month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day;
(iv) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period) shall,
subject to clause (v) of this subsection 2.2B, end on the last Business Day
of a calendar month;
(v) no Interest Period with respect to any portion of the Tranche A
Term Loans shall extend beyond March 31, 2005, no Interest Period with
respect to any portion of the Tranche B Term Loans shall extend beyond
March 31, 2006 and no Interest Period with respect to any portion of the
Revolving Loans shall extend beyond the Revolving Loan Commitment
Termination Date;
(vi) no Interest Period with respect to any portion of the Tranche
A Term Loans or the Tranche B Term Loans shall extend beyond a date on
which Company is required to make a scheduled payment of principal of the
Tranche A Term Loans or the Tranche B Term Loans, as the case may be,
unless the sum of (a) the aggregate principal amount of Tranche A Term
50
<PAGE>
Loans or Tranche B Term Loans, as the case may be, that are Base Rate Loans
plus (b) the aggregate principal amount of Tranche A Term Loans or Tranche
----
B Term Loans, as the case may be, that are Eurodollar Rate Loans with
Interest Periods expiring on or before such date equals or exceeds the
principal amount required to be paid on the Tranche A Term Loans or Tranche
B Term Loans, as the case may be, on such date;
(vii) there shall be no more than 10 Interest Periods outstanding at
any time; and
(viii) in the event Company fails to specify an Interest Period for
any Eurodollar Rate Loan in the applicable Notice of Borrowing or Notice of
Conversion/Continuation, Company shall be deemed to have selected an
Interest Period of one month.
C. INTEREST PAYMENTS. Subject to the provisions of subsection 2.2E,
interest on each Loan shall be payable in arrears on and to each Interest
Payment Date applicable to that Loan, upon any prepayment of that Loan (to the
extent accrued on the amount being prepaid) and at maturity (including final
maturity and the Revolving Loan Commitment Termination Date); provided that in
--------
the event any Swing Line Loans or any Revolving Loans that are Base Rate Loans
are prepaid pursuant to subsection 2.4B(i)(a), interest accrued on such Swing
Line Loans or Revolving Loans through the date of such prepayment shall be
payable on the next succeeding Interest Payment Date applicable to Base Rate
Loans (or, if earlier, at final maturity).
D. CONVERSION OR CONTINUATION. Subject to the provisions of subsection
2.6, Company shall have the option (i) to convert at any time all or any part of
its outstanding Tranche A Term Loans, Tranche B Term Loans or Revolving Loans
equal to $500,000 and integral multiples of $100,000 in excess of that amount
from Loans bearing interest at a rate determined by reference to one basis to
Loans bearing interest at a rate determined by reference to an alternative basis
or (ii) upon the expiration of any Interest Period applicable to a Eurodollar
Rate Loan, to continue all or any portion of such Loan equal to $500,000 and
integral multiples of $100,000 in excess of that amount as a Eurodollar Rate
Loan; provided, however, that a Eurodollar Rate Loan may only be converted into
--------- -------
a Base Rate Loan on the expiration date of an Interest Period applicable
thereto.
Company shall deliver a Notice of Conversion/Continuation to
Administrative Agent no later than 10:00 A.M. (San Francisco time) at least one
Business Day in advance of the proposed conversion date (in the case of a
conversion to a Base Rate Loan) and at least three Eurodollar Business Days in
advance of the proposed conversion/continuation date (in the case of a
conversion to, or a continuation of, a Eurodollar Rate Loan). A
51
<PAGE>
Notice of Conversion/Continuation shall specify (i) the proposed
conversion/continuation date (which shall be a Business Day), (ii) the amount
and type of the Loan to be converted/continued, (iii) the nature of the proposed
conversion/continuation, (iv) in the case of a conversion to, or a continuation
of, a Eurodollar Rate Loan, the requested Interest Period, and (v) in the case
of a conversion to, or a continuation of, a Eurodollar Rate Loan, that no
Potential Event of Default or Event of Default has occurred and is continuing.
In lieu of delivering the above-described Notice of Conversion/Continuation,
Company may give Administrative Agent telephonic notice by the required time of
any proposed conversion/continuation under this subsection 2.2D; provided that
--------
such notice shall be promptly confirmed in writing by delivery of a Notice of
Conversion/Continuation to Administrative Agent on or before the proposed
conversion/continuation date. Upon receipt of written or telephonic notice of
any proposed conversion/continuation under this subsection 2.2D, Administrative
Agent shall promptly transmit such notice by telefacsimile or telephone to each
Lender.
Neither Administrative Agent nor any Lender shall incur any liability
to Company in acting upon any telephonic notice referred to above that
Administrative Agent believes in good faith to have been given by a duly
authorized officer or other person authorized to act on behalf of Company, and
upon conversion or continuation of the applicable basis for determining the
interest rate with respect to any Loans in accordance with this Agreement
pursuant to any such telephonic notice Company shall have effected a conversion
or continuation, as the case may be, hereunder.
Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a
Notice of Conversion/Continuation for conversion to, or continuation of, a
Eurodollar Rate Loan (or telephonic notice in lieu thereof) shall be irrevocable
on and after the related Interest Rate Determination Date, and Company shall be
bound to effect a conversion or continuation in accordance therewith.
E. DEFAULT RATE. Upon the occurrence and during the continuation of any
Event of Default, the outstanding principal amount of all Loans and, to the
extent permitted by applicable law, any interest payments thereon not paid when
due and any fees and other amounts then due and payable hereunder, shall there-
after bear interest (including post-petition interest in any proceeding under
the Bankruptcy Code or other applicable bankruptcy laws) payable upon demand at
a rate that is 2% per annum in excess of the interest rate otherwise payable
under this Agreement with respect to the applicable Loans (or, in the case of
any such fees and other amounts, at a rate which is 2% per annum in excess of
the interest rate otherwise payable under this Agreement for Base Rate Loans
that are Tranche B Term Loans); provided that, in the case of Eurodollar Rate
--------
Loans, upon the expiration of the Interest Period in effect at the time any such
52
<PAGE>
increase in interest rate is effective such Eurodollar Rate Loans shall
thereupon become Base Rate Loans and shall thereafter bear interest payable upon
demand at a rate which is 2% per annum in excess of the interest rate otherwise
payable under this Agreement for Base Rate Loans. Payment or acceptance of the
increased rates of interest provided for in this subsection 2.2E is not a
permitted alternative to timely payment and shall not constitute a waiver of any
Event of Default or otherwise prejudice or limit any rights or remedies of any
Agent or any Lender.
F. COMPUTATION OF INTEREST. Interest on the Loans shall be computed (i)
in the case of Base Rate Loans, on the basis of a 365-day or 366-day year, as
the case may be, and (ii) in the case of Eurodollar Rate Loans, on the basis of
a 360-day year, in each case for the actual number of days elapsed in the period
during which it accrues. In computing interest on any Loan, the date of the
making of such Loan or the first day of an Interest Period applicable to such
Loan or, with respect to a Base Rate Loan being converted from a Eurodollar Rate
Loan, the date of conversion of such Eurodollar Rate Loan to such Base Rate
Loan, as the case may be, shall be included, and the date of payment of such
Loan or the expiration date of an Interest Period applicable to such Loan or,
with respect to a Base Rate Loan being converted to a Eurodollar Rate Loan, the
date of conversion of such Base Rate Loan to such Eurodollar Rate Loan, as the
case may be, shall be excluded; provided that if a Loan is repaid on the same
--------
day on which it is made, one day's interest shall be paid on that Loan.
2.3 FEES.
----
A. COMMITMENT FEES. Company agrees to pay to Administrative Agent, for
distribution to each Revolving Lender in proportion to that Lender's Pro Rata
Share, commitment fees for the period from and including the Closing Date to and
excluding the Revolving Loan Commitment Termination Date equal to the average of
the daily excess of the Revolving Loan Commitments over the aggregate principal
amount of outstanding Revolving Loans (but not including any outstanding Swing
Line Loans) multiplied by the applicable commitment fee percentage (the
-------------
"APPLICABLE COMMITMENT FEE PERCENTAGE") set forth in the table below opposite
the Consolidated Leverage Ratio for the four-Fiscal Quarter period for which the
applicable Margin Determination Certificate has been delivered pursuant to
subsection 6.1(iv), such commitment fees to be calculated on the basis of a 360-
day year and the actual number of days elapsed and to be payable quarterly in
arrears on the last day of each March, June, September and December of each
year, commencing on the first such date to occur after the Closing Date, and on
the Revolving Loan Commitment Termination Date.
53
<PAGE>
<TABLE>
<CAPTION>
Applicable
Commitment
Fee
Consolidated Leverage Ratio Percentage
- --------------------------- ------------
<S> <C>
Greater than or 3.50:1.00 0.500%
equal to
Less than 3.50:1.00 0.375%
</TABLE>
Upon delivery of the Margin Determination Certificate by Company to
Administrative Agent pursuant to subsection 6.1(iv), the Applicable Commitment
Fee Percentage shall automatically be adjusted in accordance with such Margin
Determination Certificate, such adjustment to become effective on the next
succeeding Business Day following the receipt by Administrative Agent of such
Margin Determination Certificate; provided that for the period commencing on the
--------
Closing Date and ending on the date of delivery of the first Margin
Determination Certificate by Company to Administrative Agent pursuant to
subsection 6.1(iv), the Applicable Commitment Fee Percentage shall be such
percentage as determined using the information set forth in the Margin
Determination Certificate received by Administrative Agent pursuant to
subsection 4.1Q; and provided further that, if at any time a Margin
-------- -------
Determination Certificate is not delivered at the time required pursuant to
subsection 6.1(iv), from the time such Margin Determination Certificate was
required to be delivered until delivery of such Margin Determination
Certificate, such percentage shall be 0.50%.
B. OTHER FEES. Company agrees to pay to Arranger and Agents such other
fees in the amounts and at the times separately agreed upon between Company,
Agents and Arranger.
2.4 REPAYMENTS, PREPAYMENTS AND REDUCTIONS IN REVOLVING LOAN COMMITMENTS;
---------------------------------------------------------------------
GENERAL PROVISIONS REGARDING PAYMENTS.
-------------------------------------
A. SCHEDULED PAYMENTS OF TRANCHE A TERM LOANS AND TRANCHE B TERM LOANS.
(i) Scheduled Payments of Tranche A Term Loans. Company shall make
------------------------------------------
principal payments on the Tranche A Term Loans in installments on the dates
and in the amounts set forth below:
54
<PAGE>
<TABLE>
<CAPTION>
Scheduled Repayment
Date of Term Loans
- ---- ---------------------
<S> <C>
June 30, 1999 $ 750,000
September 30, 1999 $ 750,000
December 31, 1999 $ 750,000
March 31, 2000 $ 750,000
June 30, 2000 $1,125,000
September 30, 2000 $1,125,000
December 31, 2000 $1,125,000
March 31, 2001 $1,125,000
June 30, 2001 $1,125,000
September 30, 2001 $1,125,000
December 31, 2001 $1,125,000
March 31, 2002 $1,125,000
June 30, 2002 $1,500,000
September 30, 2002 $1,500,000
December 31, 2002 $1,500,000
March 31, 2003 $1,500,000
June 30, 2003 $1,500,000
September 30, 2003 $1,500,000
December 31, 2003 $1,500,000
March 31, 2004 $1,500,000
June 30, 2004 $1,500,000
September 30, 2004 $1,500,000
December 31, 2004 $1,500,000
March 31, 2005 $1,500,000
Total $30,000,000
</TABLE>
; provided that the scheduled installments of principal of the Tranche A
--------
Term Loans set forth above shall be reduced in connection with any
voluntary or mandatory prepayments of the Tranche A Term Loans in
accordance with subsection 2.4B(iv); and provided, further that the Tranche
-------- -------
A Term Loans and all other amounts owed hereunder with respect to the
Tranche A Term Loans shall be paid in full no later than March 31, 2005,
and the final installment payable by Company in respect of the Tranche A
Term Loans on such date shall be in an amount, if such amount is different
from that specified above, sufficient to repay all amounts owing by Company
under this Agreement with respect to the Tranche A Term Loans.
(ii) Scheduled Payments of Tranche B Term Loans. Company shall make
------------------------------------------
principal payments on the Tranche B Term
55
<PAGE>
Loans in installments on the dates and in the amounts set forth below:
<TABLE>
<CAPTION>
Scheduled Repayment
Date of Tranche B Term Loans
- ------ ---------------------------------
<S> <C>
June 30, 1998 $ 125,000
September 30, 1998 $ 125,000
December 31, 1998 $ 125,000
March 31, 1999 $ 125,000
June 30, 1999 $ 125,000
September 30, 1999 $ 125,000
December 31, 1990 $ 125,000
March 31, 2000 $ 125,000
June 30, 2000 $ 125,000
September 30, 2000 $ 125,000
December 31, 2000 $ 125,000
March 31, 2001 $ 125,000
June 30, 2001 $ 125,000
September 30, 2001 $ 125,000
December 31, 2001 $ 125,000
March 31, 2002 $ 125,000
June 30, 2002 $ 125,000
September 30, 2002 $ 125,000
December 31, 2002 $ 125,000
March 31, 2003 $ 125,000
June 30, 2003 $ 125,000
September 30, 2003 $ 125,000
December 31, 2003 $ 125,000
March 31, 2004 $ 125,000
June 30, 2004 $ 125,000
September 30, 2004 $ 125,000
December 31, 2004 $ 125,000
March 31, 2005 $ 125,000
June 30, 2005 $11,625,000
September 30, 2005 $11,625,000
December 31, 2005 $11,625,000
March 31, 2006 $11,625,000
Total $50,000,000
</TABLE>
; provided that the scheduled installments of principal of the Tranche B
--------
Term Loans set forth above shall be reduced in connection with any
voluntary or mandatory prepayments of the Tranche B Term Loans in
accordance with
56
<PAGE>
subsection 2.4B(iv); and provided, further that the Tranche B Term Loans
-------- -------
and all other amounts owed hereunder with respect to the Tranche B Term
Loans shall be paid in full no later than March 31, 2006, and the final
installment payable by Company in respect of the Tranche B Term Loans on
such date shall be in an amount, if such amount is different from that
specified above, sufficient to repay all amounts owing by Company under
this Agreement with respect to the Tranche B Term Loans.
B. PREPAYMENTS AND UNSCHEDULED REDUCTIONS IN REVOLVING LOAN COMMITMENTS.
(i) Voluntary Prepayments.
---------------------
(a) Company may, upon written or telephonic notice to
Administrative Agent on or prior to 10:00 A.M. (San Francisco time) on the
date of prepayment, which notice, if telephonic, shall be promptly
confirmed in writing, at any time and from time to time prepay any Swing
Line Loan on any Business Day in whole or in part in an aggregate minimum
amount of $250,000 and multiples of $50,000 in excess of that amount.
Company may, upon not less than one Business Day's prior written or
telephonic notice, in the case of Base Rate Loans, and three Business Days'
prior written or telephonic notice, in the case of Eurodollar Rate Loans,
in each case given to Administrative Agent by 10:00 A.M. (San Francisco
time) on the date required and, if given by telephone, promptly confirmed
in writing to Administrative Agent (which original written or telephonic
notice Administrative Agent will promptly transmit by telefacsimile or
telephone to each Lender), at any time and from time to time prepay any
Term Loans or Revolving Loans on any Business Day in whole or in part in an
aggregate minimum amount of $500,000 and integral multiples of $100,000 in
excess of that amount; provided, however, that a Eurodollar Rate Loan may
-------- -------
only be prepaid on the expiration of the Interest Period applicable thereto
unless Company complies with subsection 2.6D with respect to any breakage
costs resulting from such prepayment being made on a date prior to the
expiration of the applicable Interest Period. Notice of prepayment having
been given as aforesaid, the principal amount of the Loans specified in
such notice shall become due and payable on the prepayment date specified
therein. Any such voluntary prepayment shall be applied as specified in
subsection 2.4B(iv).
(b) In the event Company is entitled to replace a non-consenting
Lender pursuant to subsection 10.6B, Company shall have the right, upon
five Business Days' written notice to Administrative Agent (which notice
Administrative Agent shall promptly transmit to each of the Lenders), to
prepay all Loans, together with accrued and unpaid interest,
57
<PAGE>
fees and other amounts owing to such Lender in accordance with subsection
10.6B so long as (1) in the case of the prepayment of the Revolving Loans
of any Lender pursuant to this subsection 2.4B(i)(b), the Revolving Loan
Commitment of such Lender is terminated concurrently with such prepayment
pursuant to subsection 2.4B(ii)(b) (at which time Schedule 2.1 shall be
------------
deemed modified to reflect the changed Revolving Loan Commitments), and (2)
in the case of the prepayment of the Loans of any Lender, the consents
required by subsection 10.6B in connection with the prepayment pursuant to
this subsection 2.4B(i)(b) shall have been obtained, and at such time, such
Lender shall no longer constitute a "Lender" for purposes of this
Agreement, except with respect to indemnifications under this Agreement
(including, without limitation, subsections 2.6D, 2.7, 3.6, 10.2, 10.3 and
10.5) and any obligations or liabilities of such Lender to Holdings or any
of its Subsidiaries under this Agreement while it was a Lender, which shall
survive as to such Lender.
(ii) Voluntary Reductions of Revolving Loan Commitments.
--------------------------------------------------
(a) Company may, upon not less than three Business Days' prior
written or telephonic notice confirmed in writing to Administrative Agent
(which original written or telephonic notice Administrative Agent will
promptly transmit by telefacsimile or telephone to each Revolving Lender),
at any time and from time to time terminate in whole or permanently reduce
in part, without premium or penalty, the Revolving Loan Commitments in an
amount up to the amount by which the Revolving Loan Commitments exceed the
Total Utilization of Revolving Loan Commitments at the time of such
proposed termination or reduction; provided that any such partial reduction
--------
of the Revolving Loan Commitments shall be in an aggregate minimum amount
of $500,000 and integral multiples of $100,000 in excess of that amount.
Company's notice to Administrative Agent shall designate the date (which
shall be a Business Day) of such termination or reduction and the amount of
any partial reduction, and such termination or reduction of the Revolving
Loan Commitments shall be effective on the date specified in Company's
notice and shall reduce the Revolving Loan Commitment of each Revolving
Lender proportionately to its Pro Rata Share.
(b) In the event Company is entitled to replace a non-consenting
Lender pursuant to subsection 10.6B, Company shall have the right, upon
five Business Days' written notice to Administrative Agent (which notice
Administrative Agent shall promptly transmit to each of the Lenders), to
terminate the entire Revolving Loan Commitment of such Lender, so long as
(1) all Loans, together with accrued and
58
<PAGE>
unpaid interest, fees and other amounts owing to such Lender are repaid,
including without limitation amounts owing to such Lender pursuant to
subsection 2.6D pursuant to subsection 2.4B(i)(b) concurrently with the
effectiveness of such termination (at which time Schedule 2.1 shall be
------------
deemed modified to reflect such changed amounts) and (2) the consents
required by subsection 10.6B in connection with the prepayment pursuant to
subsection 2.4B(i)(b) shall have been obtained, and at such time, such
Lender shall no longer constitute a "Lender" for purposes of this
Agreement, except with respect to indemnifications under this Agreement
(including, without limitation, subsections 2.6D, 2.7, 3.6, 10.2, 10.3 and
10.5) and any obligations or liabilities of such Lender to Holdings or any
of its Subsidiaries under this Agreement while it was a Lender, which shall
survive as to such Lender.
(iii) Mandatory Prepayments and Mandatory Reductions of Revolving
-----------------------------------------------------------
Loan Commitments. The Loans shall be prepaid and/or the Revolving Loan
----------------
Commitments shall be permanently reduced in the amounts and under the
circumstances set forth below, all such prepayments and/or reductions to be
applied as set forth below or as more specifically provided in subsection
2.4B(iv):
(a) Prepayments and Reductions From Net Asset Sale Proceeds.
-------------------------------------------------------
Company shall prepay the Loans and/or the Revolving Loan Commitments
shall be permanently reduced in an aggregate amount equal to any Net
Asset Sale Proceeds received by Company or any of its Subsidiaries in
respect of any Asset Sale no later than the 271st day following the
date thereof; provided that so long as no Event of Default or
--------
Potential Event of Default shall have occurred and be continuing, any
Net Asset Sale Proceeds to the extent that such Net Asset Sale
Proceeds are reinvested in the same or similar assets or other assets
useful in the Business of Company or its Subsidiaries having a
comparable value, within 270 days of such sale need not be applied to
the mandatory prepayment of the Loans pursuant to this subsection
2.4B(iii)(a).
(b) Prepayments and Reductions from Net Insurance/Condemnation
----------------------------------------------------------
Proceeds. No later than the first Business Day following the date of
--------
receipt by Administrative Agent or by Company or any of its
Subsidiaries of any Net Insurance/Condemnation Proceeds, Company shall
prepay the Loans and/or the Revolving Loan Commitments shall be
permanently reduced in an aggregate amount equal to the amount of such
Net Insurance/Condemnation Proceeds; provided, however, that no such
prepayment shall be required to the extent (i) under the terms of any
lease or other agreement
59
<PAGE>
existing on the date hereof such Net Insurance/Condemnation Proceeds
are required to be used to replace, rebuild or repair the asset so
damaged, destroyed or taken or (ii) Company determines to utilize such
Net Insurance/Condemnation Proceeds to replace, rebuild or repair the
asset damaged, destroyed or taken, and in each case referred to in
clauses (i) and (ii) above, Company so utilizes such Net
Insurance/Condemnation Proceeds within 18 months of the receipt
thereof.
(c) Prepayment and Reductions Due to Reversion of Surplus Assets
------------------------------------------------------------
of Pension Plans. On the date of return to Company or any of its
----------------
Subsidiaries of any surplus assets of any pension plan of Company or
any of its Subsidiaries, Company shall repay the Loans and/or the
Revolving Loan Commitments shall be permanently reduced in an
aggregate amount (such amount being the "NET PENSION PROCEEDS") equal
to 100% of such returned surplus assets, net of transaction costs and
expenses incurred in obtaining such return, including incremental
taxes payable as a result thereof.
(d) Prepayments and Reductions Due to Issuance of Debt or Equity
------------------------------------------------------------
Securities. On the date of receipt by Holdings, Company or any of its
----------
Subsidiaries of the Cash proceeds (any such cash proceeds, net of
under writing discounts and commissions and other reasonable costs and
expenses associated therewith, including reasonable legal and
accounting fees and expenses, being "NET SECURITIES PROCEEDS"), from
the issuance of debt or equity Securities of Holdings, Company or any
of its Subsidiaries after the Closing Date (other than the issuance of
debt Securities by Holdings permitted under subsection 7.1(viii)),
Company shall prepay the Loans and/or the Revolving Loan Commitments
shall be permanently reduced in an aggregate amount equal to 100% (in
case of debt Securities) or 50% (in case of equity Securities) of such
Net Securities Proceeds; provided that the Net Securities Proceeds
--------
received from the issuance of equity Securities of Holdings (including
Holdings Common Stock) for the purposes of financing (in whole or in
part) any Permitted Acquisition need not be applied to the mandatory
prepayment of the Loans pursuant to this subsection 2.4B(iii)(d); and
provided further that none of the Net Securities Proceeds from the
-------- -------
issuance of equity Securities needs to be applied to the mandatory
prepayment of the Loans pursuant to this subsection 2.4B(iii)(d) if,
after giving effect to such issuance and all other transactions
contemplated in connection therewith, the Consolidated Leverage Ratio
of the Company and its Subsidiaries as of the end of the most
60
<PAGE>
recent Fiscal Quarter for which a Compliance Certificate has been
delivered pursuant to subsection 6.1(iv) is less than 4.00:1.00.
(e) Prepayments and Reductions from Consolidated Excess Cash
--------------------------------------------------------
Flow. In the event that there shall be Consolidated Excess Cash Flow
----
for any Fiscal Year (commencing with the Fiscal Year beginning January
1, 1998), Company shall, no later than 105 days after the end of such
Fiscal Year, prepay the Loans and/or the Revolving Loan Commitments
shall be permanently reduced in an aggregate amount equal to 50% of
such Consolidated Excess Cash Flow.
(f) Calculations of Net Proceeds Amounts; Additional Prepayments
------------------------------------------------------------
and Reductions Based on Subsequent Calculations. Concurrently with
-----------------------------------------------
any prepayment of the Loans and/or reduction of the Revolving Loan
Commitments pursuant to subsections 2.4B(iii)(a)-(e), Company shall
deliver to Administrative Agent an Officer's Certificate demonstrating
the calculation of the amount (the "NET PROCEEDS AMOUNT") of the
applicable Net Asset Sale Proceeds, Net Insurance/Condemnation
Proceeds, Net Pension Proceeds, Net Securities Proceeds, or the
applicable Consolidated Excess Cash Flow, as the case may be, that
gave rise to such prepayment and/or reduction. In the event that
Company shall subsequently determine that (i) the actual Net Proceeds
Amount was greater than the amount set forth in such Officer's
Certificate, Company shall promptly make an additional prepayment of
the Loans (and/or, if applicable, the Revolving Loan Commitments shall
be permanently reduced) in an amount equal to the amount of such
excess, and Company shall concurrently therewith deliver to
Administrative Agent an Officer's Certificate demonstrating the
derivation of the additional Net Proceeds Amount resulting in such
excess, or (ii) the actual Net Proceeds Amount was less than the
amount set forth in such Officer's Certificate, Company may deliver to
Administrative Agent, within 60 days of the date of related prepayment
and/or reduction, a new Officer's Certificate setting forth the Net
Proceeds Amount actually received by Company and its Subsidiaries and
requesting that an amount equal to the excess of the original Net
Proceeds Amount over the Net Proceeds Amount actually received by
Company and its Subsidiaries (the "Overpaid Amount") be applied to the
immediately succeeding mandatory or scheduled prepayment of the Loans
pursuant to subsection 2.4A or 2.4B(iii) hereunder. Upon the receipt
of such Officer's Certificate, Administrative Agent shall promptly
notify the Lenders to such effect
61
<PAGE>
and on the date of the immediately succeeding mandatory or scheduled
payment of the Loans pursuant to subsection 2.4A or 2.4B(iii), as the
case may be, only an amount equal to the amount otherwise due under
the applicable subsection minus the Overpaid Amount shall become due
-----
and payable under such subsection.
(g) Prepayments Due to Reductions or Restrictions of Revolving
----------------------------------------------------------
Loan Commitments. Company shall from time to time prepay first the
---------------- -----
Swing Line Loans and second the Revolving Loans to the extent
------
necessary so that the Total Utilization of Revolving Loan Commitments
shall not at any time exceed the Revolving Loan Commitments then in
effect.
Notwithstanding anything to the contrary stated herein, upon the
receipt by Company or any of its Subsidiaries of any Net Asset Sale
Proceeds in an aggregate cumulative amount exceeding $5,000,000
(excluding such amounts which have been applied to (x) prepay the
Loans under subsection 2.4B(iii)(a) or (y) reinvest in same, similar
or useful assets within 270 days of the related Asset Sale as provided
in subsection 2.4B(iii)(a)), Company shall, or shall cause such
Subsidiary to, deposit such excess amount on the date of receipt
thereof in an interest bearing account in the name of Company
designated by Administrative Agent (which account may be at
Administrative Agent) (such account being the "Asset Sale Proceeds
Account") to be held by Administrative Agent for the benefit of
Lenders (each such deposit being an "Asset Sale Deposit"). From time
to time but in any event within 270 days of the deposit of each Asset
Sale Deposit to the Asset Sale Proceeds Account pursuant to the
immediately preceding sentence, Company may request Administrative
Agent to deliver all or a portion of such Asset Sale Deposit to
Company or its Subsidiaries for reinvestment as provided in subsection
2.4B(iii)(a); provided that Company and its Subsidiaries shall
--------
reinvest such funds in accordance with subsection 2.4B(iii)(a). On
the 271st day following the date of deposit of each Asset Sale
Deposit, Administrative Agent shall withdraw from the Asset Sale
Proceeds Account an amount equal to such Asset Sale Deposit minus the
portion of such Asset Sale Deposit (if any) used by Company to
reinvest in same, similar or useful assets as provided above and apply
such amount for the prepayment of the Loans and the permanent
reduction of the Revolving Loan Commitments pursuant to subsection
2.4B(iii)(a). Any and all interest earned in respect of such account
shall be for the account of Company and be forwarded by
62
<PAGE>
Administrative Agent to Company on the last day of every calendar
quarter.
Similarly, notwithstanding anything to the contrary stated
herein, upon the receipt by Company or any of its Subsidiaries of any
Net Insurance/Condemnation Proceeds in an aggregate cumulative amount
exceeding $5,000,000 (excluding such amounts which have been applied
to (x) prepay the Loans under subsection 2.4B(iii)(b) or (y) replace,
rebuild or repair the related asset as provided in subsection
2.4B(iii)(b)), Company shall, or shall cause such Subsidiary to,
deposit such excess amount on the date of receipt thereof in an
interest bearing account in the name of Company designated by
Administrative Agent (which account may be at Administrative Agent)
(such account being the "Condemnation/Insurance Proceeds Account") to
be held by Administrative Agent for the benefit of Lenders (each such
deposit being an "Condemnation/Insurance Deposit"). From time to time
but in any event within 18 months of the deposit of each
Condemnation/Insurance Deposit to the Condemnation/Insurance Proceeds
Account pursuant to the immediately preceding sentence, Company may
request Administrative Agent to deliver all or a portion of such
Condemnation/Insurance Deposit to Company or its Subsidiaries for
application as provided in subsection 2.4B(iii)(b); provided that
--------
Company and its Subsidiaries shall apply such funds in accordance with
subsection 2.4B(iii)(b). On the first day of the 19th month following
the date of deposit of each Condemnation/Insurance Deposit,
Administrative Agent shall withdraw from the Condemnation/Insurance
Proceeds Account an amount equal to such Condemnation/Insurance
Deposit minus the portion of such Condemnation/Insurance Deposit (if
any) used by Company to replace, rebuild or repair the related asset
and apply such amount for the prepayment of the Loans and the
permanent reduction of the Revolving Loan Commitments pursuant to
subsection 2.4B(iii)(b). Any and all interest earned in respect of
such account shall be for the account of Company and be forwarded by
Administrative Agent to Company on the last day of every calendar
quarter.
If, following the receipt by Company or any of its Subsidiaries
of Net Proceeds Amount, Company is required to apply or cause to be
applied any portion of such Net Proceeds Amount to prepay any
Subordinated Indebtedness, then, notwithstanding anything contained in
this subsection 2.4B(iii), Company shall prepay the Loans and/or
reduce the Revolving Loan Commitment in the order set forth in this
subsection 2.4B(iii) so as
63
<PAGE>
to eliminate any obligation to prepay such Subordinated Indebtedness.
(iv) Application of Prepayments.
--------------------------
(a) Application of Voluntary Prepayments by Type of Loans and
---------------------------------------------------------
Order of Maturity. Any voluntary prepayments pursuant to subsection
-----------------
2.4B(i)(a) shall be applied as specified by Company in the applicable
notice of prepayment; provided that in the event Company fails to
--------
specify the Loans to which any such prepayment shall be applied, such
prepayment shall be applied first to repay outstanding Swing Line
-----
Loans to the full extent thereof, second to repay outstanding
------
Revolving Loans to the full extent thereof and third to repay
-----
outstanding Term Loans to the full extent thereof. Any voluntary
prepayments of the Term Loans pursuant to subsection 2.4B(i)(a) shall
be applied to prepay the Tranche A Term Loans and the Tranche B Term
Loans on a pro rata basis (in accordance with the respective
outstanding principal amounts thereof) and to reduce the scheduled
installments of principal of the Tranche A Term Loans and Tranche B
Term Loans set forth in subsection 2.4A(i) and 2.4A(ii) in forward
order of maturity for the first four quarterly scheduled payments to
occur following such voluntary prepayment; provided that no voluntary
--------
prepayments may be applied to reduce the scheduled installments of
principal of the Tranche A Term Loans or the Tranche B Term Loans with
respect to any quarterly period beyond the fourth quarterly period
following such voluntary prepayment; and thereafter to reduce the
scheduled installments of principal of the Tranche A Term Loans and
Tranche B Term Loans set forth in subsection 2.4A(i) and 2.4A(ii) on a
pro rata basis;
(b) Application of Mandatory Prepayments by Type of Loans. Any
-----------------------------------------------------
amount (the "APPLIED AMOUNT") required to be applied as a mandatory
prepayment of the Loans and/or a reduction of the Revolving Loan
Commitments pursuant to subsections 2.4B(iii)(a)-(g) shall be applied
first to prepay the Term Loans to the full extent thereof, second, to
----- ------
the extent of any remaining portion of the Applied Amount, to prepay
the Swing Line Loans to the full extent thereof and to permanently
reduce the Revolving Loan Commitments by the amount of such
prepayment, third, to the extent of any remaining portion of the
-----
Applied Amount, to prepay the Revolving Loans to the full extent
thereof and to further permanently reduce the Revolving Loan
Commitments by the amount of such prepayment, fourth, to the extent of
any remaining portion of the Applied Amount, to provide cash
collateral for any outstanding Letters of Credit
64
<PAGE>
to the full extent of the outstanding stated amounts thereof and to
further permanently reduce the Revolving Loan Commitments by the
amount of such cash collateral and, fifth, to the extent of any
-----
remaining portion of the Applied Amount, to further permanently reduce
the Revolving Loan Commitments to the full extent thereof.
(c) Application of Mandatory Prepayments of Term Loans to Tranche
-------------------------------------------------------------
A Term Loans and Tranche B Term Loans and the Scheduled Installments
--------------------------------------------------------------------
of Principal Thereof. Any mandatory prepayments of the Term Loans
--------------------
pursuant to subsection 2.4B(iii) shall be applied to prepay the
Tranche A Term Loans and the Tranche B Term Loans on a pro rata basis
(in accordance with the respective outstanding principal amounts
thereof) and to reduce the scheduled installments of principal of the
Tranche A Term Loans and Tranche B Term Loans set forth in subsection
2.4A(i) and 2.4A(ii) on a pro rata basis. Notwithstanding the
foregoing, in the case of any mandatory prepayment of the Tranche B
Term Loans, Company may elect to offer the Tranche B Term Loan Lenders
the option to waive the right to receive the amount of such mandatory
prepayment of the Tranche B Term Loans. If any Lender or Lenders
elect to waive the right to receive the amount of such mandatory
prepayment, 50% of the amount that otherwise would have been applied
to mandatorily prepay the Tranche B Term Loans of such Lender or
Lenders shall be applied instead to the further prepayment of the
Tranche A Term Loans to the extent any are then outstanding and the
remaining amount shall be retained by Company.
(d) Application of Prepayments to Base Rate Loans and Eurodollar
------------------------------------------------------------
Rate Loans. Considering Tranche A Term Loans, Tranche B Term Loans
----------
and Revolving Loans being prepaid separately, any prepayment thereof
shall be applied first to Base Rate Loans to the full extent thereof
before application to Eurodollar Rate Loans, in each case in a manner
which minimizes the amount of any payments required to be made by
Company pursuant to subsection 2.6D.
C. GENERAL PROVISIONS REGARDING PAYMENTS.
(i) Manner and Time of Payment. All payments by Company of principal,
--------------------------
interest, fees and other Obligations hereunder and under the Notes (if any)
shall be made in Dollars in same day funds, without defense, setoff or
counterclaim, free of any restriction or condition, and delivered to
Administrative Agent not later than 10:00 A.M. (San Francisco time) on the
date due at the Funding and Payment Office for the account of Lenders;
funds received by Administrative Agent after that time on such due date
shall
65
<PAGE>
be deemed to have been paid by Company on the next succeeding Business
Day. Company hereby authorizes Administrative Agent to charge its accounts
with Administrative Agent in order to cause timely payment to be made to
Administrative Agent of all principal, interest, fees and expenses due
hereunder (subject to sufficient funds being available in its accounts for
that purpose).
(ii) Application of Payments to Principal and Interest. Except as
-------------------------------------------------
provided in subsection 2.2C, all payments in respect of the principal
amount of any Loan shall include payment of accrued interest on the
principal amount being repaid or prepaid, and all such payments (and, in
any event, any payments in respect of any Loan on a date when interest is
due and payable with respect to such Loan) shall be applied to the payment
of interest before application to principal.
(iii) Apportionment of Payments. Aggregate principal and interest
-------------------------
payments in respect of Term Loans and Revolving Loans shall be apportioned
among all outstanding Loans to which such payments relate, in each case
proportionately to Lenders' respective Pro Rata Shares. Administrative
Agent shall promptly distribute to each Lender, at its primary address set
forth below its name on the appropriate signature page hereof or at such
other address as such Lender may request, its Pro Rata Share of all such
payments received by Administrative Agent and the commitment fees of such
Lender when received by Administrative Agent pursuant to subsection 2.3.
Notwithstanding the foregoing provisions of this subsection 2.4C(iii), if,
pursuant to the provisions of subsection 2.6C, any Notice of
Conversion/Continuation is withdrawn as to any Affected Lender or if any
Affected Lender makes Base Rate Loans in lieu of its Pro Rata Share of any
Eurodollar Rate Loans, Administrative Agent shall give effect thereto in
apportioning payments received thereafter.
(iv) Payments on Business Days. Whenever any payment to be made
-------------------------
hereunder shall be stated to be due on a day that is not a Business Day,
such payment shall be made on the next succeeding Business Day and such
extension of time shall be included in the computation of the payment of
interest hereunder or of the commitment fees hereunder, as the case may be.
(v) Notation of Payment. Each Lender agrees that before disposing
-------------------
of any Note held by it, or any part thereof (other than by granting
participations therein), that Lender will comply with the terms of this
Agreement and will make a notation thereon of all Loans evidenced by that
Note and all principal payments previously made thereon and of the date to
which interest thereon has been paid; provided that the
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failure to make (or any error in the making of) a notation of any Loan made
under such Note shall not limit or otherwise affect the obligations of
Company hereunder or under such Note with respect to any Loan or any
payments of principal or interest on such Note.
D. APPLICATION OF PROCEEDS OF COLLATERAL AND PAYMENTS UNDER GUARANTIES
(i) Application of Proceeds of Collateral. Except as provided in
-------------------------------------
subsection 2.4B(iii)(a) with respect to prepayments from Net Asset Sale
Proceeds, all proceeds received by Administrative Agent in respect of any
sale of, collection from, or other realization upon all or any part of the
Collateral under any Collateral Document may, in the discretion of
Administrative Agent, be held by Administrative Agent as Collateral for,
and/or (then or at any time thereafter) applied in full or in part by
Administrative Agent against, the applicable Secured Obligations (as
defined in such Collateral Document) in the following order of priority:
(a) To the payment of all costs and expenses of such sale,
collection or other realization, including compensation to
Administrative Agent and its agents and counsel, and all other
expenses, liabilities and advances made or incurred by Administrative
Agent in connection therewith, in each case to the extent payable
under this Agreement or the Collateral Documents, and all amounts for
which Administrative Agent is entitled to indemnification under such
Collateral Document and all advances made by Administrative Agent
thereunder for the account of the applicable Loan Party, and to the
payment of all costs and expenses paid or incurred by Administrative
Agent in connection with the exercise of any right or remedy under
such Collateral Document, all in accordance with the terms of this
Agreement and such Collateral Document;
(b) thereafter, to the extent of any excess of such proceeds, to
the payment of all other Secured Obligations for the ratable benefit
of the holders thereof;
(c) thereafter, to the extent of any excess of such proceeds, to
the payment of cash collateral for Letters of Credit for the ratable
benefit of the Issuing Lenders thereof and holders of participations
therein; and
(d) thereafter, to the extent of any excess of such proceeds, to
the payment to or upon the order of
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such Loan Party or to whosoever may be lawfully entitled to receive
the same or as a court of competent jurisdiction may direct.
(ii) Application of Payments Under Guaranties. All payments received
----------------------------------------
by Administrative Agent under any of the Guaranties shall be applied
promptly from time to time by Administrative Agent in the following order
of priority:
(a) to the payment of all costs and expenses of any collection
or other realization under the Guaranties, including compensation to
Administrative Agent and its agents and counsel, and all expenses,
liabilities and advances made or incurred by Administrative Agent in
connection therewith, in each case to the extent payable under this
Agreement or the Collateral Documents, all in accordance with the
terms of this Agreement and such Guaranty;
(b) thereafter, to the extent of any excess of such payments,
to the payment of all other Guarantied Obligations (as defined in such
Guaranty) for the ratable benefit of the holders thereof;
(c) thereafter, to the extent of any excess of such payments,
to the payment of cash collateral for Letters of Credit for the
ratable benefit of the Issuing Lenders thereof and holders of
participations therein; and
(d) thereafter, to the extent of any excess of such payments,
to the payment to Holdings or to the applicable Subsidiary Guarantor
or to whosoever may be lawfully entitled to receive the same or as a
court of competent jurisdiction may direct.
2.5 USE OF PROCEEDS.
---------------
A. TERM LOANS. The proceeds of the Term Loans, together with (i) the
proceeds from the issuance of the Senior Subordinated Notes in an aggregate
principal amount not exceeding $100,000,000, (ii) the proceeds from the issuance
of the Holdings Discount Debentures in an aggregate principal amount not
exceeding $45,105,480, (iii) the proceeds from the issuance of the Holdings
Preferred Stock in an aggregate principal amount not exceeding $47,000,000 and
(iv) the proceeds of the Revolving Loans in an aggregate principal amount not
exceeding $7,000,000 shall be applied by Holdings or Company, as appropriate,
(a) to redeem all of the issued and outstanding Holdings Common Stock (other
than the Retained Shares) from the Existing Shareholders for an aggregate
redemption price not exceeding $211,503,000, (b) to pay in full all of the
Existing Indebtedness in an aggregate
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principal amount not exceeding $49,497,000, together with accrued interest and
any prepayment penalties incurred in connection therewith, and (c) to pay the
Transaction Costs in an aggregate amount not exceeding $12,500,000.
B. REVOLVING LOANS; SWING LINE LOANS. The proceeds of the Revolving
Loans and any Swing Line Loans shall be applied by Company for working capital
requirements and general corporate purposes.
C. MARGIN REGULATIONS. No portion of the proceeds of any borrowing under
this Agreement shall be used by Company or any of its Subsidiaries in any manner
that might cause the borrowing or the application of such proceeds to violate
Regulation T, Regulation U or Regulation X of the Board of Governors of the
Federal Reserve System or any other regulation of such Board or to violate the
Exchange Act, in each case as in effect on the date or dates of such borrowing
and such use of proceeds.
2.6 SPECIAL PROVISIONS GOVERNING EURODOLLAR RATE LOANS.
--------------------------------------------------
Notwithstanding any other provision of this Agreement to the contrary,
the following provisions shall govern with respect to Eurodollar Rate Loans as
to the matters covered:
A. DETERMINATION OF APPLICABLE INTEREST RATE. As soon as practicable
after 11:00 A.M. (London time) on each Interest Rate Determination Date,
Administrative Agent shall determine (which determination shall, absent manifest
error, be final, conclusive and binding upon all parties) the interest rate that
shall apply to the Eurodollar Rate Loans for which an interest rate is then
being determined for the applicable Interest Period and shall promptly give
notice thereof (in writing or by telephone confirmed in writing) to Company and
each Lender.
B. INABILITY TO DETERMINE APPLICABLE INTEREST RATE. In the event that
Administrative Agent shall have determined (which determination shall be final
and conclusive and binding upon all parties hereto), on any Interest Rate
Determination Date with respect to any Eurodollar Rate Loans, that by reason of
circumstances affecting the London interbank eurodollar market adequate and
fair means do not exist for ascertaining the interest rate applicable to such
Loans on the basis provided for in the definition of Adjusted Eurodollar Rate,
Administrative Agent shall on such date give notice (by telefacsimile or by
telephone confirmed in writing) to Company and each Lender of such
determination, whereupon (i) no Loans may be made as, or converted to,
Eurodollar Rate Loans until such time as Administrative Agent notifies Company
and Lenders that the circumstances giving rise to such notice no longer exist
and (ii) any Notice of Borrowing or Notice of Conversion/Continuation given by
Company with respect to the Loans in respect of which such determination was
made shall be deemed to be rescinded by
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Company, and Company shall not incur any cost under subsection 2.6D with respect
to such rescinded Loan.
C. ILLEGALITY OR IMPRACTICABILITY OF EURODOLLAR RATE LOANS. In the event
that on any date any Lender shall have determined (which determination shall be
final and conclusive and binding upon all parties hereto but shall be made only
after consultation with Company and Administrative Agent) that the making,
maintaining or continuation of its Eurodollar Rate Loans (i) has become unlawful
as a result of compliance by such Lender in good faith with any law, treaty,
governmental rule, regulation, guideline or order (or would conflict with any
such treaty, governmental rule, regulation, guideline or order not having the
force of law even though the failure to comply therewith would not be unlawful)
or (ii) has become impracticable, or would cause such Lender material hardship,
as a result of contingencies occurring after the date of this Agreement which
materially and adversely affect the London interbank eurodollar market or the
position of such Lender in that market, then, and in any such event, such Lender
shall be an "AFFECTED LENDER" and it shall on that day give notice (by
telefacsimile or by telephone confirmed in writing) to Company and
Administrative Agent of such determination (which notice Administrative Agent
shall promptly transmit to each other Lender). Thereafter (a) the obligation of
the Affected Lender to make Loans as, or to convert Loans to, Eurodollar Rate
Loans shall be suspended until such notice shall be withdrawn by the Affected
Lender, (b) to the extent such determination by the Affected Lender relates to a
Eurodollar Rate Loan then being requested by Company pursuant to a Notice of
Borrowing or a Notice of Conversion/Continuation, the Affected Lender shall make
such Loan as (or convert such Loan to, as the case may be) a Base Rate Loan, (c)
the Affected Lender's obligation to maintain its outstanding Eurodollar Rate
Loans (the "AFFECTED LOANS") shall be terminated at the earlier to occur of the
expiration of the Interest Period then in effect with respect to the Affected
Loans or when required by law; provided that Affected Lender shall not be
--------
entitled to any compensation under subsection 2.6D if the Affected Loans have
been terminated prior to the end of the related Interest Period, and (d) the
Affected Loans shall automatically convert into Base Rate Loans on the date of
such termination. Notwithstanding the foregoing, to the extent a determination
by an Affected Lender as described above relates to a Eurodollar Rate Loan then
being requested by Company pursuant to a Notice of Borrowing or a Notice of
Conversion/Continuation, Company shall have the option, subject to the
provisions of subsection 2.6D, to rescind such Notice of Borrowing or Notice of
Conversion/Continuation as to all Lenders by giving notice (by telefacsimile or
by telephone confirmed in writing) to Administrative Agent of such rescission on
the date on which the Affected Lender gives notice of its determination as
described above (which notice of rescission Administrative Agent shall promptly
transmit to each other Lender). Except as provided in
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the immediately preceding sentence, nothing in this subsection 2.6C shall affect
the obligation of any Lender other than an Affected Lender to make or maintain
Loans as, or to convert Loans to, Eurodollar Rate Loans in accordance with the
terms of this Agreement.
D. COMPENSATION FOR BREAKAGE OR NON-COMMENCEMENT OF INTEREST PERIODS.
Company shall compensate each Lender, upon written request by that Lender (which
request shall set forth in reasonable detail the basis for requesting such
amounts), for all reasonable losses, expenses and liabilities (including any
interest paid by that Lender to lenders of funds borrowed by it to make or carry
its Eurodollar Rate Loans and any loss, expense or liability sustained by that
Lender in connection with the liquidation or re-employment of such funds) which
that Lender may sustain: (i) if for any reason (other than a default by that
Lender or any rescinded borrowing under subsection 2.6B or 2.6C) a borrowing of
any Eurodollar Rate Loan does not occur on a date specified therefor in a Notice
of Borrowing or a telephonic request for borrowing, or a conversion to or
continuation of any Eurodollar Rate Loan does not occur on a date specified
therefor in a Notice of Conversion/Continuation or a telephonic request for
conversion or continuation, (ii) if any prepayment (including any prepayment
pursuant to subsection 2.4B(i)(a)) or other principal payment or any conversion
of any of its Eurodollar Rate Loans occurs on a date prior to the last day of an
Interest Period applicable to that Loan, (iii) if any prepayment of any of its
Eurodollar Rate Loans is not made on any date specified in a notice of
prepayment given by Company, or (iv) as a consequence of any other default by
Company in the repayment of its Eurodollar Rate Loans when required by the terms
of this Agreement.
E. BOOKING OF EURODOLLAR RATE LOANS. Any Lender may make, carry or
transfer Eurodollar Rate Loans at, to, or for the account of any of its branch
offices or the office of an Affiliate of that Lender.
F. ASSUMPTIONS CONCERNING FUNDING OF EURODOLLAR RATE LOANS. Calculation
of all amounts payable to a Lender under this subsection 2.6 and under
subsection 2.7A shall be made as though that Lender had actually funded each of
its relevant Eurodollar Rate Loans through the purchase of a Eurodollar deposit
bearing interest at the rate obtained pursuant to clause (i) of the definition
of Adjusted Eurodollar Rate in an amount equal to the amount of such Eurodollar
Rate Loan and having a maturity comparable to the relevant Interest Period and
through the transfer of such Eurodollar deposit from an offshore office of that
Lender to a domestic office of that Lender in the United States of America;
provided, however, that each Lender may fund each of its Eurodollar Rate Loans
- -------- -------
in any manner it sees fit and the foregoing assumptions shall be utilized only
for the purposes
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of calculating amounts payable under this subsection 2.6 and under subsection
2.7A.
G. EURODOLLAR RATE LOANS AFTER DEFAULT. After the occurrence of and
during the continuation of a Potential Event of Default or an Event of Default,
(i) Company may not elect to have a Loan be made or maintained as, or converted
to, a Eurodollar Rate Loan after the expiration of any Interest Period then in
effect for that Loan and (ii) subject to the provisions of subsection 2.6D, any
Notice of Borrowing or Notice of Conversion/Continuation given by Company with
respect to a requested borrowing or conversion/continuation that has not yet
occurred shall be deemed to be rescinded by Company.
2.7 INCREASED COSTS; TAXES; CAPITAL ADEQUACY.
----------------------------------------
A. COMPENSATION FOR INCREASED COSTS AND TAXES. Subject to the provisions
of subsection 2.7B (which shall be controlling with respect to the matters
covered thereby), in the event that any Lender shall determine (which
determination shall, absent manifest error, be final and conclusive and binding
upon all parties hereto) that any law, treaty or governmental rule, regulation
or order, or any change therein or in the interpretation, administration or
application thereof (including the introduction of any new law, treaty or
governmental rule, regulation or order), or any determination of a court or
governmental authority, in each case that becomes effective after the date
hereof, or compliance by such Lender with any guideline, request or directive
issued or made after the date hereof by any central bank or other governmental
or quasi-governmental authority (whether or not having the force of law):
(i) subjects such Lender (or its applicable lending office) to any
additional Tax (other than any Tax on the overall net income of such
Lender) with respect to this Agreement or any of its obligations hereunder
or any payments to such Lender (or its applicable lending office) of
principal, interest, fees or any other amount payable hereunder;
(ii) imposes, modifies or holds applicable any reserve (including any
marginal, emergency, supplemental, special or other reserve), special
deposit, compulsory loan, FDIC insurance or similar requirement against
assets held by, or deposits or other liabilities in or for the account of,
or advances or loans by, or other credit extended by, or any other
acquisition of funds by, any office of such Lender (other than any such
reserve or other requirements with respect to Eurodollar Rate Loans that
are reflected in the definition of Adjusted Eurodollar Rate); or
(iii) imposes any other condition (other than with respect to a Tax
matter) on or affecting such Lender (or its
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applicable lending office) or its obligations hereunder or the London
interbank eurodollar market;
and the result of any of the foregoing is to increase the cost to such Lender of
agreeing to make, making or maintaining Loans hereunder or to reduce any amount
received or receivable by such Lender (or its applicable lending office) with
respect thereto; then, in any such case, Company shall promptly pay to such
Lender, upon receipt of the statement referred to in the next sentence, such
additional amount or amounts (in the form of an increased rate of, or a
different method of calculating, interest or otherwise as such Lender in its
sole discretion shall determine) as may be necessary to compensate such Lender
for any such increased cost or reduction in amounts received or receivable
hereunder. Such Lender shall deliver to Company (with a copy to Administrative
Agent) a written statement, setting forth in reasonable detail the basis for
calculating the additional amounts owed to such Lender under this subsection
2.7A, which statement shall be conclusive and binding upon all parties hereto
absent manifest error. Such Lender agrees to provide any such request within
180 days of becoming aware of such costs and to use averaging and attribution
methods which are reasonable.
B. WITHHOLDING OF TAXES.
(i) Payments to Be Free and Clear. All sums payable by Company under
-----------------------------
this Agreement and the other Loan Documents shall (except to the extent
required by law) be paid free and clear of, and without any deduction or
withholding on account of, any Tax (other than a Tax on the overall net
income or franchise of any Lender or any Lending Office) imposed, levied,
collected, withheld or assessed by or within the United States of America
or any political subdivision in or of the United States of America or any
other jurisdiction from or to which a payment is made by or on behalf of
Company or by any federation or organization of which the United States of
America or any such jurisdiction is a member at the time of payment.
(ii) Grossing-up of Payments. If Company or any other Person is
-----------------------
required by law to make any deduction or withholding on account of any such
Tax from any sum paid or payable by Company to Administrative Agent or any
Lender under any of the Loan Documents:
(a) Company shall notify Administrative Agent of any such
requirement or any change in any such requirement promptly after
Company becomes aware of it;
(b) Company shall pay any such Tax before the date on which
penalties attach thereto, such payment to be made (if the liability to
pay is imposed on Company)
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for its own account or (if that liability is imposed on Administrative
Agent or such Lender, as the case may be) on behalf of and in the name
of Administrative Agent or such Lender;
(c) the sum payable by Company in respect of which the relevant
deduction, withholding or payment is required shall be increased to
the extent necessary to ensure that, after the making of that
deduction, withholding or payment, Administrative Agent or such
Lender, as the case may be, receives on the due date a net sum equal
to what it would have received had no such deduction, withholding or
payment been required or made; and
(d) within 30 days after paying any sum from which it is
required by law to make any deduction or withholding, and within 30
days after the due date of payment of any Tax which it is required by
clause (b) above to pay, Company shall deliver to Administrative Agent
evidence reasonably satisfactory to the other affected parties of such
deduction, withholding or payment and of the remittance thereof to the
relevant taxing or other authority;
provided that no such additional amount shall be required to be paid to any
--------
Lender under clause (c) above except to the extent that any change after
the date hereof (in the case of each Lender listed on the signature pages
hereof) or after the date of the Assignment Agreement pursuant to which
such Lender became a Lender (in the case of each other Lender) in any such
requirement for a deduction, withholding or payment as is mentioned therein
shall result in an increase in the rate of such deduction, withholding or
payment from that in effect at the date of this Agreement or at the date of
such Assignment Agreement, as the case may be, in respect of payments to
such Lender. If any Lender receives a refund of any Taxes for a which
payment has been made pursuant to this subsection 2.7 which, in the
reasonable good faith judgment of such Lender, is allocable to such payment
made under subsection 2.7, the amount of such refund shall be paid to
Company to the extent payment has been made in full as and when required
pursuant to this subsection 2.7.
(iii) Evidence of Exemption from U.S. Withholding Tax.
-----------------------------------------------
(a) Each Lender that is organized under the laws of any
jurisdiction other than the United States or any state or other
political subdivision thereof (for purposes of this subsection
2.7B(iii), a "NON-US LENDER") shall deliver to Administrative Agent
for transmission to Company, on or prior to the Closing Date (in the
case of each Lender listed on the
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signature pages hereof) or on or prior to the date of the Assignment
Agreement pursuant to which it becomes a Lender (in the case of each
other Lender), and at such other times as may be necessary in the
determination of Company or Administrative Agent (each in the
reasonable exercise of its discretion), (1) two original copies of
Internal Revenue Service Form 1001 or 4224 (or any successor forms),
properly completed and duly executed by such Lender, together with any
other certificate or statement of exemption required under the
Internal Revenue Code or the regulations issued thereunder to
establish that such Lender is not subject to deduction or withholding
of United States federal income tax with respect to any payments to
such Lender of principal, interest, fees or other amounts payable
under any of the Loan Documents or (2) if such Lender is not a "bank"
or other Person described in Section 881(c)(3) of the Internal Revenue
Code and cannot deliver either Internal Revenue Service Form 1001 or
4224 pursuant to clause (1) above, a Certificate re Non-Bank Status
together with two original copies of Internal Revenue Service Form W-8
(or any successor form), properly completed and duly executed by such
Lender, together with any other certificate or statement of exemption
required under the Internal Revenue Code or the regulations issued
thereunder to establish that such Lender is not subject to deduction
or withholding of United States federal income tax with respect to any
payments to such Lender of interest payable under any of the Loan
Documents.
(b) Each Lender required to deliver any forms, certificates or
other evidence with respect to United States federal income tax
withholding matters pursuant to subsection 2.7B(iii)(a) hereby agrees,
from time to time after the initial delivery by such Lender of such
forms, certificates or other evidence, whenever a lapse in time or
change in circumstances renders such forms, certificates or other
evidence obsolete or inaccurate in any material respect, that such
Lender shall promptly (1) deliver to Administrative Agent for
transmission to Company two new original copies of Internal Revenue
Service Form 1001 or 4224, or a Certificate re Non-Bank Status and two
original copies of Internal Revenue Service Form W-8, as the case may
be, properly completed and duly executed by such Lender, together with
any other certificate or statement of exemption required in order to
confirm or establish that such Lender is not subject to deduction or
withholding of United States federal income tax with respect to
payments to such Lender under the Loan Documents or (2) notify
Administrative Agent and
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Company of its inability to deliver any such forms, certificates or
other evidence.
(c) Company shall not be required to pay any additional amount
to any Non-US Lender under clause (c) of subsection 2.7B(ii) if such
Lender shall have failed to satisfy the requirements of clause (a) or
(b) (1) of this subsection 2.7B(iii); provided that if such Lender
--------
shall have satisfied the requirements of subsection 2.7B(iii)(a) on
the Closing Date (in the case of each Lender listed on the signature
pages hereof) or on the date of the Assignment Agreement pursuant to
which it became a Lender (in the case of each other Lender), nothing
in this subsection 2.7B(iii)(c) shall relieve Company of its
obligation to pay any additional amounts pursuant to clause (c) of
subsection 2.7B(ii) in the event that, as a result of any change in
any applicable law, treaty or governmental rule, regulation or order,
or any change in the interpretation, administration or application
thereof, such Lender is no longer properly entitled to deliver forms,
certificates or other evidence at a subsequent date establishing the
fact that such Lender is not subject to withholding as described in
subsection 2.7B(iii)(a).
C. CAPITAL ADEQUACY ADJUSTMENT. If any Lender shall have determined that
the adoption, effectiveness, phase-in or applicability after the date hereof of
any law, rule or regulation (or any provision thereof) regarding capital
adequacy, or any change therein or in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any Lender
(or its applicable lending office) with any guideline, request or directive
regarding capital adequacy (whether or not having the force of law) of any such
governmental authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on the capital of such Lender or any
corporation controlling such Lender as a consequence of, or with reference to,
such Lender's Loans or Commitments or Letters of Credit or participations
therein or other obligations hereunder with respect to the Loans or the Letters
of Credit to a level below that which such Lender or such controlling
corporation could have achieved but for such adoption, effectiveness, phase-in,
applicability, change or compliance (taking into consideration the policies of
such Lender or such controlling corporation with regard to capital adequacy),
then from time to time, within five Business Days after receipt by Company from
such Lender of the statement referred to in the next sentence, Company shall pay
to such Lender such additional amount or amounts as will compensate such Lender
or such controlling corporation on an after-tax basis for such reduction. Such
Lender shall deliver to Company (with a copy to Administrative Agent) a written
statement, setting forth in
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reasonable detail the basis of the calculation of such additional amounts, which
statement shall be conclusive and binding upon all parties hereto absent
manifest error. Such Lender agrees to provide any such request within 180 days
of becoming aware of such costs and to use averaging and attribution methods
which are reasonable.
2.8 OBLIGATION OF LENDERS AND ISSUING LENDERS TO MITIGATE.
-----------------------------------------------------
Each Lender and Issuing Lender agrees that, as promptly as practicable
after the officer of such Lender or Issuing Lender responsible for administering
the Loans or Letters of Credit of such Lender or Issuing Lender, as the case may
be, becomes aware of the occurrence of an event or the existence of a condition
that would cause such Lender to become an Affected Lender or that would entitle
such Lender or Issuing Lender to receive payments under subsection 2.7 or
subsection 3.6, it will, to the extent not inconsistent with the internal
policies of such Lender or Issuing Lender and any applicable legal or regulatory
restrictions, use reasonable efforts (i) to make, issue, fund or maintain the
Commitments of such Lender or the affected Loans or Letters of Credit of such
Lender or Issuing Lender through another lending or letter of credit office of
such Lender or Issuing Lender, or (ii) take such other measures as such Lender
or Issuing Lender may deem reasonable, if as a result thereof the circumstances
which would cause such Lender to be an Affected Lender would cease to exist or
the additional amounts which would otherwise be required to be paid to such
Lender or Issuing Lender pursuant to subsection 2.7 or subsection 3.6 would be
materially reduced and if, as determined by such Lender or Issuing Lender in its
sole discretion, the making, issuing, funding or maintaining of such Commitments
or Loans or Letters of Credit through such other lending or letter of credit
office or in accordance with such other measures, as the case may be, would not
otherwise materially adversely affect such Commitments or Loans or Letters of
Credit or the interests of such Lender or Issuing Lender; provided that such
--------
Lender or Issuing Lender will not be obligated to utilize such other lending or
letter of credit office pursuant to this subsection 2.8 unless Company agrees to
pay all incremental expenses incurred by such Lender or Issuing Lender as a
result of utilizing such other lending or letter of credit office as described
in clause (i) above. A certificate as to the amount of any such expenses
payable by Company pursuant to this subsection 2.8 (setting forth in reasonable
detail the basis for requesting such amount) submitted by such Lender or Issuing
Lender to Company (with a copy to Administrative Agent) shall be conclusive
absent manifest error.
2.9 REPLACEMENT OF LENDER.
---------------------
Upon the occurrence of a Replacement Event, Company shall have the
right, prior to the sixtieth (60th) day following the date of the event giving
rise to such right and if no
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Potential Event of Default or Event of Default then exists, to replace such
Lender (a "REPLACED LENDER") with one or more Eligible Assignees (collectively,
the "REPLACEMENT LENDER") acceptable to Administrative Agent, provided that (i)
--------
at the time of any replacement pursuant to this subsection 2.9 the Replacement
Lender shall enter into one or more Assignment Agreements pursuant to subsection
10.1B (and with all fees payable pursuant to such subsection 10.1B to be paid by
the Replacement Lender) pursuant to which the Replacement Lender shall acquire
all of the outstanding Loans and Commitments of, and in each case participations
in Letters of Credit and Swing Line Loans by, the Replaced Lender and, in
connection therewith, shall pay to (x) the Replaced Lender in respect thereof an
amount equal to the sum of (A) an amount equal to the principal of, and all
accrued interest on, all outstanding Loans of 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 then
unpaid interest with respect thereto at such time and (C) an amount equal to all
accrued, but theretofore unpaid, fees owing to the Replaced Lender with respect
thereto, (y) the appropriate Issuing Lender an amount equal to such Replaced
Lender's Pro Rata Share of any unpaid drawings with respect to Letters of Credit
(which at such time remains an unpaid drawing) issued by it to the extent such
amount was not theretofore funded by such Replaced Lender, and (z) Swing Line
Lender an amount equal to such Replaced Lender's Pro Rata Share of any Refunded
Swing Line Loans to the extent such amount was not theretofore funded by such
Replaced Lender, and (ii) all obligations (including without limitation all such
amounts, if any, owing under subsection 2.6D) of Company owing to the Replaced
Lender (other than those specifically described in clause (i) above in respect
of which the assignment purchase price has been, or is concurrently being,
paid), shall be paid in full to such Replaced Lender concurrently with such
replacement. Upon the execution of the respective Assignment Agreements and the
acceptance thereof by Administrative Agent pursuant to subsection 2.1D, the
payment of amounts referred to in clauses (i) and (ii) above and, if so
requested by the Replacement Lender, delivery to the Replacement Lender of the
appropriate Note or Notes executed by Company, 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, and any other obligations or liabilities to Holdings or its Subsidiaries
relating to such time in which Replaced Lender was a Lender. Notwithstanding
anything to the contrary contained above, no Issuing Lender may be replaced
hereunder at any time while it has Letters of Credit outstanding hereunder
unless arrangements reasonably satisfactory to such Issuing Lender (including
the furnishing of a Standby Letter of Credit in form and substance, and issued
by an issuer reasonably
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satisfactory to such Issuing Lender or the furnishing of cash collateral in
amounts and pursuant to arrangements reasonably satisfactory to such Issuing
Lender) have been made with respect to such outstanding Letters of Credit.
For the purposes of the foregoing, a "Replacement Event" with respect
to a Lender means any one of the following: (i) Company receives a notice from
such Lender pursuant to subsection 2.6C, 2.7A or 3.6, (ii) failure of such
Lender to make the amount of its Loan available to Administrative Agent pursuant
to subsection 2.1C or (iii) such Lender refuses to consent to a proposed change,
waiver, discharge or termination with respect to this Agreement which has been
approved by the Requisite Lenders and all other conditions set forth in
subsection 10.6 have been satisfied for Company to replace such Lender.
Section 3. LETTERS OF CREDIT
3.1 ISSUANCE OF LETTERS OF CREDIT AND LENDERS' PURCHASE OF PARTICIPATIONS
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THEREIN.
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A. LETTERS OF CREDIT. In addition to Company requesting that Revolving
Lenders make Revolving Loans pursuant to subsection 2.1A(iii) and that Swing
Line Lender make Swing Line Loans pursuant to subsection 2.1A(iv), Company may
request, in accordance with the provisions of this subsection 3.1, from time to
time during the period from the Closing Date to but excluding the Revolving Loan
Commitment Termination Date, that one or more Revolving Lenders issue Letters of
Credit for the account of Company for the purposes specified in the definitions
of Commercial Letters of Credit and Standby Letters of Credit. Subject to the
terms and conditions of this Agreement and in reliance upon the representations
and warranties of Company herein set forth, any one or more Revolving Lenders
may, but (except as provided in subsection 3.1B(ii)) shall not be obligated to,
issue such Letters of Credit in accordance with the provisions of this
subsection 3.1; provided that Company shall not request that any Revolving
--------
Lender issue (and no Revolving Lender shall issue):
(i) any Letter of Credit if, after giving effect to such issuance,
the Total Utilization of Revolving Loan Commitments would exceed the
Revolving Loan Commitments then in effect;
(ii) any Letter of Credit if, after giving effect to such issuance,
the Letter of Credit Usage would exceed $10,000,000;
(iii) any Standby Letter of Credit if, after giving effect to such
issuance, the Letter of Credit Usage in respect of all other Standby
Letters of Credit would exceed $5,000,000;
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(iv) any Letter of Credit having an expiration date later than the
earlier of (a) the Revolving Loan Commitment Termination Date and (b) the
date which is one year from the date of issuance of such Letter of Credit;
provided that the immediately preceding clause (b) shall not prevent any
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Issuing Lender 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 Lender elects not to extend for any such additional
period; and provided, further that such Issuing Lender shall elect not to
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extend such Letter of Credit if it has knowledge that an Event of Default
has occurred and is continuing (and has not been waived in accordance with
subsection 10.6) at the time such Issuing Lender must elect whether or not
to allow such extension;
(v) any Commercial Letter of Credit having an expiration date (a)
later than the earlier of (X) the date which is 30 days prior to the
Revolving Loan Commitment Termination Date and (Y) the date which is 180
days from the date of issuance of such Letter of Credit or (b) that is
otherwise unacceptable to the applicable Issuing Lender in its reasonable
discretion; or
(vi) any Letter of Credit denominated in a currency other than
Dollars.
An Issuing Lender is under no obligation to issue any Letter of Credit if
at the time of request for such issuance:
(a) any order, judgment or decree of any governmental authority or
arbitrator shall by its terms purport to enjoin or restrain the Issuing
Lender from issuing such Letter of Credit, or any requirement of law
applicable to the Issuing Lender or any directive (whether or not having
the force of law) from any governmental authority with jurisdiction over
the Issuing Lender shall prohibit, or request that the Issuing Lender
refrain from, the issuance of letters of credit generally or such Letter of
Credit in particular, or shall impose upon the Issuing Lender with respect
to such Letter of Credit any restriction, reserve or capital requirement
(for which the Issuing Lender is not otherwise compensated hereunder) not
in effect on the Closing Date, or shall impose upon the Issuing Lender any
unreimbursed loss, cost or expense which was not applicable on the Closing
Date and which the Issuing Lender in good faith deems material to it;
(b) any requested Letter of Credit does not provide for drafts, or
is not otherwise in form and substance reasonably acceptable to the Issuing
Lender, or the issuance of a Letter of Credit may violate any policies of
the Issuing Lender applicable to customers similar to Company
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and credits of a type similar to the transactions contemplated by this
Agreement; or
(c) the requested Letter of Credit provides for payment thereunder
sooner than the Business Day following the presentation to the Issuing
Lender of the documentation required thereunder.
B. MECHANICS OF ISSUANCE.
(i) Notice of Issuance. Whenever Company desires the issuance of a
------------------
Letter of Credit, it shall deliver to Administrative Agent a Notice of
Issuance of Letter of Credit substantially in the form of Exhibit III
-----------
annexed hereto no later than 10:00 A.M. (San Francisco time) at least three
Business Days, or such shorter period as may be agreed to by the Issuing
Lender in any particular instance, in advance of the proposed date of
issuance. The Notice of Issuance of Letter of Credit shall specify (a) the
proposed date of issuance (which shall be a Business Day), (b) the face
amount of the Letter of Credit, (c) the expiration date of the Letter of
Credit, (d) the name and address of the beneficiary, and (e) either the
verbatim text of the proposed Letter of Credit or the proposed terms and
conditions thereof, including a precise description of any documents to be
presented by the beneficiary which, if presented by the beneficiary prior
to the expiration date of the Letter of Credit, would require the Issuing
Lender to make payment under the Letter of Credit; provided that the
--------
Issuing Lender, in its reasonable discretion, may require changes in the
text of the proposed Letter of Credit or any such documents; and provided,
--------
further that no Letter of Credit shall require payment against a conforming
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draft to be made thereunder on the same business day (under the laws of the
jurisdiction in which the office of the Issuing Lender to which such draft
is required to be presented is located) that such draft is presented if
such presentation is made after 12:00 Noon (in the time zone of such office
of the Issuing Lender) on such business day.
Company shall notify the applicable Issuing Lender (and
Administrative Agent, if Administrative Agent is not such Issuing Lender)
prior to the issuance of any Letter of Credit in the event that any of the
matters to which Company is required to certify in the applicable Notice of
Issuance of Letter of Credit is no longer true and correct as of the
proposed date of issuance of such Letter of Credit, and upon the issuance
of any Letter of Credit Company shall be deemed to have re-certified, as of
the date of such issuance, as to the matters to which Company is required
to certify in the applicable Notice of Issuance of Letter of Credit.
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From time to time while a Letter of Credit is outstanding and before
the Revolving Commitment Termination Date, the Issuing Lender will, upon
the written request of Company received by the Issuing Lender (with a copy
sent by Company to Administrative Agent) at least three days (or such
shorter time as the Issuing Lender may agree in a particular instance in
its sole discretion) before the proposed date of amendment, amend any
Letter of Credit issued by it. Each such request for amendment of a Letter
of Credit shall be made by an original writing or by facsimile, confirmed
promptly in an original writing, made in the form of an L/C Amendment
Application and shall specify in form and detail reasonably satisfactory to
the Issuing Lender;
(a) the Letter of Credit to be amended;
(b) the proposed date of amendment of such Letter of Credit (which
shall be a Business Day);
(c) the nature of the proposed amendment; and
(d) such other matters as the Issuing Lender reasonably requires.
The Issuing Lender shall be under no obligation to amend any Letter of
Credit if: (A) the Issuing Lender would have no obligation, or would be unable,
at such time to issue such Letter of Credit in its amended form under the terms
of this Agreement; or (B) the beneficiary of any such Letter of Credit does not
accept the proposed amendment to the Letter of Credit.
While a Letter of Credit is outstanding and before the Revolving Loan
Commitment Termination Date, upon the written request of Company received by the
Issuing Lender (with a copy sent by Company to Administrative Agent) at least
three days (or such shorter time as the Issuing Lender may agree in a particular
instance in its sole discretion) before the proposed date of notification of
renewal, the Issuing Lender shall be entitled to authorize the automatic renewal
of any Letter of Credit issued by it. Each such request for renewal of a Letter
of Credit shall be made by an original writing or by facsimile, confirmed
promptly in an original writing, in the form of an L/C Amendment Application,
and shall specify in form and detail satisfactory to the Issuing Lender:
(I) the Letter of Credit to be renewed;
(II) the proposed date of notification of renewal of such Letter of
Credit (which shall be a Business Day);
(III) the revised expiry date of such Letter of Credit; and
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(IV) such other matters as the Issuing Lender may require.
The Issuing Lender shall not renew any Letter of Credit if the Issuing
Lender would have no obligation at such time to issue, or be unable to issue, or
amend such Letter of Credit in its renewed form under the terms of this
Agreement. If any outstanding Letter of Credit shall provide that it shall be
automatically renewed unless the beneficiary thereof receives notice from the
Issuing Lender that such Letter of Credit shall not be renewed, and if at the
time of renewal the Issuing Lender would be entitled to authorize the automatic
renewal of such Letter of Credit in accordance with this subsection 3.1B upon
the request of Company, but the Issuing Lender has not received any L/C
Amendment Application or other written direction from Company with respect to
such renewal, the Issuing Lender shall nonetheless be permitted to allow such
Letter of Credit to renew, and accordingly, the Issuing Lender shall be deemed
to have received an L/C Amendment Application from Company requesting such
renewal.
The Issuing Lender may, at its election (or as required by
Administrative Agent at the direction of Revolving Lenders having or holding a
majority of the Revolving Loan Exposures of all Lenders), deliver any notices of
termination or other communications permitted under any Letter of Credit to any
Letter of Credit beneficiary or transferee, and take any other action permitted
under any Letter of Credit as is necessary or appropriate, at any time and from
time to time, in order to cause the expiry date of such Letter of Credit to be a
date not later than 15 days before the Revolving Loan Commitment Termination
Date.
(ii) Determination of Issuing Lender. Upon receipt by Administrative
-------------------------------
Agent of a Notice of Issuance of Letter of Credit pursuant to subsection
3.1B(i) requesting the issuance of a Letter of Credit, in the event
Administrative Agent elects to issue such Letter of Credit, Administrative
Agent shall promptly so notify Company, and Administrative Agent shall be
the Issuing Lender with respect thereto. In the event that Administrative
Agent, in its sole discretion, elects not to issue such Letter of Credit,
Administrative Agent shall promptly so notify Company, whereupon Company
may request any other Revolving Lender to issue such Letter of Credit by
delivering to such Revolving Lender a copy of the applicable Notice of
Issuance of Letter of Credit. Any Revolving Lender so requested to issue
such Letter of Credit shall promptly notify Company and Administrative
Agent whether or not, in its sole discretion, it has elected to issue such
Letter of Credit, and any such Lender which so elects to issue such Letter
of Credit shall be the Issuing Lender with respect thereto. In the event
that all other Revolving Lenders shall have declined to issue such Letter
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of Credit, notwithstanding the prior election of Administrative Agent not
to issue such Letter of Credit, Administrative Agent shall be obligated to
issue such Letter of Credit and shall be the Issuing Lender with respect
thereto, notwithstanding the fact that the Letter of Credit Usage with
respect to such Letter of Credit and with respect to all other Letters of
Credit issued by Administrative Agent, when aggregated with Administrative
Agent's outstanding Revolving Loans and Swing Line Loans, may exceed
Administrative Agent's Revolving Loan Commitment then in effect.
(iii) Issuance of Letter of Credit. Upon satisfaction or waiver (in
----------------------------
accordance with subsection 10.6) of the conditions set forth in subsection
4.3, the Issuing Lender shall issue the requested Letter of Credit in
accordance with the Issuing Lender's standard operating procedures.
(iv) Notification to Revolving Lenders. Upon the issuance of any
---------------------------------
Letter of Credit, the applicable Issuing Lender shall promptly notify
Administrative Agent and each other Revolving Lender of such issuance,
which notice shall be accompanied by a copy of such Letter of Credit.
Promptly after receipt of such notice (or, if Administrative Agent is the
Issuing Lender, together with such notice), Administrative Agent shall
notify each Revolving Lender of the amount of such Lender's respective
participation in such Letter of Credit, determined in accordance with
subsection 3.1C.
(v) Letters of Credit Outstanding Under Existing Credit Agreement.
-------------------------------------------------------------
The letters of credit issued pursuant to the Existing Credit Agreement that
are outstanding on the Closing Date and listed on Schedule 3.1 (the
"Existing Letters of Credit") shall be deemed Letters of Credit issued
pursuant hereto and the Issuing Lender shall be the Lender identified on
Schedule 3.1; provided that Company shall take any and all actions
--------
necessary to terminate all such Existing Letters of Credit and replace them
with new Letters of Credit issued under this Agreement within 30 days after
the Closing Date.
C. REVOLVING LENDERS' PURCHASE OF PARTICIPATIONS IN LETTERS OF CREDIT.
Immediately upon the issuance of each Letter of Credit, each Revolving Lender
shall be deemed to, and hereby agrees to, have irrevocably purchased from the
Issuing Lender a participation in such Letter of Credit and any drawings honored
thereunder in an amount equal to such Revolving Lender's Pro Rata Share of the
maximum amount which is or at any time may become available to be drawn
thereunder.
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3.2 LETTER OF CREDIT FEES.
---------------------
Company agrees to pay the following amounts with respect to Letters of
Credit issued hereunder:
(i) with respect to each Standby Letter of Credit, (a) a fronting
fee, payable directly to the applicable Issuing Lender for its own account,
equal to 0.2 5% per annum of the daily amount available to be drawn under
such Letter of Credit, such fronting fee to be payable in advance on the
fifteenth day of each March, June, September and December of each year for
the calendar quarterly period commencing on such date and (b) a letter of
credit fee, payable to Administrative Agent for the account of Revolving
Lenders (based upon their respective Pro Rata Shares), equal to (x) the
applicable Eurodollar Rate Margin set forth in subsection 2.2A hereof for
Revolving Loans multiplied by (y) the daily amount available from time to
----------
time to be drawn under such Letter of Credit, such letter of credit fee to
be payable in arrears on and to (but excluding) the last day of each March,
June, September and December of each year; and in any event each such
fronting fee or letter of credit fee to be computed on the basis of a 360-
day year for the actual number of days elapsed;
(ii) with respect to each Commercial Letter of Credit, (a) to the
applicable Issuing Lender, a fronting fee equal to 0.25% per annum of the
daily maximum amount available to be drawn under such Commercial Letter of
Credit, but in any event not less than $500 per year per Commercial Letter
of Credit and (b) to Administrative Agent for the account of Revolving
Lenders (based upon their Pro Rata Share), a letter of credit fee equal to
(x) the applicable Eurodollar Rate Margin set forth in subsection 2.2A
hereof for Revolving Loans multiplied by (y) the daily amount available
----------
from time to time to be drawn under such Letter of Credit, such letter of
credit fee to be payable in arrears on and to (but excluding) the last day
of each March, June, September and December of each year; and in any event
each such fronting fee or letter of credit fee to be computed on the basis
of a 360-day year for the actual number of days elapsed; and
(iii) with respect to the issuance, amendment or transfer of each
Letter of Credit and each payment of a drawing made thereunder (without
duplication of the fees payable under clause (i) above), documentary and
processing charges payable directly to the applicable Issuing Lender for
its own account in accordance with such Issuing Lender's standard schedule
for such charges in effect at the time of such issuance, amendment,
transfer or payment, as the case may be.
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For purposes of calculating any fees payable under clause (i) of this subsection
3.2, the daily amount available to be drawn under any Letter of Credit shall be
determined as of the close of business on any date of determination. Promptly
upon receipt by Administrative Agent of any amount described in clause (i)(b) of
this subsection 3.2, Administrative Agent shall distribute to each Revolving
Lender its Pro Rata Share of such amount.
3.3 DRAWINGS AND REIMBURSEMENT OF AMOUNTS PAID UNDER LETTERS OF CREDIT.
------------------------------------------------------------------
A. RESPONSIBILITY OF ISSUING LENDER WITH RESPECT TO DRAWINGS. In
determining whether to honor any drawing under any Letter of Credit by the
beneficiary thereof, the Issuing Lender shall be responsible only to examine the
documents delivered under such Letter of Credit with reasonable care so as to
ascertain whether they appear on their face to be in accordance with the terms
and conditions of such Letter of Credit.
B. REIMBURSEMENT BY COMPANY OF AMOUNTS PAID UNDER LETTERS OF CREDIT. In
the event an Issuing Lender has determined to honor a drawing under a Letter of
Credit issued by it, such Issuing Lender shall immediately notify Company and
Administrative Agent, and Company shall reimburse such Issuing Lender on or
before the Business Day immediately following the date on which such drawing is
honored (the "REIMBURSEMENT DATE") in an amount in Dollars and in same day funds
equal to the amount of such honored drawing; provided that, anything contained
--------
in this Agreement to the contrary notwithstanding, (i) unless Company shall have
notified Administrative Agent and such Issuing Lender prior to 10:00 A.M. (San
Francisco time) on the date such drawing is honored that Company intends to
reimburse such Issuing Lender for the amount of such honored drawing with funds
other than the proceeds of Revolving Loans, Company shall be deemed to have
given a timely Notice of Borrowing to Administrative Agent requesting Lenders to
make Revolving Loans that are Base Rate Loans on the Reimbursement Date in an
amount in Dollars equal to the amount of such honored drawing and (ii) subject
to satisfaction or waiver of the conditions specified in subsection 4.2B,
Revolving Lenders shall, on the Reimbursement Date, make Revolving Loans that
are Base Rate Loans in the amount of such honored drawing, the proceeds of which
shall be applied directly by Administrative Agent to reimburse such Issuing
Lender for the amount of such honored drawing; and provided, further that if for
-------- -------
any reason proceeds of Revolving Loans are not received by such Issuing Lender
on the Reimbursement Date in an amount equal to the amount of such honored
drawing, Company shall reimburse such Issuing Lender, on demand, in an amount in
same day funds equal to the excess of the amount of such honored drawing over
the aggregate amount of such Revolving Loans, if any, which are so received.
Nothing in this subsection 3.3B shall be deemed to relieve any Revolving Lender
from its obligation to make Revolving Loans on the terms and conditions set
forth in this
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Agreement, and Company shall retain any and all rights it may have against any
Revolving Lender resulting from the failure of such Lender to make such
Revolving Loans under this subsection 3.3B.
C. PAYMENT BY REVOLVING LENDERS OF UNREIMBURSED AMOUNTS PAID UNDER
LETTERS OF CREDIT.
(i) Payment by Revolving Lenders. In the event that Company shall
----------------------------
fail for any reason to reimburse any Issuing Lender as provided in
subsection 3.3B in an amount equal to the amount of any drawing honored by
such Issuing Lender under a Letter of Credit issued by it, such Issuing
Lender shall promptly notify each other Revolving Lender of the
unreimbursed amount of such honored drawing and of such other Revolving
Lender's respective participation therein based on such Revolving Lender's
Pro Rata Share. Each Revolving Lender shall make available to such Issuing
Lender an amount equal to its respective participation, in Dollars and in
same day funds, at the office of such Issuing Lender specified in such
notice, not later than 12:00 Noon (San Francisco time) on the first
business day (under the laws of the jurisdiction in which such office of
such Issuing Lender is located) after the date notified by such Issuing
Lender. In the event that any Revolving Lender fails to make available to
such Issuing Lender on such business day the amount of such Revolving
Lender's participation in such Letter of Credit as provided in this
subsection 3.3C, such Issuing Lender shall be entitled to recover such
amount on demand from such Revolving Lender together with interest thereon
at the Federal Funds Effective Rate for three Business Days and thereafter
at the Base Rate. Nothing in this subsection 3.3C shall be deemed to
prejudice the right of any Revolving Lender to recover from any Issuing
Lender any amounts made available by such Revolving Lender to such Issuing
Lender pursuant to this subsection 3.3C in the event that it is determined
by the final judgment of a court of competent jurisdiction that the payment
with respect to a Letter of Credit by such Issuing Lender in respect of
which payment was made by such Revolving Lender constituted gross
negligence or willful misconduct on the part of such Issuing Lender.
(ii) Distribution to Revolving Lenders of Reimbursements Received
------------------------------------------------------------
From Company. In the event any Issuing Lender shall have been reimbursed by
------------
other Revolving Lenders pursuant to subsection 3.3C(i) for all or any
portion of any drawing honored by such Issuing Lender under a Letter of
Credit issued by it, such Issuing Lender shall distribute to each other
Revolving Lender which has paid all amounts payable by it under subsection
3.3C(i) with respect to such honored drawing such other Revolving Lender's
Pro Rata Share of all payments subsequently received by such
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Issuing Lender from Company in reimbursement of such honored drawing when
such payments are received. Any such distribution shall be made to a
Revolving Lender at its primary address set forth below its name on the
appropriate signature page hereof or at such other address as such
Revolving Lender may request.
D. INTEREST ON AMOUNTS PAID UNDER LETTERS OF CREDIT.
(i) Payment of Interest by Company. Company agrees to pay to each
------------------------------
Issuing Lender, with respect to drawings honored under any Letters of
Credit issued by it, interest on the amount paid by such Issuing Lender in
respect of each such honored drawing from the date such drawing is honored
to but excluding the date such amount is reimbursed by Company (including
any such reimbursement out of the proceeds of Revolving Loans pursuant to
subsection 3.3B) at a rate equal to (a) for the period from the date such
drawing is honored to but excluding the Reimbursement Date, the rate then
in effect under this Agreement with respect to Revolving Loans that are
Base Rate Loans and (b) thereafter, a rate which is 2% per annum in excess
of the rate of interest otherwise payable under this Agreement with respect
to Revolving Loans that are Base Rate Loans. Interest payable pursuant to
this subsection 3.3D(i) shall be computed on the basis of a 360-day year
for the actual number of days elapsed in the period during which it accrues
and shall be payable on demand or, if no demand is made, on the date on
which the related drawing under a Letter of Credit is reimbursed in full.
(ii) Distribution of Interest Payments by Issuing Lender. Promptly
---------------------------------------------------
upon receipt by any Issuing Lender of any payment of interest pursuant to
subsection 3.3D(i) with respect to a drawing honored under a Letter of
Credit issued by it, (a) such Issuing Lender shall distribute to each other
Revolving Lender, out of the interest received by such Issuing Lender in
respect of the period from the date such drawing is honored to but
excluding the date on which such Issuing Lender is reimbursed for the
amount of such drawing (including any such reimbursement out of the
proceeds of Revolving Loans pursuant to subsection 3.3B), the amount that
such other Revolving Lender would have been entitled to receive in respect
of the letter of credit fee that would have been payable in respect of such
Letter of Credit for such period pursuant to subsection 3.2 if no drawing
had been honored under such Letter of Credit, and (b) in the event such
Issuing Lender shall have been reimbursed by other Revolving Lenders
pursuant to subsection 3.3C(i) for all or any portion of such honored
drawing, such Issuing Lender shall distribute to each other Revolving
Lender which has paid all amounts payable by it under subsection 3.3C(i)
with respect to such honored drawing such other Revolving Lender's Pro Rata
Share of any interest received by such
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Issuing Lender in respect of that portion of such honored drawing so
reimbursed by other Revolving Lenders for the period from the date on which
such Issuing Lender was so reimbursed by other Revolving Lenders to but
excluding the date on which such portion of such honored drawing is
reimbursed by Company. Any such distribution shall be made to a Revolving
Lender at its primary address set forth below its name on the appropriate
signature page hereof or at such other address as such Revolving Lender may
request.
3.4 OBLIGATIONS ABSOLUTE.
--------------------
The obligation of Company to reimburse each Issuing Lender for
drawings honored under the Letters of Credit issued by it and to repay any
Revolving Loans made by Revolving Lenders pursuant to subsection 3.3B and the
obligations of Revolving Lenders under subsection 3.3C(i) shall be unconditional
and irrevocable and shall be paid strictly in accordance with the terms of this
Agreement under all circumstances including any of the following circumstances:
(i) any lack of validity or enforceability of any Letter of Credit;
(ii) the existence of any claim, set-off, defense or other right
which Company or any Revolving Lender may have at any time against a
beneficiary or any transferee of any Letter of Credit (or any Persons for
whom any such transferee may be acting), any Issuing Lender or other Lender
or any other Person or, in the case of a Lender, against Company, whether
in connection with this Agreement, the transactions contemplated herein or
any unrelated transaction (including any underlying transaction between
Company or one of its Subsidiaries and the beneficiary for which any Letter
of Credit was procured);
(iii) any draft or other document presented under any 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;
(iv) payment by the applicable Issuing Lender under any Letter of
Credit against presentation of a draft or other document which does not
substantially comply with the terms of such Letter of Credit;
(v) any adverse change in the business, operations, properties,
assets, condition (financial or otherwise) or prospects of Company or any
of its Subsidiaries;
(vi) any breach of this Agreement or any other Loan Document by any
party thereto; or
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(vii) the fact that an Event of Default or a Potential Event of
Default shall have occurred and be continuing.
3.5 INDEMNIFICATION; NATURE OF ISSUING LENDERS' DUTIES.
--------------------------------------------------
A. INDEMNIFICATION. In addition to amounts payable as provided in
subsection 3.6, Company hereby agrees to protect, indemnify, pay and save
harmless each Issuing Lender from and against any and all claims, demands,
liabilities, damages, losses and reasonable out-of-pocket costs, charges and
expenses (including reasonable fees, expenses and disbursements of counsel and
allocated costs of internal counsel) which such Issuing Lender may incur or be
subject to as a consequence, direct or indirect, of (i) the issuance of any
Letter of Credit by such Issuing Lender, other than as a result of (a) the gross
negligence or willful misconduct of such Issuing Lender as determined by a final
judgment of a court of competent jurisdiction or (b) subject to the following
clause (ii), the wrongful dishonor by such Issuing Lender of a proper demand for
payment made under any Letter of Credit issued by it or (ii) the failure of such
Issuing Lender to honor a drawing under any such Letter of Credit as a result of
any act or omission, whether rightful or wrongful, of any present or future de
jure or de facto government or governmental authority (all such acts or
omissions herein called "GOVERNMENTAL ACTS").
B. NATURE OF ISSUING LENDERS' DUTIES. As between Company and any Issuing
Lender, Company assumes all risks of the acts and omissions of, or misuse of the
Letters of Credit issued by such Issuing Lender by, the respective beneficiaries
of such Letters of Credit. In furtherance and not in limitation of the
foregoing, such Issuing Lender shall not be responsible for: (i) the form,
validity, sufficiency, accuracy, genuineness or legal effect of any document
submitted by any party in connection with the application for and issuance of
any such Letter of Credit, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any such Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part, which may prove to
be invalid or ineffective for any reason; (iii) failure of the beneficiary of
any such Letter of Credit to comply fully with any conditions required in order
to draw upon such Letter of Credit; (iv) errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail, cable, telegraph,
telex or otherwise, whether or not they be in cipher; (v) errors in
interpretation of technical terms; (vi) any loss or delay in the transmission or
otherwise of any document required in order to make a drawing under any such
Letter of Credit or of the proceeds thereof; (vii) the misapplication by the
beneficiary of any such Letter of Credit of the proceeds of any drawing under
such Letter of Credit; or (viii) any consequences arising from causes beyond
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the control of such Issuing Lender, including any Governmental Acts, and none of
the above shall affect or impair, or prevent the vesting of, any of such Issuing
Lender's rights or powers hereunder.
In furtherance and extension and not in limitation of the specific
provisions set forth in the first paragraph of this subsection 3.5B, any action
taken or omitted by any Issuing Lender under or in connection with the Letters
of Credit issued by it or any documents and certificates delivered thereunder,
if taken or omitted in good faith, shall not put such Issuing Lender under any
resulting liability to Company.
Notwithstanding anything to the contrary contained in this subsection
3.5, Company shall retain any and all rights it may have against any Issuing
Lender for any liability arising out of the gross negligence or willful
misconduct of such Issuing Lender, as determined by a final judgment of a court
of competent jurisdiction.
3.6 INCREASED COSTS AND TAXES RELATING TO LETTERS OF CREDIT.
-------------------------------------------------------
Subject to the provisions of subsection 2.7B (which shall be
controlling with respect to the matters covered thereby), in the event that any
Issuing Lender or Revolving Lender shall determine (which determination shall,
absent manifest error, be final and conclusive and binding upon all parties
hereto) that any law, treaty or governmental rule, regulation or order, or any
change therein or in the interpretation, administration or application thereof
(including the introduction of any new law, treaty or governmental rule,
regulation or order), or any determination of a court or governmental authority,
in each case that becomes effective after the date hereof, or compliance by any
Issuing Lender or Revolving Lender with any guideline, request or directive
issued or made after the date hereof by any central bank or other governmental
or quasi-governmental authority (whether or not having the force of law):
(i) subjects such Issuing Lender or Revolving Lender (or its
applicable lending or letter of credit office) to any additional Tax (other
than any Tax on the overall net income of such Issuing Lender or Revolving
Lender) with respect to the issuing or maintaining of any Letters of Credit
or the purchasing or maintaining of any participations therein or any other
obligations under this Section 3, whether directly or by such being imposed
on or suffered by any particular Issuing Lender;
(ii) imposes, modifies or holds applicable any reserve (including any
marginal, emergency, supplemental, special or other reserve), special
deposit, compulsory loan, FDIC
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insurance or similar requirement in respect of any Letters of Credit issued
by any Issuing Lender or participations therein purchased by any Revolving
Lender; or
(iii) imposes any other condition (other than with respect to a Tax
matter) on or affecting such Issuing Lender or Revolving Lender (or its
applicable lending or letter of credit office) regarding this Section 3 or
any Letter of Credit or any participation therein;
and the result of any of the foregoing is to increase the cost to such Issuing
Lender or Revolving Lender of agreeing to issue, issuing or maintaining any
Letter of Credit or agreeing to purchase, purchasing or maintaining any
participation therein or to reduce any amount received or receivable by such
Issuing Lender or Revolving Lender (or its applicable lending or letter of
credit office) with respect thereto; then, in any case, Company shall promptly
pay to such Issuing Lender or Revolving Lender, upon receipt of the statement
referred to in the next sentence, such additional amount or amounts as may be
necessary to compensate such Issuing Lender or Revolving Lender for any such
increased cost or reduction in amounts received or receivable hereunder. Such
Issuing Lender or Revolving Lender shall deliver to Company a written statement,
setting forth in reasonable detail the basis for calculating the additional
amounts owed to such Issuing Lender or Revolving Lender under this subsection
3.6, which statement shall be conclusive and binding upon all parties hereto
absent manifest error. Such Lender agrees to provide any such request within
180 days of becoming aware of such costs and to use averaging and attribution
methods which are reasonable.
3.7 CONFLICT AMONG DOCUMENTS.
------------------------
This Agreement shall control in the event of any conflict with any
L/C-Related Document.
3.8 ISSUING AFFILIATE.
-----------------
The Issuing Lender may perform any or all of its obligations under
this Agreement with respect to letters of Credit through one or more of its
Affiliates and, if it exercises such option, each reference to "Issuing Lender"
in this Agreement shall be deemed a reference to the Issuing Lender or such
Affiliate, as appropriate.
SECTION 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT
The obligations of Lenders to make Loans and the issuance of Letters
of Credit hereunder are subject to the satisfaction of the following conditions.
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4.1 CONDITIONS TO TERM LOANS AND INITIAL REVOLVING LOANS AND SWING LINE
-------------------------------------------------------------------
LOANS.
-----
The obligations of Lenders to make the Term Loans and any Revolving
Loans and Swing Line Loans to be made on the Closing Date are, in addition to
the conditions precedent specified in subsection 4.2, subject to prior or
concurrent satisfaction (or waiver) of the following conditions:
A. LOAN PARTY DOCUMENTS. On or before the Closing Date, Company shall,
and shall cause each other Loan Party to, deliver to Lenders (or to Agents for
Lenders with sufficient originally executed copies, where appropriate, for each
Lender and counsel to the Agents) the following with respect to Company or such
Loan Party, as the case may be, each, unless otherwise noted, dated the Closing
Date:
(i) Certified copies of the Certificate or Articles of
Incorporation of such Person, together with a good standing certificate
from the Secretary of State of its jurisdiction of incorporation and each
other state in which such Person is qualified as a foreign corporation to
do business and, to the extent generally available, a certificate or other
evidence of good standing as to payment of any applicable franchise or
similar taxes from the appropriate taxing authority of each of such
jurisdictions, each dated a recent date prior to the Closing Date;
(ii) Copies of the Bylaws of such Person, certified as of the
Closing Date by such Person's corporate secretary or an assistant
secretary;
(iii) Resolutions of the Board of Directors of such Person approving
and authorizing the execution, delivery and performance of the Loan
Documents to which it is a party, certified as of the Closing Date by the
corporate secretary or an assistant secretary of such Person as being in
full force and effect without modification or amendment;
(iv) Signature and incumbency certificates of the officers of such
Person executing the Loan Documents to which it is a party;
(v) Executed originals of the Loan Documents to which such Person
is a party; and
(vi) The Notes to be issued by Company (if so requested in
accordance with subsection 2.1D), drawn to the order of each requesting
Lender with appropriate insertions; and
(vii) Such other documents as Agents may reasonably request.
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B. NO MATERIAL ADVERSE EFFECT. Since December 31, 1997, there has not
occurred any event or a series of events which could reasonably be expected to
have (i) a material adverse effect (in the sole opinion of Arranger and
Syndication Agent) on the business, properties, financial condition, results of
operation, assets, prospects of the Business for the twelve consecutive monthly
period following the consummation of the Transactions or the liabilities of
Holdings and its Subsidiaries, taken as a whole; provided that for purposes of
--------
determining whether or not this condition has been satisfied, there shall be
excluded from the basis of such determination any matter not reasonably likely
to result in a net cost in excess of $5,000,000 following the Closing Date
(excluding any cost reflected in the Working Capital Adjustment (as such term is
defined in the Recapitalization Agreement)) or (ii) a material impairment of the
operations of the Business or the right and ability of Company to borrow under
this Agreement.
C. MORTGAGES; MORTGAGE POLICIES; ETC. Syndication Agent shall have
received from Company and each applicable Subsidiary Guarantor:
(i) Mortgages. Fully executed and notarized Mortgages in proper
---------
form for recording in all appropriate places in all applicable
jurisdictions, encumbering each Real Property Asset listed in Schedule 4.1C
-------------
annexed hereto (each a "CLOSING DATE MORTGAGED PROPERTY" and, collectively,
the "CLOSING DATE MORTGAGED PROPERTIES");
(ii) Opinions of Local Counsel. An opinion of counsel (which
-------------------------
counsel shall be reasonably satisfactory to Agents) in each state in which
a Closing Date Mortgaged Property is located with respect to the
enforceability of the form(s) of Mortgages to be recorded in such state and
such other matters as Agents may reasonably request, in each case in form
and substance reasonably satisfactory to Agents dated as of the Closing
Date and setting forth substantially the matters in the opinion attached
hereto as Exhibit XXIV and as to such other matters as Agents may
------------
reasonably require;
(iii) Title Insurance. As determined by Syndication Agent in its
---------------
sole discretion, (a) unconditional commitments for mortgagee title
insurance policies (the "CLOSING DATE MORTGAGE POLICIES") issued by the
Title Company with respect to the Closing Date Mortgaged Properties in
amounts not less than the respective amounts designated therein with
respect to any particular Closing Date Mortgaged Properties, insuring
Administrative Agent that the applicable Mortgages create valid and
enforceable First Priority mortgage Liens on the respective Closing Date
Mortgaged Properties encumbered thereby, subject only to a standard survey
exception, and such other exceptions approved by Agents, which Closing Date
Mortgage Policies (1) shall include a
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lenders aggregation endorsement, an endorsement for future advances under
this Agreement and for any other matters reasonably requested by
Syndication Agent and (2) shall provide for affirmative insurance and such
reinsurance as Agents may reasonably request, all of the foregoing in form
and substance reasonably satisfactory to Syndication Agent; and (b)
evidence reasonably satisfactory to Syndication Agent that such Loan Party
has (i) delivered to the Title Company all certificates and affidavits
required by the Title Company in connection with the issuance of the
Closing Date Mortgage Policies and (ii) paid to the Title Company or to the
appropriate governmental authorities all expenses and premiums of the Title
Company in connection with the issuance of the Closing Date Mortgage
Policies and all recording and stamp taxes (including mortgage recording
and intangible taxes) payable in connection with recording the Mortgages in
the appropriate real estate records;
(iv) Title Reports. With respect to each Closing Date Mortgaged
-------------
Property, a title report issued by the Title Company with respect thereto,
dated not more than 30 days prior to the Closing Date and satisfactory in
form and substance to Syndication Agent;
(v) Copies of Documents Relating to Title Exceptions. Copies of all
------------------------------------------------
recorded documents listed as exceptions to title or otherwise referred to
in the Closing Date Mortgage Policies or in the title reports delivered
pursuant to subsection 4.1C(iv) as may be requested by Syndication Agent;
(vi) Matters Relating to Flood Hazard Properties. (a) Evidence,
-------------------------------------------
which may be in the form of a letter from an insurance broker or a
municipal engineer, as to whether (1) any Closing Date Mortgaged Property
is a Flood Hazard Property and (2) the community in which any such Flood
Hazard Property is located is participating in the National Flood Insurance
Program, (b) if there are any such Flood Hazard Properties, such Loan
Party's written acknowledgement of receipt of written notification from
Administrative Agent (1) as to the existence of each such Flood Hazard
Property and (2) as to whether the community in which each such Flood
Hazard Property is located is participating in the National Flood Insurance
Program, and (c) in the event any such Flood Hazard Property is located in
a community that participates in the National Flood Insurance Program,
evidence that Company has obtained flood insurance in respect of such Flood
Hazard Property to the extent required under the applicable regulations of
the Board of Governors of the Federal Reserve System; and
(vii) Environmental Indemnity. If requested by Syndication Agent, an
-----------------------
environmental indemnity agreement,
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satisfactory in form and substance to Agents and their counsel, with
respect to the indemnification of Agents and Lenders for any liabilities
that may be imposed on or incurred by any of them as a result of any
Hazardous Materials Activity.
D. SECURITY INTERESTS IN PERSONAL AND MIXED PROPERTY. To the extent not
otherwise satisfied pursuant to subsection 4.1C, Syndication Agent shall have
received evidence reasonably satisfactory to it that Company, Holdings and
Subsidiary Guarantors, as applicable, shall have taken or caused to be taken all
such necessary actions, executed and delivered or caused to be executed and
delivered all such agreements, documents and instruments, and made or caused to
be made all such filings and recordings (other than the filing or recording of
items described in clauses (iii), (iv) and (v) below) that may be necessary or,
in the reasonable opinion of Syndication Agent, desirable in order to create in
favor of Administrative Agent, for the benefit of Lenders, a valid and (upon
such filing and recording) perfected First Priority security interest in the
entire personal and mixed property Collateral. Such actions shall include the
following:
(i) Schedules to Collateral Documents. Delivery to Syndication
---------------------------------
Agent of accurate and complete schedules to all of the applicable
Collateral Documents;
(ii) Stock Certificates and Instruments. Delivery to Administrative
----------------------------------
Agent of (a) certificates (which certificates shall be accompanied by
irrevocable undated stock powers, duly endorsed in blank and otherwise
reasonably satisfactory in form and substance to Syndication Agent)
representing all capital stock pledged pursuant to the Company Pledge
Agreement, the Holdings Pledge Agreement and the Subsidiary Pledge
Agreements and (b) all promissory notes or other instruments (duly
endorsed, where appropriate, in a manner reasonably satisfactory to Agents)
evidencing any Collateral;
(iii) Lien Searches and UCC Termination Statements. Subject to the
--------------------------------------------
provisions of subsection 4.4, delivery to Syndication Agent of (a) the
results of a recent search, by a Person satisfactory to Syndication Agent,
of all effective UCC financing statements and fixture filings and all
judgment and tax lien filings which may have been made with respect to any
personal or mixed property of any Loan Party, together with copies of all
such filings disclosed by such search, and (b) UCC termination statements
duly executed by all applicable Persons for filing in all applicable
jurisdictions as may be necessary to terminate any effective UCC financing
statements or fixture filings disclosed in such search (other than any such
financing statements or
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fixture filings in respect of Liens permitted to remain outstanding
pursuant to the terms of this Agreement);
(iv) UCC Financing Statements and Fixture Filings. Delivery to
--------------------------------------------
Syndication Agent of UCC financing statements and, where appropriate,
fixture filings, duly executed by each applicable Loan Party with respect
to all personal and mixed property Collateral of such Loan Party, for
filing in all jurisdictions as may be necessary or, in the opinion of
Syndication Agent, necessary to perfect the security interests created in
such Collateral pursuant to the Collateral Documents;
(v) PTO Cover Sheets, Etc. Delivery to Syndication Agent of all
---------------------
cover sheets or other documents or instruments required to be filed with
the PTO in order to create or perfect Liens in respect of any IP
Collateral;
(vi) Opinions of Local Counsel. Delivery to Agents of an opinion of
-------------------------
counsel (which counsel shall be reasonably satisfactory to Syndication
Agent) under the laws of each jurisdiction in which any Loan Party or any
personal or mixed property Collateral is located with respect to the
creation and perfection of the security interests in favor of
Administrative Agent in such Collateral and such other matters governed by
the laws of such jurisdiction regarding such security interests as Agents
may reasonably request, in each case in form and substance reasonably
satisfactory to Agents dated as of the Closing Date and setting forth
substantially the matters in the form of opinion annexed hereto as Exhibit
-------
XXIV and as to such other matters as Agents may reasonably require.
----
(vii) Officer's Certificate from Holdings. Delivery to Agents of an
-----------------------------------
Officer's Certificate of Holdings stating that after the consummation of
the Transactions, it will not own any assets other than the capital stock
of Company.
E. EVIDENCE OF INSURANCE. Syndication Agent shall have received a
certificate from Company's insurance broker or other evidence reasonably
satisfactory to it that all insurance required to be maintained pursuant to
subsection 6.4 is in full force and effect and that Administrative Agent on
behalf of Lenders has been named as additional insured and/or loss payee
thereunder to the extent required under subsection 6.4.
F. DEBT AND EQUITY CAPITALIZATION OF HOLDINGS AND COMPANY.
(i) Redemption of Holdings Common Stock. On or prior to the Closing Date,
-----------------------------------
(a) Holdings shall have obtained the requisite approval of the Existing
Shareholders regarding the Recapitalization Agreement and the transactions
contemplated thereby and (b) Holdings shall have redeemed all of the issued
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and outstanding Holdings Common Stock (other than the Retained Shares) from the
Existing Shareholders for an aggregate redemption price not exceeding
$211,503,000. Subsequent to the redemption of the Holdings Common Stock as
described above, the Existing Shareholders shall own the Retained Shares
representing 22.5% of the outstanding shares of Holdings Common Stock (after
giving effect to the full exercise of the Holdings Warrants). The redemption of
the Holdings Common Stock shall be in form and substance reasonably satisfactory
to Syndication Agent and Arranger.
(ii) Issuance of Holdings Preferred Stock. On or prior to the Closing
------------------------------------
Date, Holdings shall have issued the Holdings Preferred Stock and Holdings
Warrants and shall have received at least $47,000,000 in gross cash proceeds
therefrom. The terms and conditions of the Holdings Preferred Stock in the
Holdings Certificate of Designation shall be reasonably satisfactory in form and
substance to Syndication Agent and Arranger; provided that in any event the
--------
Holdings Preferred Stock shall not become subject to any mandatory redemption
prior to the final redemption date thereof; and provided further that the
-------- -------
Holdings Preferred Stock shall not provide or require for any cash distributions
by way of dividends or otherwise prior to the tenth anniversary of the Closing
Date. On or prior to the Closing Date, Principals and investment funds directly
managed by SKC shall have purchased from Holdings, for an aggregate purchase
price of $47,000,000, shares of Holdings Preferred Stock, together with the
Holdings Warrants. On the Closing Date, the shares of Holdings Common Stock
issuable upon the full exercise of the Holdings Warrants shall represent 77.5%
of the outstanding shares of Holdings Common Stock after giving effect to such
issuance.
(iii) Issuance of Holdings Discount Debentures. On or prior to the Closing
----------------------------------------
Date, Holdings shall have issued the Holdings Discount Debentures and shall have
received at least $45,105,480 in gross proceeds therefrom (such gross cash
proceeds, together with the gross cash proceeds of the Holdings Preferred Stock,
the "EQUITY CONTRIBUTIONS"). The terms and conditions of the Holdings Discount
Debentures shall be substantially as described in the Holdings Discount
Debentures Material and shall be satisfactory in form and substance to
Syndication Agent and Arranger; provided that in any event the Holdings Discount
--------
Debentures shall be unsecured and shall not mature or provide for or require any
payments of accrued interest thereon or accreted value thereof prior to the
fifth anniversary of the Closing Date. Company shall have delivered to Agents a
fully executed or conformed copy of the Holdings Discount Debentures Indenture
and a copy of the Holdings Discount Debentures Material.
(iv) Issuance of Senior Subordinated Notes. On or prior to the Closing
-------------------------------------
Date, Company shall have issued the Senior Subordinated Notes and shall have
received at least $100,000,000 in gross proceeds therefrom. The terms and
conditions of the
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Senior Subordinated Notes shall be substantially as described in the Senior
Subordinated Notes Material and shall be in form and substance satisfactory to
Syndication Agent and Arranger; provided that in any event the Senior
--------
Subordinated Notes shall be unsecured and shall not mature or provide for any
scheduled principal payments prior to the tenth anniversary of the Closing Date;
and provided further that the negative covenants and default provisions shall be
-------- -------
less restrictive than those contained in this Agreement. Company shall have
delivered to Administrative Agent a fully executed or conformed copy of the
Senior Subordinated Notes Indenture and a copy of the Senior Subordinated Notes
Material.
(v) Capital Contribution to Company. On or prior to the Closing Date, as
-------------------------------
capital contributions to Company, Holdings shall (a) transfer all of its assets
to Company and (b) provide cash to Company in an amount equal to the Equity
Contributions in exchange for the Holdings Preferred Stock. On the Closing
Date, Holdings shall own 100% of all issued and outstanding capital stock of
Company. Agents shall have received an Officer's Certificate of Holdings
stating that after giving effect to the transactions described in this
subsection 4.1F(v), Holdings will own no assets other than the capital stock of
Company.
(vi) Repayment of Indebtedness under the Existing Credit Agreement and
-----------------------------------------------------------------
Existing IRB Loan Agreement. On or prior to the Closing Date, Holdings shall
- ---------------------------
have (a) repaid in full all Indebtedness outstanding under the Existing Credit
Agreement and the Existing IRB Loan Agreement (the aggregate principal amount of
all such Indebtedness not to exceed $45,091,767.60), including accrued interest
and any prepayment penalties related thereto, (b) terminated any commitments to
lend or make other extensions of credit thereunder, (c) delivered to Syndication
Agent all documents or instruments necessary to release all Liens securing such
Indebtedness or other obligations of Holdings and its Subsidiaries thereunder,
and (d) made arrangements reasonably satisfactory to Syndication Agent and
Arranger with respect to the cancellation of any letters of credit outstanding
thereunder or the issuance of Letters of Credit to support the obligations of
Holdings and its Subsidiaries with respect thereto.
(vii) Repayment of Indebtedness under the Existing Tax Increment Financing
--------------------------------------------------------------------
Agreement and Existing Smart E Bonds Loan Agreement. On or prior to the Closing
- ---------------------------------------------------
Date, Forster Mfg. shall have (a) repaid in full all Indebtedness outstanding
under the Existing Tax Increment Financing Agreement and the Existing Smart E
Bonds Loan Agreement (the aggregate principal amount of all such Indebtedness
not to exceed $770,951.11), including accrued interest and any prepayment
penalties related thereto, and (b) delivered to Administrative Agent all
documents or instruments necessary to release all Liens securing such
Indebtedness or other obligations of Holdings and its Subsidiaries thereunder.
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G. FINANCIAL STATEMENTS; PRO FORMA BALANCE SHEET. On or before the
Closing Date, the Lenders shall have received from Holdings (i) audited
financial statements of Holdings and its Subsidiaries for Fiscal Years 1995,
1996 and 1997, consisting of balance sheets and the related consolidated
statements of operations, stockholders' equity and cash flows for such Fiscal
Years, (ii) if available, unaudited financial statements of Holdings and its
Subsidiaries as at March 31, 1998, consisting of a balance sheet and the related
consolidated statements of operations, stockholders' equity and cash flows for
the three-month period ending on such date, all in reasonable detail and
certified by the chief financial officer of Holdings that they fairly represent
the financial condition of Holdings and its Subsidiaries as at the dates
indicated and the results of their operations and their cash flows for the
period indicated, subject to changes resulting from audit and normal year-end
adjustments, and (iii) pro forma consolidated balance sheets of Holdings and its
Subsidiaries and Company and its Subsidiaries as at the Closing Date, prepared
in accordance with GAAP and giving effect to the consummation of the
Transactions and the other transactions contemplated by the Loan Documents and
reflecting the legal and capital structure as agreed to by Syndication Agent and
Arranger, which pro forma financial statements shall be in form and substance
reasonably satisfactory to the Lenders.
H. TRANSACTION COSTS. Transaction Costs shall not exceed $12,500,000.
I. OPINIONS OF COUNSEL TO LOAN PARTIES. Agents, Lenders and counsel to
the Agents shall have received (i) originally executed copies of one or more
favorable written opinions of (A) McDermott, Will & Emery, special counsel for
Loan Parties, (B) Lindquist & Vennum P.L.L.P., Minnesota counsel for Holdings,
(C) Shook, Hardy & Bacon L.L.P., Kansas counsel for Empire Candle, Inc., and (D)
Bernstein, Shur, Sawyer & Nelson, Maine counsel for Forster Inc., in each case
in form and substance reasonably satisfactory to Agents and Arranger and their
counsel, dated as of the Closing Date and setting forth substantially the
matters in the opinions designated in Exhibit IX annexed hereto, as appropriate,
----------
and as to such other matters as Agents and Arranger acting on behalf of Lenders
may reasonably request and (ii) evidence satisfactory to Syndication Agent and
Arranger that Company has requested such counsel to deliver such opinions to
Lenders.
J. OPINIONS OF SYNDICATION AGENT'S COUNSEL. Lenders shall have received
originally executed copies of one or more favorable written opinions of
O'Melveny & Myers LLP, counsel to Syndication Agent, dated as of the Closing
Date, substantially in the form of Exhibit X annexed hereto and as to such other
---------
matters as Syndication Agent acting on behalf of Lenders may reasonably request.
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K. OPINIONS OF COUNSEL DELIVERED UNDER RELATED AGREEMENTS. Agents and
their counsel shall have received copies of each of the opinions of counsel
delivered on behalf of or to any Loan Party under or in respect of the Holdings
Discount Debentures Indenture, Holdings Preferred Stock and Senior Subordinated
Indenture, together with a letter from each such counsel authorizing Agents and
Lenders to rely upon such opinion to the same extent as though it were addressed
to Agents and Lenders.
L. FEES. Company shall have paid to Administrative Agent and Arranger
the fees payable on the Closing Date referred to in subsection 2.3.
M. SOLVENCY CERTIFICATE. Company shall have delivered to Arranger and
Agents a Solvency Certificate dated the Closing Date.
N. ENVIRONMENTAL MATTERS. Arranger and Syndication Agent shall have
received reports and other information in form, scope and substance reasonably
satisfactory to Arranger and Syndication Agent regarding environmental matters
related to the Facilities.
O. REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF AGREEMENTS. Company
shall have delivered to Agents an Officer's Certificate, in form and substance
satisfactory to Syndication Agent, to the effect that the representations and
warranties in Section 5 hereof are true, correct and complete in all material
respects on and as of the Closing Date to the same extent as though made on and
as of that date (or, to the extent such representations and warranties
specifically relate to an earlier date, that such representations and warranties
were true, correct and complete in all material respects on and as of such
earlier date) and that Company shall have performed in all material respects all
agreements and satisfied all conditions which this Agreement provides shall be
performed or satisfied by it on or before the Closing Date except as otherwise
disclosed to and agreed to in writing by Syndication Agent.
P. NECESSARY GOVERNMENTAL AUTHORIZATIONS AND CONSENTS; EXPIRATION OF
WAITING PERIODS, ETC. Holdings and Company shall have obtained all Governmental
Authorizations and all consents of other Persons, in each case that are
necessary or advisable in connection with the Transactions and all other
transactions contemplated by the Loan Documents and each of the foregoing shall
be in full force and effect, in each case other than those the failure to obtain
or maintain which, either individually or in the aggregate, would not reasonably
be expected to have a Material Adverse Effect. All applicable waiting periods
shall have expired without any action being taken or threatened by any competent
authority which would restrain, prevent or otherwise impose material adverse
conditions on all transactions contemplated by the Loan Documents. No action,
request for stay, petition for review or rehearing, reconsideration, or appeal
with
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respect to any of the foregoing shall be pending, and the time for any
applicable agency to take action to set aside its consent on its own motion
shall have expired.
Q. MARGIN DETERMINATION CERTIFICATE. Company shall have delivered to
Arranger and Agents a Margin Determination Certificate demonstrating in
reasonable detail the Consolidated Leverage Ratios for the four consecutive
Fiscal Quarters ending on the last day of most recently ended Fiscal Quarter.
R. LITIGATION. There shall exist no pending or threatened in writing
material litigation, proceedings or investigations which (i) would contest the
consummation of the Transactions or (ii) would reasonably be expected to have a
Material Adverse Effect.
4.2 CONDITIONS TO ALL LOANS.
-----------------------
The obligations of Lenders to make Loans on each Funding Date are
subject to the following further conditions precedent:
A. Administrative Agent shall have received before that Funding
Date, in accordance with the provisions of subsection 2.1B, an originally
executed Notice of Borrowing, in each case signed by the chief executive
officer, the chief financial officer or the treasurer of Company or by any
executive officer of Company designated by any of the above-described officers
on behalf of Company in a writing delivered to Administrative Agent.
B. As of that Funding Date:
(i) The representations and warranties contained herein and in the
other Loan Documents shall be true, correct and complete in all material
respects on and as of that Funding Date to the same extent as though made
on and as of that date, except to the extent such representations and
warranties specifically relate to an earlier date, in which case such
representations and warranties shall have been true, correct and complete
in all material respects on and as of such earlier date;
(ii) No event shall have occurred and be continuing or would result
from the consummation of the borrowing contemplated by such Notice of
Borrowing that would constitute an Event of Default or a Potential Event of
Default;
(iii) Each Loan Party shall have performed in all material respects
all agreements and satisfied in all material respects all conditions which
this Agreement
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provides shall be performed or satisfied by it on or before that Funding
Date;
(iv) No order, judgment or decree of any court, arbitrator or
governmental authority shall purport to enjoin or restrain any Lender from
making the Loans to be made by it on that Funding Date; and
(v) The making of the Loans requested on such Funding Date shall not
violate any applicable law including Regulation T, Regulation U or
Regulation X of the Board of Governors of the Federal Reserve System.
4.3 CONDITIONS TO LETTERS OF CREDIT.
-------------------------------
The issuance of any Letter of Credit hereunder (whether or not the
applicable Issuing Lender is obligated to issue such Letter of Credit) is
subject to the following conditions precedent:
A. On or before the date of issuance of the initial Letter of Credit
pursuant to this Agreement, the initial Loans shall have been made.
B. On or before the date of issuance of such Letter of Credit,
Administrative Agent shall have received, in accordance with the provisions of
subsection 3.1B(i), an originally executed Notice of Issuance of Letter of
Credit, in each case signed by the chief executive officer, the chief financial
officer or the treasurer of Company or by any executive officer of Company
designated by any of the above-described officers on behalf of Company in a
writing delivered to Administrative Agent, together with all other information
specified in subsection 3.1B(i) and such other documents or information as the
applicable Issuing Lender may reasonably require in connection with the issuance
of such Letter of Credit.
C. On the date of issuance of such Letter of Credit, all conditions
precedent described in subsection 4.2B shall be satisfied to the same extent as
if the issuance of such Letter of Credit were the making of a Loan and the date
of issuance of such Letter of Credit were a Funding Date.
4.4 ITEMS TO BE DELIVERED AFTER THE CLOSING DATE.
--------------------------------------------
Company, Agents and Lenders recognize that it may be impractical for
Company to deliver certain of the items listed in subsection 4.1D(iii) on the
Closing Date. Company, Agents and Lenders agree, to the extent that any of such
items are not so delivered on the Closing Date with the consent of Syndication
Agent, Company shall deliver such items within 30 days of the Closing Date. In
addition, Company agrees (i) to use all reasonable efforts to deliver a Mortgage
on Leasehold Property
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located in Kansas City, Kansas, which, due to inability of Company to obtain the
Landlord Consent and Estoppel with respect to such Mortgage, cannot be delivered
on the Closing Date; and (ii) within 30 days following the Closing Date, either
to deliver (A) such Mortgage and the applicable items specified in subsection
4.1C that are required to be delivered in connection with a Mortgage, each in
form and substance satisfactory to Syndication Agent, in which case such
Mortgage shall be deemed a Closing Date Mortgage, (B) a written notice to
Syndication Agent, indicating that it is impractical to deliver such Mortgage
and other items by such 30th day and that Company intends to deliver such
Mortgage and other items on a specified future date (which shall not be later
than the 90th day following the Closing Date), in which case such Mortgage and
other items shall be delivered on or prior to such date or (C) a written notice
to Syndication Agent indicating that, having used all reasonable efforts,
Company is unable to deliver such Mortgage and such other items. If Company is
not able to deliver the Mortgage on the Leasehold Property located in Kansas
City, Kansas, and Company has provided the written notice referred to in clause
(C) to Administrative Agent, then, within 15 days of the date of such notice,
Company shall cause to be filed a Memorandum of Negative Pledge with respect to
such Leasehold Property with the appropriate county recorder's office.
SECTION 5. COMPANY'S REPRESENTATIONS AND WARRANTIES
In order to induce Lenders and the Agents to enter into this Agreement
and to make the Loans, to induce Issuing Lenders to issue Letters of Credit and
to induce other Lenders to purchase participations therein, Company represents
and warrants to each Lender and the Agents, on the date of this Agreement, on
each Funding Date and on the date of issuance of each Letter of Credit, that the
following statements are true, correct and complete:
5.1 ORGANIZATION, POWERS, QUALIFICATION, GOOD STANDING, BUSINESS AND
----------------------------------------------------------------
SUBSIDIARIES.
------------
A. ORGANIZATION AND POWERS. Each Loan Party is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation as specified in Schedule 5.1 annexed hereto. Each
------------
Loan Party has all requisite corporate power and authority to own and operate
its properties, to carry on its business as now conducted and as proposed to be
conducted, to enter into the Loan Documents to which it is a party and to carry
out the transactions contemplated thereby.
B. QUALIFICATION AND GOOD STANDING. Each Loan Party is qualified to do
business and in good standing in every jurisdiction where its assets are located
and wherever necessary to carry out its business and operations, except in
jurisdictions
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where the failure to be so qualified or in good standing has not had and would
not reasonably be expected to have a Material Adverse Effect.
C. CONDUCT OF BUSINESS. Company and its Subsidiaries are engaged only in
the businesses permitted to be engaged in pursuant to subsection 7.14.
D. SUBSIDIARIES. All of the Subsidiaries of Company are identified in
Schedule 5.1 annexed hereto, as said Schedule 5.1 may be supplemented from time
- ------------ ------------
to time pursuant to the provisions of subsection 6.1(xvi). The capital stock of
each of the Subsidiaries of Company identified in Schedule 5.1 annexed hereto
------------
(as so supplemented) is duly authorized, validly issued, fully paid and
nonassessable and none of such capital stock constitutes Margin Stock. Each of
the Subsidiaries of Company identified in Schedule 5.1 annexed hereto (as so
------------
supplemented) is a corporation duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of incorporation set
forth therein, has all requisite corporate power and authority to own and
operate its properties and to carry on its business as now conducted and as
proposed to be conducted, and is qualified to do business and in good standing
in every jurisdiction where its assets are located and wherever necessary to
carry out its business and operations, in each case except where failure to be
so qualified or in good standing or a lack of such corporate power and authority
has not had and will not have a Material Adverse Effect. Schedule 5.1 annexed
------------
hereto (as so supplemented) correctly sets forth the ownership interest of
Company and each of its Subsidiaries in each of the Subsidiaries of Company
identified therein. Holdings owns all of the capital stock of Company and no
other asset, other than the leasehold interests described in subsection 7.14.
5.2 AUTHORIZATION OF BORROWING, ETC.
--------------------------------
A. AUTHORIZATION OF BORROWING. The execution, delivery and performance
of the Loan Documents have been duly authorized by all necessary actions on the
part of each Loan Party that is a party thereto.
B. NO CONFLICT. The execution, delivery and performance by Loan Parties
of the Loan Documents and the consummation of the transactions contemplated by
the Loan Documents do not and will not (i) violate any provision of any law or
any governmental rule or regulation applicable to Holdings or any of its
Subsidiaries, the Certificate or the Articles of Incorporation or Bylaws of
Holdings, Company or any of Company's Subsidiaries or any order, judgment or
decree of any court or other agency of government binding on Holdings, Company
or any of Company's Subsidiaries, (ii) conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any
Contractual Obligation of Holdings, Company or any of its Subsidiaries, which
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conflict, breach or default would reasonably be expected to have a Material
Adverse Effect, (iii) result in or require the creation or imposition of any
Lien upon any of the properties or assets of Holdings, Company or any of
Company's Subsidiaries (other than any Liens created under any of the Loan
Documents in favor of Administrative Agent on behalf of Lenders), or (iv)
require any approval of or consent of any Person under any Contractual
Obligation of Holdings, Company or any of Company's Subsidiaries, except for
such approvals or consents which will be obtained on or before the Closing Date
and disclosed in writing to Lenders, or the failure to so obtain would
reasonably be expected to have a Material Adverse Effect.
C. GOVERNMENTAL CONSENTS. The execution, delivery and performance by
Loan Parties of the Loan Documents and the consummation of the transactions
contemplated by the Loan Documents do not and will not require any registration
with, consent or approval of, or notice to, or other action to, with or by, any
federal, state or other governmental authority or regulatory body which, if not
obtained, would reasonably be expected to have a Material Adverse Effect.
D. BINDING OBLIGATION. Each of the Loan Documents has been duly executed
and delivered by each Loan Party that is a party thereto and is the legally
valid and binding obligation of such Loan Party, enforceable against such Loan
Party in accordance with its respective terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or limiting creditors' rights generally or by equitable principles relating to
enforceability.
E. VALID ISSUANCE OF HOLDINGS COMMON STOCK, HOLDINGS PREFERRED STOCK,
HOLDINGS DISCOUNT DEBENTURES AND THE SENIOR SUBORDINATED NOTES.
(i)(A) Holdings Common Stock. As of the Closing Date, there are 16,112,500
---------------------
shares of issued and outstanding Holdings Common Stock. Such shares of Holdings
Common Stock have been duly and validly issued, fully paid and nonassessable.
Except as provided in the Holdings Certificate of Designation, the Holdings
Warrants or the Stockholders' Agreement, no stockholder of Holdings has or will
have any preemptive rights to subscribe for any additional equity Securities of
Holdings. Any issuance and sale of Holdings Common Stock, upon such issuance
and sale, will either (a) have been registered or qualified under applicable
federal and state securities laws or (b) be exempt therefrom.
(B) Holdings Preferred Stock. As of the Closing Date, there are 47,000
------------------------
shares of issued and outstanding Holdings Preferred Stock. Such shares of
Holdings Preferred Stock have been duly and validly issued, fully paid and
nonassessable. Except as provided in the Holdings Certificate of Designation,
the Holdings Warrants or the Stockholders' Agreement, no
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stockholder of Holdings has or will have any preemptive rights to subscribe for
any additional equity Securities of Holdings. Any issuance and sale of Holdings
Preferred Stock, upon such issuance and sale, will either (a) have been
registered and qualified under applicable federal and state securities laws or
(b) be exempt therefrom.
(C) Holdings Discount Debentures. Holdings has the corporate power
----------------------------
and authority to issue the Holdings Discount Debentures. The Holdings Discount
Debentures, when issued and paid for, will be the legally valid and binding
obligations of Holdings, enforceable against Holdings in accordance with their
terms, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors' rights generally
or by equitable principles relating to enforceability. The Holdings Discount
Debentures, when issued and sold, will either (a) have been registered or
qualified under applicable federal and state securities laws or (b) be exempt
therefrom.
(ii) The Senior Subordinated Notes. Company has the corporate power and
-----------------------------
authority to issue the Senior Subordinated Notes. The Senior Subordinated
Notes, when issued and paid for, will be the legally valid and binding
obligations of Company, enforceable against Company in accordance with their
terms, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors' rights generally
or by equitable principles relating to enforceability. The subordination
provisions of the Senior Subordinated Notes will be enforceable against the
holders thereof in accordance with their terms (except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or limiting creditors' rights generally or by equitable principles relating to
enforceability) and the Loans and all other monetary Obligations hereunder are
and will be within the definitions of "Bank Indebtedness", "Senior Indebtedness"
and "Designated Senior Indebtedness" included in such provisions. The Senior
Subordinated Notes, when issued and sold, will either (a) have been registered
or qualified under applicable federal and state securities laws or (b) be exempt
therefrom.
5.3 FINANCIAL CONDITION.
-------------------
Company has heretofore delivered to Lenders, at Lenders' request, the
following financial statements and information: (i) the audited consolidated
balance sheet of Holdings and its Subsidiaries as at December 31, 1995, December
31, 1996 and December 31, 1997 and the related consolidated statements of
operations, stockholders' equity and cash flows of Holdings and its Subsidiaries
for the Fiscal Years then ended and (ii) the unaudited consolidated balance
sheet of Holdings and its Subsidiaries as of March 31, 1998 and the related
unaudited
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consolidated statements of operations, stockholders' equity and cash flows of
Holdings and its Subsidiaries for the three months then ended. All such
statements were prepared in conformity with GAAP and fairly present, in all
material respects, the financial position (on a consolidated basis) of the
entities described in such financial statements as at the respective dates
thereof and the results of operations and cash flows (on a consolidated basis)
of the entities described therein for each of the periods then ended, subject,
in the case of any such unaudited financial statements, to changes resulting
from normal year-end adjustments. Company does not (and will not following the
funding of the initial Loans) have any Contingent Obligation, contingent
liability or liability for taxes, long-term lease or unusual forward or long-
term commitment that is not reflected in the foregoing financial statements or
the notes thereto and which in any such case would reasonably be expected to
have a Material Adverse Effect.
5.4 NO MATERIAL ADVERSE CHANGE; NO RESTRICTED JUNIOR PAYMENTS.
---------------------------------------------------------
Since December 31, 1997, no event or change has occurred that has
caused or evidences, either in any case or in the aggregate, a Material Adverse
Effect. Neither Company nor any of its Subsidiaries has directly or indirectly
declared, ordered, paid or made, or set apart any sum or property for, any
Restricted Junior Payment or agreed to do so except as permitted by subsection
7.5.
5.5 TITLE TO PROPERTIES; LIENS; REAL PROPERTY.
-----------------------------------------
A. TITLE TO PROPERTIES; LIENS. Company and its Subsidiaries have (i)
good, sufficient and legal title to (in the case of fee interests in real
property), (ii) valid leasehold interests in (in the case of leasehold interests
in real or personal property), or (iii) good title to (in the case of all other
personal property), all of their respective properties and assets reflected in
the financial statements referred to in subsection 5.3 or in the most recent
financial statements delivered pursuant to subsection 6.1, in each case except
for assets disposed of since the date of such financial statements in the
ordinary course of business or as otherwise permitted under subsection 7.7.
Except as permitted by this Agreement, all such properties and assets are free
and clear of Liens.
B. REAL PROPERTY. As of the Closing Date, Schedule 5.5 annexed hereto
------------
contains a true, accurate and complete list of (i) all real property owned by
Company or any Subsidiary and (ii) all leases, subleases or assignments of
leases (together with all amendments, modifications, supplements, renewals or
extensions of any thereof) affecting each Real Property Asset of any Loan Party,
regardless of whether such Loan Party is the landlord or tenant (whether
directly or as an assignee or
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successor in interest) under such lease, sublease or assignment. Except as
specified in Schedule 5.5 annexed hereto, each agreement listed in clause (ii)
------------
of the immediately preceding sentence is in full force and effect and Company
does not have knowledge of any default that has occurred and is continuing
thereunder, and each such agreement constitutes the legally valid and binding
obligation of each applicable Loan Party, enforceable against such Loan Party in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or limiting
creditors' rights generally or by equitable principles.
5.6 LITIGATION; ADVERSE FACTS.
-------------------------
Except as set forth in Schedule 5.6 annexed hereto, there are no
------------
actions, suits, proceedings, arbitrations or governmental investigations
(whether or not purportedly on behalf of Company or any of its Subsidiaries) at
law or in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign (including any Environmental Claims) that are pending or, to
the knowledge of any officer of Company, threatened in writing against or
affecting Company or any of its Subsidiaries or any property of Company or any
of its Subsidiaries and that, individually or in the aggregate, would reasonably
be expected to result in a Material Adverse Effect. Neither Company nor any of
its Subsidiaries (i) is in violation of any applicable laws (including
Environmental Laws) that, individually or in the aggregate, would reasonably be
expected to result in a Material Adverse Effect, or (ii) is subject to or in
default with respect to any final judgments, writs, injunctions, decrees, rules
or regulations of any court or any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, that, individually or in the aggregate, would reasonably be
expected to result in a Material Adverse Effect.
5.7 PAYMENT OF TAXES.
----------------
Except to the extent permitted by subsection 6.3, all tax returns and
reports of Holdings and its Subsidiaries required to be filed by any of them
have been timely filed, and all taxes shown on such tax returns to be due and
payable and all assessments, fees and other governmental charges upon Holdings
and its Subsidiaries and upon their respective properties, assets, income,
businesses and franchises which are due and payable have been paid when due and
payable. Company knows of no proposed tax assessment against Holdings or any of
its Subsidiaries which is not being actively contested by Holdings or such
Subsidiary in good faith and by appropriate proceedings; provided that such
--------
reserves or other appropriate provisions, if any, as shall be required in
conformity with GAAP shall have been made or provided therefor.
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5.8 PERFORMANCE OF AGREEMENTS; MATERIALLY ADVERSE AGREEMENTS; MATERIAL
------------------------------------------------------------------
CONTRACTS.
---------
A. Neither Holdings nor any of its Subsidiaries is in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any of its Contractual Obligations, and no condition
exists that, with the giving of notice or the lapse of time or both, would
constitute such a default, except where the consequences, direct or indirect, of
such default or defaults, if any, would not reasonably be expected to have a
Material Adverse Effect.
B. Neither Holdings nor any of its Subsidiaries is a party to or is
otherwise subject to any agreements or instruments or any charter or other
internal restrictions which, individually or in the aggregate, would reasonably
be expected to result in a Material Adverse Effect.
C. Schedule 5.8 contains a true, correct and complete list of all the
------------
Material Contracts in effect on the Closing Date. Except as described on
Schedule 5.8, all such Material Contracts are in full force and effect and no
- ------------
material defaults currently exist thereunder.
5.9 GOVERNMENTAL REGULATION.
-----------------------
Neither Holdings nor any of its Subsidiaries is subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act or the Investment Company Act of 1940 or under any other
federal or state statute or regulation which may limit its ability to incur
Indebtedness or which may otherwise render all or any portion of the Obligations
unenforceable.
5.10 SECURITIES ACTIVITIES.
---------------------
A. Neither Holdings nor any of its Subsidiaries is engaged principally,
or as one of its important activities, in the business of extending credit for
the purpose of purchasing or carrying any Margin Stock.
B. Following application of the proceeds of each Loan, not more than 25%
of the value of the assets (either of Company only or of Company and its
Subsidiaries on a consolidated basis) subject to the provisions of subsection
7.2 or 7.7 or subject to any restriction contained in any agreement or
instrument, between Company and any Lender or any Affiliate of any Lender,
relating to Indebtedness and within the scope of subsection 8.2, will be Margin
Stock.
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5.11 EMPLOYEE BENEFIT PLANS.
----------------------
A. Holdings, each of its Subsidiaries and each of their respective ERISA
Affiliates are in material compliance with all applicable provisions and
requirements of ERISA and the regulations and published interpretations
thereunder with respect to each Employee Benefit Plan, and have performed all
their material obligations under each Employee Benefit Plan. Each Employee
Benefit Plan which is intended to qualify under Section 401(a) of the Internal
Revenue Code is so qualified.
B. No ERISA Event has occurred or is reasonably expected to occur.
C. Except to the extent required under Section 4980B of the Internal
Revenue Code or as provided pursuant to a collective bargaining agreement, no
Employee Benefit Plan provides health or welfare benefits (through the purchase
of insurance or otherwise) for any retired or former employee of Company, any of
its Subsidiaries or any of their respective ERISA Affiliates.
D. As of the most recent valuation date for any Pension Plan, the amount
of unfunded benefit liabilities (as defined in Section 4001(a)(18) of ERISA),
individually or in the aggregate for all Pension Plans (excluding for purposes
of such computation any Pension Plans with respect to which assets exceed
benefit liabilities), does not exceed $500,000.
E. As of the most recent valuation date for each Multiemployer Plan for
which the actuarial report is available, the potential liability of Holdings,
its Subsidiaries and their respective ERISA Affiliates for a complete withdrawal
from such Multiemployer Plan (within the meaning of Section 4203 of ERISA), when
aggregated with such potential liability for a complete withdrawal from all
Multiemployer Plans, based on information available pursuant to Section 4221(e)
of ERISA, does not exceed $500,000.
5.12 CERTAIN FEES.
------------
No broker's fee or commission will be payable with respect to this
Agreement or any of the transactions contemplated hereby, and Company hereby
indemnifies Lenders against, and agrees that it will hold Lenders harmless from,
any claim, demand or liability for any such broker's fees alleged to have been
incurred in connection herewith or therewith and any expenses (including
reasonable fees, expenses and disbursements of counsel) arising in connection
with any such claim, demand or liability.
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5.13 ENVIRONMENTAL PROTECTION.
------------------------
Except as set forth in Schedule 5.13 annexed hereto:
-------------
(i) neither Holdings nor any of its Subsidiaries nor any of their
respective Facilities or operations are subject to any outstanding written
order, consent decree, settlement agreement, indemnity agreement or similar
agreement allocating responsibility or liability to Company, with any
Person relating to (a) any Environmental Law, (b) any Environmental Claim,
or (c) any Hazardous Materials Activity, except any of the foregoing which
would not reasonably be expected to have a Material Adverse Effect;
(ii) neither Holdings nor any of its Subsidiaries has received any
letter or request for information under Section 104 of CERCLA (42 U.S.C.
(S) 9604) or any comparable state law, nor has Holdings nor any of its
Subsidiaries been notified that it is or may be a potentially responsible
party for remediation of any site under such laws;
(iii) there are and, to Company's knowledge, have been no conditions,
occurrences, or Hazardous Materials Activities which would reasonably be
expected to form the basis of an Environmental Claim against Holdings or
any of its Subsidiaries, which Environmental Claim, if adversely
determined, would reasonably be expected to have a Material Adverse Effect;
(iv) neither Holdings nor any of its Subsidiaries nor, to Company's
knowledge, any predecessor of Company or any of its Subsidiaries has filed
any notice under any Environmental Law indicating past or present treatment
of Hazardous Materials at any Facility, and none of Holdings' or any of its
Subsidiaries' operations involves the transportation, treatment, storage or
disposal of hazardous waste, as defined under 40 C.F.R. Parts 260-270 or
any state equivalent which would reasonably be expected to have a Material
Adverse Effect;
(v) to the knowledge of Holdings and Subsidiaries, no off-site waste
disposal facility used by Holdings or any of its Subsidiaries, or by any
predecessor of Company or any of its Subsidiaries, has been the subject of
an investigation into its compliance with Environmental Laws, or the
subject of a claim that it is non-compliant with Environmental Laws, or
that remediation is required at such off-site waste disposal facility which
would reasonably be expected to have a Material Adverse Effect;
(vi) compliance with all current or reasonably foreseeable future
requirements pursuant to or under Environmental Laws would not,
individually or in the
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aggregate, reasonably be expected to have a Material Adverse Effect.
Notwithstanding anything in this subsection 5.13 to the contrary, no
event or condition has occurred or is occurring with respect to Holdings or any
of its Subsidiaries relating to any Environmental Law, any Release of Hazardous
Materials, or any Hazardous Materials Activity, including any matter disclosed
on Schedule 5.13 annexed hereto, which individually or in the aggregate has had
-------------
or would reasonably be expected to have a Material Adverse Effect.
5.14 EMPLOYEE MATTERS.
----------------
There is no strike or work stoppage in existence or threatened
involving Holdings or any of its Subsidiaries that would reasonably be expected
to have a Material Adverse Effect.
5.15 SOLVENCY.
--------
Each Loan Party is and, upon the incurrence of any Obligations by such
Loan Party on any date on which this representation is made, will be, Solvent.
5.16 MATTERS RELATING TO COLLATERAL.
------------------------------
A. CREATION, PERFECTION AND PRIORITY OF LIENS. The execution and
delivery of the Collateral Documents by Loan Parties, together with (i) the
actions taken on or prior to the date hereof pursuant to subsections 4.1C, 4.1D,
6.8 and 6.9 and (ii) the delivery to Administrative Agent of any Pledged
Collateral not delivered to Administrative Agent at the time of execution and
delivery of the applicable Collateral Document (all of which Pledged Collateral
has been so delivered) are, assuming continuous possession of such Pledged
Collateral by Administrative Agent or any Supplemental Collateral Agent, if any,
effective to create in favor of Administrative Agent for the benefit of Lenders,
as security for the respective Secured Obligations (as defined in the applicable
Collateral Document in respect of any Collateral), a valid and perfected First
Priority Lien on all of the Collateral, and all filings and other actions
necessary to perfect and maintain the perfection and First Priority status of
such Liens have been duly made or taken and remain in full force and effect,
other than the filing of any UCC financing statements delivered to
Administrative Agent for filing (but not yet filed), the periodic filing of UCC
continuation statements in respect of UCC financing statements filed by or on
behalf of Administrative Agent and the filing of certain UCC termination
statements relating to the Liens under Existing Indebtedness (which have been
delivered to Administrative Agent and which will be promptly filed after the
Closing Date).
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B. GOVERNMENTAL AUTHORIZATIONS. No authorization, approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for either (i) the pledge or grant by any Loan Party
of the Liens purported to be created in favor of Administrative Agent pursuant
to any of the Collateral Documents or (ii) the exercise by Administrative Agent
of any rights or remedies in respect of any Collateral (whether specifically
granted or created pursuant to any of the Collateral Documents or created or
provided for by applicable law), except for filings or recordings contemplated
by subsection 5.16A and except as may be required, in connection with the
disposition of any Pledged Collateral, by laws generally affecting the offering
and sale of securities.
C. ABSENCE OF THIRD-PARTY FILINGS. Except such as may have been filed in
favor of Administrative Agent as contemplated by subsection 5.16A, (i) no
effective UCC financing statement, fixture filing or other instrument similar in
effect covering all or any part of the Collateral is on file in any filing or
recording office and (ii) no effective filing covering all or any part of the IP
Collateral is on file in the PTO, in each case other than those UCC financing
statements relating to Existing Indebtedness which will be terminated upon the
filing of the UCC termination statements delivered to Syndication Agent pursuant
to subsections 4.1F(vi) and (vii) with the appropriate filing offices.
D. MARGIN REGULATIONS. The pledge of the Pledged Collateral pursuant to
the Collateral Documents does not violate Regulation T, U or X of the Board of
Governors of the Federal Reserve System.
E. INFORMATION REGARDING COLLATERAL. All information supplied to either
Agent by or on behalf of any Loan Party with respect to any of the Collateral
(in each case taken as a whole with respect to any particular Collateral) is
accurate and complete in all material respects.
5.17 DISCLOSURE.
----------
No representation or warranty of any Loan Party contained in any Loan
Document or in any other document, certificate or written statement furnished to
Lenders by or on behalf of Company or any of its Subsidiaries for use in
connection with the transactions contemplated by this Agreement contains any
untrue statement of a material fact or omits to state a material fact (known to
Company, in the case of any document not furnished by it) necessary in order to
make the statements contained herein or therein not misleading in light of the
circumstances in which the same were made. Any projections and pro forma
financial information contained in such materials are based upon good faith
estimates and assumptions believed by Company to be reasonable at the time made,
it being recognized by Lenders that such projec-
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tions as to future events are not to be viewed as facts and that actual results
during the period or periods covered by any such projections may differ from the
projected results. There are no facts known (or which should upon the
reasonable exercise of diligence be known) to Company (other than matters of a
general economic nature) that, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect and that have not
been disclosed herein or in such other documents, certificates and statements
furnished to Lenders for use in connection with the transactions contemplated
hereby.
SECTION 6. COMPANY'S AFFIRMATIVE COVENANTS
Company covenants and agrees that, so long as any of the Commitments
hereunder shall remain in effect and until payment in full of all of the Loans
and other Obligations and the cancellation or expiration of all Letters of
Credit, unless Requisite Lenders shall otherwise give prior written consent,
Company shall perform, and shall cause Holdings and each of its Subsidiaries to
perform, all covenants in this Section 6.
6.1 FINANCIAL STATEMENTS AND OTHER REPORTS.
--------------------------------------
Company will maintain, and cause each of its Subsidiaries to maintain,
a system of accounting established and administered in accordance with sound
business practices to permit preparation of financial statements in conformity
with GAAP. Company will deliver to Administrative Agent for distribution to
Lenders:
(i) Monthly Financials: as soon as available and in any event within
------------------
30 days after the end of each month ending after the Closing Date, the
consolidated statements of operations of Company and its Subsidiaries for
such month and for the period from the beginning of the then current Fiscal
Year to the end of such month, setting forth in each case in comparative
form the corresponding figures for the corresponding periods of the
previous Fiscal Year, to the extent prepared on a monthly basis, all in
reasonable detail and certified by the chief financial officer, chief
accounting officer or controller of Company that they fairly present, in
all material respects, the financial condition of Company and its
Subsidiaries as at the dates indicated and the results of their operations
and their cash flows for the periods indicated, subject to changes
resulting from audit and normal year-end adjustments; provided that such
--------
consolidated statements of operations shall be prepared in a manner
consistent with the Company's internal procedures as they exist on the
Closing Date and current practice in all material respects and that such
consolidated statements of operations shall provide the required
information separately for each product group (as such groups are
determined by
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Company from time to time; provided that to the extent any such product
--------
group is changed in any material respect, Company shall promptly provide an
explanation therefor to Administrative Agent); provided further that the
-------- -------
requirement set forth in this clause (i) of this subsection 6.1 shall cease
and no longer be of any force or effect on the date of delivery of the
Margin Determination Certificate pursuant to clause (iv) of this subsection
6.1 which shows that the Consolidated Leverage Ratio is less than 4.5:1.00;
(ii) Quarterly Financials: as soon as available and in any event
--------------------
within 45 days after the end of each Fiscal Quarter, (a) the consolidated
balance sheets of Holdings and its Subsidiaries and of Company and its
Subsidiaries as at the end of such Fiscal Quarter and the related
consolidated statements of operations, stockholders' equity and cash flows
of Holdings and its Subsidiaries and of Company and its Subsidiaries for
such Fiscal Quarter and for the period from the beginning of the then
current Fiscal Year to the end of such Fiscal Quarter, setting forth in
each case in comparative form the corresponding figures for the
corresponding periods of the previous Fiscal Year and the corresponding
figures from the Financial Plan for the current Fiscal Year, all in
reasonable detail and certified by the chief financial officer of Holdings
or Company, as the case may be, that they fairly present, in all material
respects, the financial condition of Holdings and its Subsidiaries and
Company and its Subsidiaries, as the case may be, as at the dates indicated
and the results of their operations and their cash flows for the periods
indicated, subject to changes resulting from audit and normal year-end
adjustments, and (b) a narrative report describing the operations of
Company and its Subsidiaries in the form prepared for presentation to
senior management for such Fiscal Quarter and for the period from the
beginning of the then current Fiscal Year to the end of such Fiscal
Quarter; provided that if Company delivers an Quarterly Report on Form 10-Q
--------
for such Fiscal Quarter as filed with the Securities and Exchange
Commission to Administrative Agent within 60 days after the end of such
Fiscal Quarter, such Form 10-Q shall satisfy all requirements of clause (b)
of this subsection 6.1(ii);
(iii) Year-End Financials: as soon as available and in any event
-------------------
within 90 days after the end of each Fiscal Year, (a) the consolidated
balance sheet of Holdings and its Subsidiaries and of Company and its
Subsidiaries as at the end of such Fiscal Year and the related consolidated
statements of operations, stockholders' equity and cash flows of Holdings
and its Subsidiaries and of Company and its Subsidiaries for such Fiscal
Year, setting forth in each case in comparative form the corresponding
figures for the previous Fiscal Year and the corresponding figures from the
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Financial Plan for the Fiscal Year covered by such financial statements,
all in reasonable detail and certified by the chief financial officer,
chief accounting officer or controller of Holdings or Company, as the case
may be, that they fairly present, in all material respects, the financial
condition of Holdings and its Subsidiaries or Company and its Subsidiaries,
as the case may be, as at the dates indicated and the results of their
operations and their cash flows for the periods indicated, (b) a narrative
report describing the operations of Company and its Subsidiaries in the
form prepared for presentation to senior management for such Fiscal Year;
provided that if Company delivers an Annual Report on Form 10-K for such
--------
Fiscal Quarter as filed with the Securities and Exchange Commission to
Administrative Agent within 105 days after the end of such Fiscal Quarter,
such Form 10-K shall satisfy all requirements of clause (b) of this
subsection 6.1(iii); and (c) in the case of such consolidated financial
statements, a report thereon of Arthur Andersen LLP or other independent
certified public accountants of recognized national standing selected by
Company and satisfactory to Administrative Agent, which report shall be
unqualified, shall express no doubts about the ability of Holdings and its
Subsidiaries and Company and its Subsidiaries to continue as a going
concern, and shall state that such consolidated financial statements fairly
present, in all material respects, the consolidated financial position of
Holdings and its Subsidiaries and Company and its Subsidiaries as at the
dates indicated and the results of their operations and their cash flows
for the periods indicated in conformity with GAAP applied on a basis
consistent with prior years (except as otherwise disclosed in such
financial statements) and that the examination by such accountants in
connection with such consolidated financial statements has been made in
accordance with generally accepted auditing standards;
(iv) Officer's, Margin Determination and Compliance Certificates:
-----------------------------------------------------------
together with each delivery of financial statements of Holdings and its
Subsidiaries and of Company and its Subsidiaries pursuant to subdivisions
(ii) and (iii) above, (a) an Officer's Certificate of Company stating that
the signers have reviewed the terms of this Agreement and have made, or
caused to be made under their supervision, a review in reasonable detail of
the transactions and condition of Company and its Subsidiaries during the
accounting period covered by such financial statements and that such review
has not disclosed the existence during or at the end of such accounting
period, and that the signers do not have knowledge of the existence as at
the date of such Officer's Certificate, of any condition or event that
constitutes an Event of Default or Potential Event of Default, or, if any
such condition or event existed or exists, specifying the nature and period
of existence
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thereof and what action Company has taken, is taking and proposes to take
with respect thereto; (b) a Margin Determination Certificate demonstrating
in reasonable detail the Consolidated Leverage Ratios for the four
consecutive Fiscal Quarters ending on the day of the accounting period
covered by such financial statements; and (c) a Compliance Certificate
demonstrating in reasonable detail compliance during and at the end of the
applicable accounting periods with the restrictions contained in Section 7,
in each case to the extent compliance with such restrictions is required to
be tested at the end of the applicable accounting period;
(v) Reconciliation Statements: if, (A) as a result of any change in
-------------------------
accounting principles and policies from those used in the preparation of
the audited financial statements referred to in subsection 5.3, the
consolidated financial statements of Holdings and its Subsidiaries or
Company and its Subsidiaries delivered pursuant to subdivisions (ii), (iii)
or (xiii) of this subsection 6.1 will differ in any material respect from
the consolidated financial statements that would have been delivered
pursuant to such subdivisions had no such change in accounting principles
and policies been made and (B) Requisite Lenders so request, then (a)
together with the first delivery of financial statements pursuant to
subdivision (ii), (iii) or (xiii) of this subsection 6.1 following such
change, consolidated financial statements of Holdings and its Subsidiaries
and Company and its Subsidiaries for (y) the current Fiscal Year to the
effective date of such change and (z) the two full Fiscal Years immediately
preceding the Fiscal Year in which such change is made, in each case
prepared on a pro forma basis as if such change had been in effect during
such periods, and (b) together with each delivery of financial statements
pursuant to subdivision (ii), (iii) or (xiii) of this subsection 6.1
following such change, a written statement of the chief accounting officer
or chief financial officer of Holdings or Company, as the case may be,
setting forth the differences (including any differences that would affect
any calculations relating to the financial covenants set forth in
subsection 7.6) which would have resulted if such financial statements had
been prepared without giving effect to such change;
(vi) Accountants' Certification: together with each delivery of
--------------------------
consolidated financial statements of Holdings and its Subsidiaries and
Company and its Subsidiaries pursuant to subdivision (iii) above, a written
statement by the independent certified public accountants giving the report
thereon (a) stating that their audit examination has included a review of
the terms of subsections 7.5, 7.6, 7.8 and 7.9 of this Agreement as they
relate to accounting matters, (b) stating whether, in connection with their
audit examination, any condition or event that constitutes an
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Event of Default or Potential Event of Default has come to their attention
and, if such a condition or event has come to their attention, specifying
the nature and period of existence thereof; provided that such accountants
--------
shall not be liable by reason of any failure to obtain knowledge of any
such Event of Default or Potential Event of Default that would not be
disclosed in the course of their audit examination, and (c) stating that
based on their audit examination nothing has come to their attention that
causes them to believe either or both that the information contained in the
certificates delivered therewith pursuant to subdivision (iv) above is not
correct or that the matters set forth in the Compliance Certificates
delivered therewith pursuant to clause (c) of subdivision (iv) above for
the applicable Fiscal Year are not stated in accordance with the terms of
this Agreement;
(vii) Accountants' Reports: promptly upon receipt thereof (unless
--------------------
restricted by applicable professional standards), copies of all reports
submitted to Holdings or Company by independent certified public
accountants in connection with each annual, interim or special audit of the
financial statements of Holdings and its Subsidiaries or Company and its
Subsidiaries, as the case may be, made by such accountants, including any
comment letter submitted by such accountants to management in connection
with their annual audit;
(viii) SEC Filings and Press Releases: promptly upon their becoming
------------------------------
available, copies of (a) all financial statements, reports, notices and
proxy statements sent or made available generally by Holdings to its
security holders or by any Subsidiary of Holdings to its security holders
other than Holdings or another Subsidiary of Holdings, (b) all regular and
periodic reports and all registration statements (other than on Form S-8 or
a similar form) and prospectuses, if any, filed by Holdings or any of its
Subsidiaries with any securities exchange or with the Securities and
Exchange Commission or any governmental or private regulatory authority,
and (c) all press releases and other statements made available generally by
Holdings or any of its Subsidiaries to the public concerning material
developments in the business of Holdings or any of its Subsidiaries;
(ix) Events of Default, etc.: promptly upon any officer of Company
-----------------------
obtaining knowledge (a) of any condition or event that constitutes an Event
of Default or Potential Event of Default, or becoming aware that any Lender
has given any notice (other than to Administrative Agent) or taken any
other action with respect to a claimed Event of Default or Potential Event
of Default, (b) that any Person has given any notice to Holdings or any of
its Subsidiaries
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<PAGE>
or taken any other action with respect to a claimed default or event or
condition of the type referred to in subsection 8.2, (c) of any condition
or event that would be required to be disclosed in a current report filed
by Company with the Securities and Exchange Commission on Form 8-K (Items
1, 2, 4, 5 and 6 of such Form as in effect on the date hereof) if Company
were required to file such reports under the Exchange Act, or (d) of the
occurrence of any event or change that has caused or evidences, either in
any case or in the aggregate, a Material Adverse Effect, an Officer's
Certificate specifying the nature and period of existence of such
condition, event or change, or specifying the notice given or action taken
by any such Person and the nature of such claimed Event of Default,
Potential Event of Default, default, event or condition, and what action
Company has taken, is taking and proposes to take with respect thereto;
(x) Litigation or Other Proceedings: (a) promptly upon any executive
-------------------------------
officer of Company obtaining actual knowledge of (X) the institution of, or
non-frivolous threat of, any action, suit, proceeding (whether
administrative, judicial or otherwise), governmental investigation or
arbitration against or affecting Holdings or any of its Subsidiaries or any
property of Holdings or any of its Subsidiaries (collectively,
"PROCEEDINGS") not previously disclosed in writing by Company to Lenders or
(Y) any material development in any Proceeding that, in any case:
(1) if adversely determined, would reasonably be expected to have
a Material Adverse Effect; or
(2) seeks to enjoin or otherwise prevent the consummation of, or
to recover any damages or obtain relief as a result of, the
transactions contemplated hereby;
written notice thereof together with such other information as may be
reasonably available to Company to enable Lenders and their respective
counsel to evaluate such matters; and (b) within twenty days after the end
of each Fiscal Quarter, a schedule of all Proceedings involving an alleged
liability of, or claims against or affecting, Holdings or any of its
Subsidiaries equal to or greater than $1,000,000, and promptly after
request by Administrative Agent such other information as may be reasonably
requested by Administrative Agent to enable Administrative Agent and its
counsel to evaluate any of such Proceedings;
(xi) ERISA Events: promptly upon becoming aware of the occurrence of
------------
or forthcoming occurrence of any ERISA Event, a written notice specifying
the nature thereof, what action Holdings, any of its Subsidiaries or any of
their respective ERISA Affiliates has taken, is taking or proposes to take
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<PAGE>
with respect thereto and, when known, any action taken or threatened by the
Internal Revenue Service, the Department of Labor or the PBGC with respect
thereto;
(xii) ERISA Notices: with reasonable promptness, copies of (a) all
-------------
notices received by Holdings, any of its Subsidiaries or any of their
respective ERISA Affiliates from a Multiemployer Plan sponsor concerning an
ERISA Event; and (b) copies of such other documents or governmental reports
or filings relating to any Employee Benefit Plan as Administrative Agent
shall reasonably request;
(xiii) Financial Plans: as soon as practicable and in any event no
---------------
later than ten days after the beginning of each Fiscal Year, a consolidated
plan and financial forecast for such Fiscal Year and the next four
succeeding Fiscal Years (the "FINANCIAL PLAN" for such Fiscal Years),
including (a) a forecasted consolidated balance sheet and forecasted
consolidated statements of operations and cash flows of Company and its
Subsidiaries for each such Fiscal Year, together with pro forma financial
--- -----
covenant calculations for each such Fiscal Year determined in a manner
consistent with financial covenant calculations shown in a Compliance
Certificate and an explanation of the assumptions on which such forecasts
are based; provided that such forecasted consolidated balance sheet,
--------
statements of operations and cash flows (1) shall be prepared in a manner
consistent with Company's internal procedures as they exist on the Closing
Date and past practice and (2) shall contain information separately for
each product line, and (b) such other information and projections as any
Lender may reasonably request;
(xiv) Insurance: as soon as practicable and in any event by March 1
---------
of each year, a report in form and substance satisfactory to Administrative
Agent outlining all material insurance coverage maintained as of the date
of such report by Company and its Subsidiaries and all material insurance
coverage planned to be maintained by Company and its Subsidiaries in the
twelve months ending on the next succeeding March 1;
(xv) Board of Directors: with reasonable promptness, written
------------------
notice of any change in the Board of Directors of Company or of Holdings;
(xvi) New Subsidiaries: promptly upon any Person becoming a
----------------
Subsidiary of Holdings or of Company, a written notice setting forth with
respect to such Person (a) the date on which such Person became a
Subsidiary of Company and (b) all of the data required to be set forth in
Schedule 5.1 annexed hereto with respect to all Subsidiaries of Company (it
------------
being understood that such written notice shall be
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<PAGE>
deemed to supplement Schedule 5.1 annexed hereto for all purposes of this
------------
Agreement);
(xvii) Material Contracts: promptly, and in any event within ten
------------------
Business Days after any Material Contract of Company or any of its
Subsidiaries is terminated or amended in a manner that is materially
adverse to Company or such Subsidiary, as the case may be, or any new
Material Contract is entered into, a written statement describing such
event with copies of such material amendments or new contracts, and an
explanation of any actions being taken with respect thereto;
(xviii) UCC Search Report: As promptly as practicable after the date
-----------------
of delivery to Administrative Agent of any UCC financing statement executed
by any Loan Party pursuant to subsection 4.1D(iv) or 6.8A, copies of
completed UCC searches evidencing the proper filing, recording and indexing
of all such UCC financing statement and listing all other effective
financing statements that name such Loan Party as debtor, together with
copies of all such other financing statements not previously delivered to
Administrative Agent by or on behalf of Company or such Loan Party;
(xix) Other Information: with reasonable promptness, such other
-----------------
information and data with respect to Company or any of its Subsidiaries as
from time to time may be reasonably requested by any Lender.
6.2 LEGAL EXISTENCE, ETC.
---------------------
Except as permitted under subsection 7.7, Company will, and will cause
each of Holdings and its Subsidiaries to, at all times preserve and keep in full
force and effect its legal existence and all rights and franchises material to
its business; provided, however that neither Company nor any of its Subsidiaries
-------- -------
shall be required to preserve any such right or franchise if the Board of
Directors of Company or such Subsidiary shall determine that the preservation
thereof is no longer desirable in the conduct of the business of Company or such
Subsidiary, as the case may be, and that the loss thereof is not disadvantageous
in any material respect to Company or such Subsidiary, taken as a whole, or
Lenders.
6.3 PAYMENT OF TAXES AND CLAIMS; TAX CONSOLIDATION.
----------------------------------------------
A. Company will, and will cause each of Holdings and its Subsidiaries to,
pay all taxes, assessments and other governmental charges imposed upon it or any
of its properties or assets or in respect of any of its income, businesses or
franchises before any penalty accrues thereon, and all claims (including claims
for labor, services, materials and supplies)
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for sums that have become due and payable and that by law have or may become a
Lien upon any of its properties or assets, prior to the time when any penalty or
fine shall be incurred with respect thereto; provided that no such charge or
--------
claim need be paid if it is being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted, so long as (1) such
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor and (2) in the case of a
charge or claim which has or may become a Lien against any of the Collateral,
such contest proceedings conclusively operate to stay the sale of any portion of
the Collateral to satisfy such charge or claim.
B. Company will not, nor will it permit any of Holdings or its
Subsidiaries to, file or consent to the filing of any consolidated income tax
return with any Person (other than Holdings, Company or any of its
Subsidiaries).
6.4 MAINTENANCE OF PROPERTIES; INSURANCE; APPLICATION OF NET
--------------------------------------------------------
INSURANCE/CONDEMNATION PROCEEDS.
-------------------------------
A. MAINTENANCE OF PROPERTIES. Company will, and will cause each of its
Subsidiaries to, maintain or cause to be maintained in good repair, working
order and condition, ordinary wear and tear excepted, all material properties
used or useful in the business of Company and its Subsidiaries (including all
Intellectual Property) and from time to time will make or cause to be made all
appropriate repairs, renewals and replacements thereof.
B. INSURANCE. Company will maintain or cause to be maintained, with
financially sound and reputable insurers, such public liability insurance, third
party property damage insurance, business interruption insurance and casualty
insurance with respect to liabilities, losses or damage in respect of the
assets, properties and businesses of Company and its Subsidiaries as may
customarily be carried or maintained under similar circumstances by corporations
of established reputation engaged in similar businesses, in each case in such
amounts (giving effect to self-insurance), with such deductibles, covering such
risks and otherwise on such terms and conditions as shall be customary for
corporations similarly situated in the industry. Without limiting the
generality of the foregoing, Company will maintain or cause to be maintained (i)
flood insurance with respect to each Flood Hazard Property that is located in a
community that participates in the National Flood Insurance Program, in each
case in compliance with any applicable regulations of the Board of Governors of
the Federal Reserve System, and (ii) replacement value casualty insurance on the
Collateral under such policies of insurance, with such insurance companies, in
such amounts, with such deductibles, and covering such risks as are at all times
satisfactory to Administrative Agents in its commercially reasonable judgment.
Each such policy
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of insurance shall (a) name Administrative Agent for the benefit of Lenders as
an additional insured thereunder as its interests may appear and (b) in the case
of each business interruption and casualty insurance policy, contain a loss
payable clause or endorsement, satisfactory in form and substance to
Administrative Agent, that names Administrative Agent for the benefit of Lenders
as the loss payee thereunder for any covered loss in excess of $1,000,000 and
provides for at least 30 days prior written notice to Administrative Agent of
any modification or cancellation of such policy.
6.5 INSPECTION RIGHTS.
-----------------
Company shall, and shall cause each of its Subsidiaries to, permit any
authorized representatives designated by Administrative Agent to visit and
inspect any of the properties of Company or of any of its Subsidiaries, to
inspect, copy and take extracts from its and their financial and accounting
records, and to discuss its and their affairs, finances and accounts with its
and their officers and independent public accountants (provided that Company
may, if it so chooses, be present at or participate in any such discussion), all
upon reasonable notice and at such reasonable times during normal business
hours; provided that Administrative Agent shall conduct not more than one
--------
physical audit in any one Fiscal Year; and provided further, that upon the
-------- -------
occurrence and during the continuance of an Event of Default, Administrative
Agent may engage in any number of physical audits which Administrative Agent
reasonably deems necessary.
6.6 COMPLIANCE WITH LAWS, ETC.
--------------------------
Company shall comply, and shall cause each of its Subsidiaries and all
other Persons on or occupying any Facilities to comply, with the requirements of
all applicable laws, rules, regulations and orders of any governmental authority
(including all Environmental Laws), noncompliance with which would reasonably be
expected to cause, individually or in the aggregate, a Material Adverse Effect.
6.7 COMPANY'S ACTIONS REGARDING HAZARDOUS MATERIALS ACTIVITIES,
-----------------------------------------------------------
ENVIRONMENTAL CLAIMS AND VIOLATIONS OF ENVIRONMENTAL LAWS.
---------------------------------------------------------
A. ENVIRONMENTAL DISCLOSURE.
Company will deliver to Administrative Agent and Lenders:
(i) Environmental Audits and Reports. As soon as practicable
--------------------------------
following receipt thereof, copies of all environmental audits,
investigations, analyses and reports of any kind or character, whether
prepared by personnel of
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Company or any of its Subsidiaries or by independent consultants,
governmental authorities or any other Persons, with respect to
environmental matters at any Facility which would reasonably be expected to
have a Material Adverse Effect;
(ii) Notice of Certain Releases, Remedial Actions, Etc. Promptly
--------------------------------------------------
upon the occurrence thereof, written notice describing in reasonable detail
(a) any Release required to be reported to any federal, state or local
governmental or regulatory agency under CERCLA or EPCRA which would
reasonably be expected to have a Material Adverse Effect, (b) any remedial
action taken by Company or any other Person in response to (1) any
Hazardous Materials Activities the existence of Environmental Claims which
would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect, or (2) any Environmental Claims that, individually
or in the aggregate, would reasonably be expected to have a Material
Adverse Effect, and (c) Company's discovery of any occurrence or condition
on any real property adjoining or in the vicinity of any Facility that
would reasonably be expected to have a Material Adverse Effect.
(iii) Written Communications Regarding Environmental Claims,
------------------------------------------------------
Releases, Etc. As soon as practicable following the sending or receipt
--------------
thereof by Company or any of its Subsidiaries, a copy of any and all
written communications with respect to (a) any Environmental Claims that,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect, (b) any Release required to be reported to any
federal, state or local governmental or regulatory agency which would
reasonably be expected to have a Material Adverse Effect, and (c) any
request for information from any governmental agency that suggests such
agency is investigating whether Company or any of its Subsidiaries may be
potentially responsible for any Hazardous Materials Activity which would
reasonably be expected to have a Material Adverse Effect.
(iv) Notice of Certain Proposed Actions Having Environmental Impact.
--------------------------------------------------------------
Prompt written notice describing in reasonable detail (a) any proposed
acquisition of stock, assets, or property by Company or any of its
Subsidiaries that would reasonably be expected to (1) expose Company or any
of its Subsidiaries to, or result in, Environmental Claims that could
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect or (2) affect the ability of Company or any of its
Subsidiaries to maintain in full force and effect all Governmental
Authorizations required under any Environmental Laws for their respective
operations the failure to so maintain would reasonably be expected to have
a Material
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Adverse Effect and (b) any proposed action to be taken by Company or any of
its Subsidiaries to modify current operations in a manner that would
reasonably be expected to subject Company or any of its Subsidiaries to any
additional obligations or requirements under any Environmental Laws which
would reasonably be expected to have a Material Adverse Effect.
(v) Other Information. With reasonable promptness, such other
-----------------
documents and information as from time to time may be reasonably requested
by Administrative Agent or Requisite Lenders in relation to any matters
disclosed pursuant to this subsection 6.7.
B. COMPANY'S ACTIONS REGARDING HAZARDOUS MATERIALS ACTIVITIES,
ENVIRONMENTAL CLAIMS AND VIOLATIONS OF ENVIRONMENTAL LAWS.
(i) Remedial Actions Relating to Hazardous Materials Activities.
-----------------------------------------------------------
Company shall promptly undertake, and shall cause each of its Subsidiaries
promptly to undertake, any and all investigations, studies, sampling,
testing, abatement, cleanup, removal, remediation or other response actions
necessary to remove, remediate, clean up or abate any Hazardous Materials
Activity on, under or about any Facility that is in violation of any
Environmental Laws or that presents a material risk of giving rise to an
Environmental Claim to the extent required by law and the failure to take
such action would reasonably be expected to have a Material Adverse Effect.
In the event Company or any of its Subsidiaries undertakes any such action
with respect to any Hazardous Materials, Company or such Subsidiary shall
conduct and complete such action in compliance with all applicable
Environmental Laws and in accordance with the policies, orders and
directives of all federal, state and local governmental authorities except
when, and only to the extent that, Company's or such Subsidiary's liability
with respect to such Hazardous Materials Activity is being contested in
good faith by Company or such Subsidiary.
(ii) Actions with Respect to Environmental Claims and Violations of
--------------------------------------------------------------
Environmental Laws. Company shall promptly take, and shall cause each of
------------------
its Subsidiaries promptly to take, any and all actions necessary to (a)
cure any violation of applicable Environmental Laws by Company or its
Subsidiaries if the failure to cure such violation would not reasonably be
expected to have a Material Adverse Effect; and (b) make an appropriate
response to any Environmental Claim against Company or any of its
Subsidiaries and discharge any obligations it may have to any Person
thereunder.
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(iii) Actions Relating to Landfills. Company shall promptly
-----------------------------
undertake, and cause each of its Subsidiaries to undertake, any and all
sampling, testing, maintenance, investigation, or other actions related to
any landfill or other disposal site at any Facility that is required by (i)
any applicable statute or regulation; and (ii) order or directive from or
agreement with any federal, state or local governmental or regulatory
agency.
6.8 EXECUTION OF SUBSIDIARY GUARANTY AND PERSONAL PROPERTY COLLATERAL
-----------------------------------------------------------------
DOCUMENTS BY CERTAIN SUBSIDIARIES AND FUTURE SUBSIDIARIES; IP
-------------------------------------------------------------
COLLATERAL.
----------
A. EXECUTION OF SUBSIDIARY GUARANTY AND PERSONAL PROPERTY COLLATERAL
DOCUMENTS. In the event that any Person becomes a Subsidiary of Company after
the date hereof, Company will promptly notify Administrative Agent of that fact
and cause such Subsidiary to execute and deliver to Administrative Agent a
counterpart of the Subsidiary Guaranty and a Subsidiary Pledge Agreement and a
Subsidiary Security Agreement and to take all such further actions and execute
all such further documents and instruments (including actions, documents and
instruments comparable to those described in subsection 4.1D) as may be
necessary or, in the opinion of Administrative Agent, desirable to create in
favor of Administrative Agent, for the benefit of Lenders, a valid and perfected
First Priority Lien (subject to Permitted Encumbrances) on all of the personal
and mixed property assets of such Subsidiary described in the applicable forms
of Collateral Documents.
B. SUBSIDIARY CHARTER DOCUMENTS, LEGAL OPINIONS, ETC. Company shall
deliver to Administrative Agent, together with such Loan Documents, (i)
certified copies of such Subsidiary's Certificate or Articles of Incorporation,
together with a good standing certificate from the Secretary of State of the
jurisdiction of its incorporation and each other state in which such Person is
qualified as a foreign corporation to do business and, to the extent generally
available, a certificate or other evidence of good standing as to payment of any
applicable franchise or similar taxes from the appropriate taxing authority of
each of such jurisdictions, each to be dated a recent date prior to their
delivery to Administrative Agent, (ii) a copy of such Subsidiary's Bylaws
certified by its secretary or an assistant secretary as of a recent date prior
to their delivery to Administrative Agent, (iii) a certificate executed by the
secretary or an assistant secretary of such Subsidiary as to (a) the fact that
the attached resolutions of the Board of Directors of such Subsidiary approving
and authorizing the execution, delivery and performance of such Loan Documents
are in full force and effect and have not been modified or amended and (b) the
incumbency and signatures of the officers of such Subsidiary executing such Loan
Documents, and (iv) a favorable
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<PAGE>
opinion of counsel to such Subsidiary, in form and substance reasonably
satisfactory to Administrative Agent and its counsel, as to (a) the due
organization and good standing of such Subsidiary, (b) the due authorization,
execution and delivery by such Subsidiary of such Loan Documents, (c) the
enforceability of such Loan Documents against such Subsidiary, (d) such other
matters (including matters relating to the creation and perfection of Liens in
any Collateral pursuant to such Loan Documents) as Administrative Agent may
reasonably request, all of the foregoing to be satisfactory in form and
substance to Administrative Agent and its counsel.
C. IP COLLATERAL. If any Subsidiary becomes an owner of any Intellectual
Property, Company shall cause such Subsidiary to promptly execute and deliver to
Administrative Agent a copyright security agreement or a trademark security
agreement, or such other security agreement as Administrative Agent shall deem
appropriate and take such further action and execute such further documents and
instruments as may be necessary, or in the opinion of Administrative Agent,
desirable to create in favor of Administrative Agent, for the benefit of
Lenders, a valid and perfected First Priority Lien on such Intellectual
Property.
6.9 CONFORMING LEASEHOLD INTERESTS; MATTERS RELATING TO ADDITIONAL REAL
-------------------------------------------------------------------
PROPERTY COLLATERAL.
-------------------
A. CONFORMING LEASEHOLD INTERESTS. If Company or any of its Subsidiaries
acquires any Leasehold Property, Company shall, or shall cause such Subsidiary
to, cause such Leasehold Property to be a Conforming Leasehold Interest.
B. ADDITIONAL MORTGAGES, ETC. From and after the Closing Date, in the
event that (i) Company or any Subsidiary Guarantor acquires any fee interest in
real property or any Material Leasehold Property or (ii) at the time any Person
becomes a Subsidiary Guarantor, such Person owns or holds any fee interest in
real property or any Material Leasehold Property, in either case excluding any
such Real Property Asset the encumbrancing of which requires the consent of any
applicable lessor or (in the case of clause (ii) above) then-existing senior
lienholder, where Company and its Subsidiaries are unable to obtain such
lessor's or senior lienholder's consent (any such non-excluded Real Property
Asset described in the foregoing clause (i) or (ii) being an "ADDITIONAL
MORTGAGED PROPERTY"), Company or such Subsidiary Guarantor shall deliver to
Administrative Agent, as soon as practicable after such Person acquires such
Additional Mortgaged Property or becomes a Subsidiary Guarantor, as the case may
be, the following:
(i) Additional Mortgage. A fully executed and notarized Mortgage (an
-------------------
"ADDITIONAL MORTGAGE"), duly recorded in all appropriate places in all
applicable jurisdictions,
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<PAGE>
encumbering the interest of such Loan Party in such Additional Mortgaged
Property;
(ii) Opinions of Counsel. (a) A favorable opinion of counsel to
-------------------
such Loan Party, in form and substance satisfactory to Administrative Agent
and its counsel, as to the due authorization, execution and delivery by
such Loan Party of such Additional Mortgage and such other matters as
Administrative Agent may reasonably request, and (b) if required by
Administrative Agent, an opinion of counsel (which counsel shall be
reasonably satisfactory to Administrative Agent) in the state in which such
Additional Mortgaged Property is located with respect to the enforceability
of the form of Additional Mortgage recorded in such state and such other
matters (including any matters governed by the laws of such state regarding
personal property security interests in respect of any Collateral) as
Administrative Agent may reasonably request, in each case in form and
substance reasonably satisfactory to Administrative Agent;
(iii) Landlord Consent and Estoppel; Recorded Leasehold Interest. In
----------------------------------------------------------
the case of an Additional Mortgaged Property consisting of a Leasehold
Property, (a) a Landlord Consent and Estoppel, unless Company or such
Subsidiary is unable to obtain the Landlord Consent and Estoppel after
using commercially reasonable efforts to obtain the same and (b) evidence
that such Leasehold Property is a Recorded Leasehold Interest;
(iv) Title Insurance. (a) If required by Administrative Agent, an
---------------
ALTA mortgagee title insurance policy or an unconditional commitment
therefor (an "ADDITIONAL MORTGAGE POLICY") issued by the Title Company with
respect to such Additional Mortgaged Property, in an amount satisfactory to
Administrative Agent, insuring fee simple title to, or a valid leasehold
interest in, such Additional Mortgaged Property vested in such Loan Party
and assuring Administrative Agent that such Additional Mortgage creates a
valid and enforceable First Priority mortgage Lien on such Additional
Mortgaged Property, subject only to a standard survey exception, which
Additional Mortgage Policy (1) shall include an endorsement for mechanics'
liens, for future advances under this Agreement and for any other matters
reasonably requested by Administrative Agent and (2) shall provide for
affirmative insurance and such reinsurance as Administrative Agent may
reasonably request, all of the foregoing in form and substance reasonably
satisfactory to Administrative Agent; and (b) evidence satisfactory to
Administrative Agent that such Loan Party has (i) delivered to the Title
Company all certificates and affidavits required by the Title Company in
connection with the issuance of the Additional Mortgage Policy and (ii)
paid to
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<PAGE>
the Title Company or to the appropriate governmental authorities all
expenses and premiums of the Title Company in connection with the issuance
of the Additional Mortgage Policy and all recording and stamp taxes
(including mortgage recording and intangible taxes) payable in connection
with recording the Additional Mortgage in the appropriate real estate
records;
(v) Title Report. If no Additional Mortgage Policy is required
------------
with respect to such Additional Mortgaged Property, a title report issued
by the Title Company with respect thereto, dated not more than 30 days
prior to the date such Additional Mortgage is to be recorded and
satisfactory in form and substance to Administrative Agent;
(vi) Copies of Documents Relating to Title Exceptions. Copies of
------------------------------------------------
all recorded documents listed as exceptions to title or otherwise referred
to in the Additional Mortgage Policy or title report delivered pursuant to
clause (iv) or (v) above as may be requested by Administrative Agent; and
(vii) Matters Relating to Flood Hazard Properties. (a) Evidence,
-------------------------------------------
which may be in the form of a letter from an insurance broker or a
municipal engineer, as to (1) whether such Additional Mortgaged Property is
a Flood Hazard Property and (2) if so, whether the community in which such
Flood Hazard Property is located is participating in the National Flood
Insurance Program, (b) if such Additional Mortgaged Property is a Flood
Hazard Property, such Loan Party's written acknowledgement of receipt of
written notification from Administrative Agent (1) that such Additional
Mortgaged Property is a Flood Hazard Property and (2) as to whether the
community in which such Flood Hazard Property is located is participating
in the National Flood Insurance Program, and (c) in the event such
Additional Mortgaged Property is a Flood Hazard Property that is located in
a community that participates in the National Flood Insurance Program,
evidence that Company has obtained flood insurance in respect of such Flood
Hazard Property to the extent required under the applicable regulations of
the Board of Governors of the Federal Reserve System.
(viii) Environmental Audit. If required by Administrative Agent,
-------------------
reports and other information, in form, scope and substance satisfactory to
Administrative Agent concerning any environmental hazards or liabilities to
which Company or any of its Subsidiaries may be subject with respect to
such Additional Mortgaged Property. After consultation with Company,
Administrative Agent may request for, and Company shall deliver, such
reports and other information that are prepared by environmental
consultants satisfactory to Administrative Agent.
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<PAGE>
6.10 INTEREST RATE PROTECTION.
------------------------
Within 90 days after the Closing Date and continuing for a period of
two years, Company shall at all times maintain in effect one or more Interest
Rate Agreements with respect to the Loans, in an aggregate notional principal
amount of not less than 25% of the aggregate principal amount of the Term Loans
outstanding from time to time, which Interest Rate Agreements shall have the
effect of establishing a maximum interest rate to the satisfaction of
Administrative Agent per annum with respect to such notional principal amount,
each such Interest Rate Agreement to be in form and substance satisfactory to
Administrative Agent and with a term of not less than two years.
6.11 YEAR 2000 COVENANT.
------------------
Company shall perform all acts reasonably necessary to ensure that
Company and its Subsidiaries become Year 2000 Compliant. Such acts shall
include, without limitation, performing a comprehensive review and assessment of
all of Company's systems (including the interface of those systems with the
systems of material suppliers, vendors and customers) and adopting a detailed
plan, with itemized budget, for the remediation, monitoring and testing of such
systems. As used in this subsection 6.11, "Year 2000 Compliant" shall mean, in
regard to Company and its Subsidiaries, that all software, hardware, firmware,
equipment, goods or systems utilized by Company and its Subsidiaries, the
failure of which would reasonably be expected to have a Material Adverse Effect,
will properly perform date sensitive functions before, during and after the year
2000. Company shall, promptly upon request, provide to Administrative Agent
such certifications or other reasonable evidence of Company's compliance with
the terms of this paragraph as Administrative Agent may from time to time
reasonably require.
SECTION 7. COMPANY'S NEGATIVE COVENANTS
Company covenants and agrees that, so long as any of the Commitments
hereunder shall remain in effect and until payment in full of all of the Loans
and other Obligations and the cancellation or expiration of all Letters of
Credit, unless Requisite Lenders shall otherwise give prior written consent,
Company shall perform, and shall cause Holdings and each of its Subsidiaries to
perform, all covenants in this Section 7.
7.1 INDEBTEDNESS.
------------
Holdings shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, assume or guaranty, or otherwise become
or remain directly or indirectly liable with respect to, any Indebtedness,
except:
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<PAGE>
(i) Company may become and remain liable with respect to the
Obligations;
(ii) Holdings and its Subsidiaries may become and remain liable with
respect to Contingent Obligations permitted by subsection 7.4 and, upon any
matured obligations actually arising pursuant thereto, the Indebtedness
corresponding to the Contingent Obligations so extinguished;
(iii) Company and its Subsidiaries may become and remain liable with
respect to Indebtedness in respect of Capital Leases in an aggregate amount
not exceeding $5,000,000; provided that such Capital Leases are permitted
--------
under the terms of subsections 7.6, 7.8 and 7.9;
(iv) Company may become and remain liable with respect to
Indebtedness to any of its wholly-owned Subsidiaries, and any wholly-owned
Subsidiary of Company may become and remain liable with respect to
Indebtedness to Company or any other wholly-owned Subsidiary of Company;
provided that (a) all such intercompany Indebtedness shall be evidenced by
--------
promissory notes, (b) all such intercompany Indebtedness owed by Company to
any of its Subsidiaries shall be subordinated in right of payment to the
payment in full of the Obligations pursuant to the terms of the applicable
promissory notes or an intercompany subordination agreement, and (c) any
payment by any Subsidiary of Company under any guaranty of the Obligations
shall result in a pro tanto reduction of the amount of any intercompany
--- -----
Indebtedness owed by such Subsidiary to Company or to any of its
Subsidiaries for whose benefit such payment is made;
(v) Company and its Subsidiaries, as applicable, may remain liable
with respect to Indebtedness described in Schedule 7.1 annexed hereto;
------------
(vi) Company may become and remain liable with respect to
Indebtedness evidenced by the Senior Subordinated Notes;
(vii) Subsidiaries of Company acquired after the Closing Date, the
acquisition of which is permitted under the provisions of subsection
7.7(ii), may remain liable with respect to Indebtedness existing
immediately prior to the time any such entity became a Subsidiary of
Company in an aggregate amount for all such Subsidiaries not to exceed
$17,000,000 at any time outstanding; provided that (i) no Event of Default
--------
or a Potential Event of Default shall have occurred and be continuing or
shall be caused thereby, and (ii) such Indebtedness is not incurred in
contemplation of such acquisition;
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<PAGE>
(viii) Holdings may become and remain liable with respect to
Indebtedness evidenced by the Holdings Discount Debentures and any
Indebtedness incurred to refinance such Indebtedness; provided that after
--------
giving effect to such refinancing Indebtedness and the repayment of the
corresponding Indebtedness with the proceeds thereof, (a) the aggregate
offering price of the refinancing Indebtedness shall not be greater than
the aggregate accreted value of such refinanced Indebtedness immediately
prior to such refinancing; (b) the weighted average life to maturity of
such refinancing Indebtedness shall be no shorter than the Indebtedness
being refinanced; (c) the interest rate applicable to such refinancing
Indebtedness shall not be higher than the interest rate applicable to the
Indebtedness being refinanced or such refinancing Indebtedness shall not
provide for a cash current-pay feature earlier than the scheduled interest
payment with respect to the Indebtedness being refinanced, and (d) such
refinancing Indebtedness shall not be secured by any property of Holdings;
and
(ix) Company and its Subsidiaries may become and remain liable with
respect to other Indebtedness in an aggregate principal amount not to
exceed $10,000,000 at any time outstanding.
7.2 LIENS AND RELATED MATTERS.
-------------------------
A. PROHIBITION ON LIENS. Holdings shall not, and shall not permit any of
its Subsidiaries to, directly or indirectly, create, incur, assume or permit to
exist any Lien on or with respect to any property or asset of any kind
(including any document or instrument in respect of goods or accounts
receivable) of Holdings or any of its Subsidiaries, whether now owned or
hereafter acquired, or any income or profits therefrom, or file or permit the
filing of, or permit to remain in effect, any financing statement or other
similar notice of any Lien with respect to any such property, asset, income or
profits under the Uniform Commercial Code of any State or under any similar
recording or notice statute, except:
(i) Permitted Encumbrances;
(ii) Liens granted pursuant to the Collateral Documents;
(iii) Liens described in Schedule 7.2 annexed hereto;
------------
(iv) Liens securing Indebtedness permitted under subsection 7.1(vii),
which Liens are existing prior to the time the entity which incurred such
Indebtedness became a Subsidiary of Company; provided that such Liens were
--------
not incurred in connection with, or in contemplation of, the acquisition of
such Subsidiary and such Liens extend to or
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<PAGE>
cover only the property and assets of such entity which were covered by
such Liens and which were owned by such entity, in each case at the time
such entity became a Subsidiary of Company; and
(v) Other Liens securing Indebtedness in an aggregate amount not to
exceed $1,000,000 at any time outstanding.
B. EQUITABLE LIEN IN FAVOR OF LENDERS. If Holdings or any of its
Subsidiaries shall create or assume any Lien upon any of its properties or
assets, whether now owned or hereafter acquired, other than Liens excepted by
the provisions of subsection 7.2A, it shall make or cause to be made effective
provision whereby the Obligations will be secured by such Lien equally and
ratably with any and all other Indebtedness secured thereby as long as any such
Indebtedness shall be so secured; provided that, notwithstanding the foregoing,
--------
this covenant shall not be construed as a consent by Requisite Lenders to the
creation or assumption of any such Lien not permitted by the provisions of
subsection 7.2A.
C. NO FURTHER NEGATIVE PLEDGES. Except with respect to specific property
encumbered to secure payment of particular Indebtedness or to be sold pursuant
to an executed agreement with respect to an Asset Sale, neither Holdings nor any
of its Subsidiaries shall enter into any agreement (other than an agreement
prohibiting only the creation of Liens securing Subordinated Indebtedness)
prohibiting the creation or assumption of any Lien upon any of its properties or
assets, whether now owned or hereafter acquired.
D. NO RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS TO COMPANY OR OTHER
SUBSIDIARIES. Except as provided herein, Holdings will not, and will not permit
any of its Subsidiaries to, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction of any kind on the
ability of any such Subsidiary to (i) pay dividends or make any other
distributions on any of such Subsidiary's capital stock owned by Company or any
other Subsidiary of Holdings, (ii) repay or prepay any Indebtedness owed by such
Subsidiary to Holdings or any other Subsidiary of Holdings, (iii) make loans or
advances to Holdings or any other Subsidiary of Holdings, or (iv) transfer any
of its property or assets to Holdings or any other Subsidiary of Holdings.
7.3 INVESTMENTS; JOINT VENTURES.
---------------------------
Holdings shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, make or own any Investment in any Person, including any
Joint Venture, except:
(i) Company and its Subsidiaries may make and own Investments in Cash
Equivalents;
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<PAGE>
(ii) Company and its Subsidiaries may make intercompany loans to the
extent permitted under subsection 7.1(iv);
(iii) Company and its Subsidiaries may make Consolidated Capital
Expenditures permitted by subsections 7.6, 7.8 and 7.9;
(iv) Company and its Subsidiaries may continue to own the
Investments owned by them and described in Schedule 7.3 annexed hereto;
------------
(v) Company and its wholly-owned Domestic Subsidiaries may make and
own Investments in Persons that, as a result of such Investments, become
additional wholly-owned Domestic Subsidiaries, and Company may make and own
Investments in Persons that, as a result of such Investments, become
additional direct wholly-owned Foreign Subsidiaries, in each case to the
extent such Investments are permitted under subsection 7.7(ii); and
(vi) Company and its Subsidiaries may make and own other Investments
in an aggregate amount not to exceed at any time $8,000,000.
7.4 CONTINGENT OBLIGATIONS.
----------------------
Holdings shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create or become or remain liable with respect to any
Contingent Obligation, except:
(i) Holdings may become and remain liable with respect to
Contingent Obligations in respect of the Holdings Guaranty and Subsidiaries
of Company may become and remain liable with respect to Contingent
Obligations in respect of the Subsidiary Guaranty;
(ii) Company may become and remain liable with respect to Contingent
Obligations in respect of Letters of Credit and Company and its
Subsidiaries may become and remain liable with respect to Contingent
Obligations in respect of other letters of credit in an aggregate amount at
any time not to exceed $5,000,000;
(iii) Company may become and remain liable with respect to Contingent
Obligations under Hedge Agreements entered into by Company with respect to
Obligations under this Agreement, including, without limitation, the Hedge
Agreement required under subsection 6.10;
(iv) Company and its Subsidiaries may become and remain liable with
respect to Contingent Obligations under guarantees in the ordinary course
of business of the obligations of suppliers, customers, franchisees and
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<PAGE>
licensees of Company and its Subsidiaries in an aggregate amount not to
exceed at any time $5,000,000;
(v) Company and its Subsidiaries may become and remain liable with
respect to Contingent Obligations in respect of any Indebtedness of Company
or any of its Subsidiaries permitted by subsection 7.1; and
(vi) Company and its Subsidiaries, as applicable, may remain liable
with respect to Contingent Obligations described in Schedule 7.4 annexed
------------
hereto.
7.5 RESTRICTED JUNIOR PAYMENTS.
--------------------------
Holdings shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, declare, order, pay, make or set apart any sum for any
Restricted Junior Payment; provided that any Subsidiary may pay dividends or
--------
make other distributions to Company; and provided further that, so long as no
-------- -------
Event of Default or Potential Event of Default shall have occurred and be
continuing or shall be caused thereby, (i) Company may make dividend payments to
Holdings on or immediately prior to April 15, 2003 for the sole purpose of
allowing Holdings to make a one-time partial redemption of the Holdings Discount
Debentures in accordance with the terms of and to the extent required by the
Holdings Discount Debentures Indenture in effect as of the Closing Date in an
aggregate amount not exceeding the amount required thereunder; provided that for
--------
such dividend payment to be permitted to be made to Holdings by Company,
immediately after giving effect to such payment, (I) the excess of the Revolving
Loan Commitments over the aggregate principal amount of outstanding Revolving
Loans shall be at least $10,000,000 and (II) Company delivers an Officer's
Certificate demonstrating that the pro forma Consolidated Leverage Ratio after
--- -----
taking into account the proposed payment under subsection 7.5(i) is equal to or
less than 3.0:1.00; (ii) Company may make dividend payments to Holdings for the
purpose of allowing Holdings to make the scheduled interest payments on the
Holdings Discount Debentures accruing after April 15, 2003 in accordance with
the terms of and to the extent required by the Holdings Discount Debentures
Indenture if Company delivers an Officer's Certificate demonstrating pro forma
--- -----
compliance with subsection 7.6, with the assumption that the dividends permitted
pursuant to this subsection 7.5(ii) were made at the beginning of the fiscal
period for which the calculations are being made and such distributions are
included in Consolidated Fixed Charges, for purposes of calculation pursuant to
subsection 7.6A; (iii) Company may make payments of regularly scheduled interest
in respect of the Senior Subordinated Notes in accordance with the terms of and
to the extent required by the Senior Subordinated Indenture; (iv) Company may
make cash dividends to Holdings for the sole purposes of allowing Holdings to
pay for its general operating expenses, franchise tax obligations, accounting,
legal,
136
<PAGE>
corporate reporting and administrative expenses incurred in the ordinary course
of its business in an amount not to exceed $250,000 in the aggregate in any
Fiscal Year; and (v) Company may make cash dividends to Holdings for the sole
purpose of allowing Holdings to pay income taxes of Holdings and its
Subsidiaries on a consolidated based as contemplated by the Tax Sharing
Agreement. Notwithstanding anything to the contrary in this subsection 7.5,
Company may make dividend payments to Holdings (A) on the Closing Date as
necessary to consummate the Transactions and (B) after the Closing Date to
satisfy payment of the working capital adjustment required by the
Recapitalization Agreement in an amount not to exceed $2,000,000.
7.6 FINANCIAL COVENANTS.
-------------------
With respect to the calculation of the financial covenants contained in
this subsection 7.6, to the extent that during the period for which compliance
is being determined, Company or any Subsidiary of Company has made a Permitted
Acquisition permitted under subsection 7.7(ii) or has disposed of any assets or
operations in an amount for any such transaction or series of related
transactions exceeding 5,000,000, (i) such calculations shall be made as if such
Permitted Acquisition or such disposition took place on the first day of such
period on a pro forma basis for the portion of such period prior to the date of
--- -----
such Permitted Acquisition or after the date of such disposition and on an
actual basis for the portion of such period after the date of such Permitted
Acquisition or before the date of such disposition, (ii) such calculations shall
be made after giving effect to the incurrence, assumption or repayment of any
Indebtedness made in connection with such acquisition or disposition and (iii)
such calculation shall be made after giving retroactive effect to demonstrable
net cost eliminations or net cost savings arising by virtue of such Permitted
Acquisition (such as inflated employee owner compensation), which cost
eliminations and cost savings are (A) consistent with standards and practices
for pro forma presentation pursuant to Regulation S-X as promulgated by the
--- -----
Securities and Exchange Commission and are reviewed by Company's independent
accountants or (B) are demonstrated in the Officer's Certificate required under
subsection 7.7 and are reasonably satisfactory to Requisite Lenders. With
respect to any such Permitted Acquisition, such pro forma calculations shall be
--- -----
based on the audited or reviewed financial results delivered in compliance with
clause (d)(3) of subsection 7.7(ii).
A. MINIMUM FIXED CHARGE COVERAGE RATIO. Company shall not permit the
ratio of (i)(A) Consolidated EBITDA for the consecutive four-Fiscal Quarter
period ending June 30, 1998, September 30, 1998, and December 31, 1998,
respectively, to (B) Consolidated Fixed Charges multiplied by (a) for the Fiscal
---------- --
Quarter ending June 30, 1998, 4.0, (b) for the two-Fiscal Quarter period ending
September 30, 1998, 2.0 and (c) for the three-
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<PAGE>
Fiscal Quarter period ending December 31, 1998, 1.33, (x) for the Fiscal Quarter
ending June 30, 1998, to be less than 1.2:1.00, (y) for the two-Fiscal Quarter
period ending September 30, 1998, to be less than 1.2:1.00, and (z) for the
three-Fiscal Quarter period ending December 31, 1998, to be less than 1.2:1.00,
and (ii)(A) Consolidated EBITDA to (B) Consolidated Fixed Charges for any
consecutive four-Fiscal Quarter period ending on the dates set forth below to be
less than the correlative ratio indicated:
<TABLE>
<CAPTION>
MINIMUM FIXED
FISCAL QUARTER ENDING DATE CHARGE COVERAGE RATIO
-----------------------------------------------------------------
<S> <C>
March 31, 1999 1.2:1.0
June 30, 1999 1.2:1.0
September 30, 1999 1.2:1.0
December 31, 1999 1.2:1.0
March 31, 2000 1.2:1.0
June 30, 2000 1.2:1.0
September 30, 2000 1.2:1.0
December 31, 2000 1.2:1.0
March 31, 2001 1.2:1.0
June 30, 2001 1.3:1.0
September 30, 2001 1.3:1.0
December 31, 2001 1.3:1.0
March 31, 2002 1.3:1.0
June 30, 2002 1.4:1.0
September 30, 2002 1.4:1.0
December 31, 2002 1.4:1.0
March 31, 2003 1.3:1.0
June 30, 2003 1.3:1.0
September 30, 2003 1.3:1.0
December 31, 2003 1.2:1.0
March 31, 2004 1.2:1.0
June 30, 2004 1.2:1.0
September 30, 2004 1.2:1.0
December 31, 2004 1.2:1.0
March 31, 2005 0.5:1.0
June 30, 2005 0.5:1.0
September 30, 2005 0.5:1.0
December 31, 2005 0.5:1.0
March 31, 2006 0.5:1.0
</TABLE>
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<PAGE>
B. MAXIMUM LEVERAGE RATIO. Company shall not permit the Consolidated
Leverage Ratio at any time during any of the periods set forth below to exceed
the correlative ratio indicated:
<TABLE>
<CAPTION>
PERIOD MAXIMUM LEVERAGE RATIO
- -------------------------------------------------------------------------------
<S> <C>
June 30, 1998 6.6:1.0
September 30, 1998 6.6:1.0
December 31, 1998 6.6:1.0
March 31, 1999 6.5:1.0
June 30, 1999 6.5:1.0
September 30, 1999 6.3:1.0
December 31, 1999 6.2:1.0
March 31, 2000 6.0:1.0
June 30, 2000 5.9:1.0
September 30, 2000 5.7:1.0
December 31, 2000 5.6:1.0
March 31, 2001 5.4:1.0
June 30, 2001 5.3:1.0
September 30, 2001 5.1:1.0
December 31, 2001 5.0:1.0
March 31, 2002 4.9:1.0
June 30, 2002 4.7:1.0
September 30, 2002 4.6:1.0
December 31, 2002 4.5:1.0
March 31, 2003 4.4:1.0
June 30, 2003 4.3:1.0
September 30, 2003 4.2:1.0
December 31, 2003 4.1:1.0
March 31, 2004 4.0:1.0
June 30, 2004 4.0:1.0
September 30, 2004 4.0:1.0
December 31, 2004 4.0:1.0
March 31, 2005 4.0:1.0
June 30, 2005 4.0:1.0
September 30, 2005 4.0:1.0
December 31, 2005 4.0:1.0
March 31, 2006 4.0:1.0
</TABLE>
C. INTEREST COVERAGE RATIO. Company shall not permit the ratio of (i)(A)
Consolidated EBITDA for the consecutive four-Fiscal Quarter period ending June
30, 1998, September 30, 1998, and December 31, 1998, respectively, to (B)
Consolidated Interest Expense multiplied by (a) for the Fiscal Quarter ending
---------- --
June 30,
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<PAGE>
1998, 4.0, (b) for the two-Fiscal Quarter period ending September 30, 1998, 2.0
and (c) for the three-Fiscal Quarter period ending December 31, 1998, 1.33, (x)
for the Fiscal Quarter ending June 30, 1998, to be less than 1.5:1.00, (y) for
the two-Fiscal Quarter period ending September 30, 1998, to be less than
1.5:1.00, and (z) for the three-Fiscal Quarter period ending December 31, 1998,
to be less than 1.5:1.00, and (ii)(A) Consolidated EBITDA to (B) Consolidated
Interest Expense for any consecutive four-Fiscal Quarter period ending on the
dates set forth below to be less than the correlative ratio indicated:
140
<PAGE>
<TABLE>
<CAPTION>
MINIMUM INTEREST
FISCAL QUARTER ENDING DATE EXPENSE RATIO
- ----------------------------------------------------- -------------
<S> <C>
March 31, 1999 1.60:1.0
June 30, 1999 1.60:1.0
September 30, 1999 1.70:1.0
December 31, 1999 1.70:1.0
March 31, 2000 1.70:1.0
June 30, 2000 1.80:1.0
September 30, 2000 1.80:1.0
December 31, 2000 1.90:1.0
March 31, 2001 1.90:1.0
June 30, 2001 2.00:1.0
September 30, 2001 2.00:1.0
December 31, 2001 2.10:1.0
March 31, 2002 2.20:1.0
June 30, 2002 2.20:1.0
September 30, 2002 2.30:1.0
December 31, 2002 2.40:1.0
March 31, 2003 2.50:1.0
June 30, 2003 2.60:1.0
September 30, 2003 2.70:1.0
December 31, 2003 2.75:1.0
March 31, 2004 2.75:1.0
June 30, 2004 2.75:1.0
September 30, 2004 2.75:1.0
December 31, 2004 2.75:1.0
March 31, 2005 2.75:1.0
June 30, 2005 2.75:1.0
September 30, 2005 2.75:1.0
December 31, 2005 2.75:1.0
March 31, 2006 2.75:1.0
</TABLE>
7.7 RESTRICTION ON FUNDAMENTAL CHANGES; ASSET SALES AND ACQUISITIONS.
----------------------------------------------------------------
Holdings shall not, and shall not permit any of its Subsidiaries to,
alter the corporate, capital or legal structure of Holdings or Company or any of
Company's Subsidiaries, or enter into any transaction of merger or
consolidation, or liquidate, wind-up or dissolve itself (or suffer any
liquidation or dissolution), or convey, sell, lease or sub-lease (as lessor or
sublessor), transfer or otherwise dispose of, in one transaction
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<PAGE>
or a series of transactions, all or any part of its business, property or
assets, whether now owned or hereafter acquired, or acquire by purchase or
otherwise all or substantially all the business, property or fixed assets of, or
stock or other evidence of beneficial ownership of, any Person or any division
or line of business of any Person, except:
(i) any Subsidiary of Company may be merged with or into Company or
any wholly-owned Subsidiary Guarantor, or be liquidated, wound up or
dissolved, or all or any part of its business, property or assets may be
conveyed, sold, leased, transferred or otherwise disposed of, in one
transaction or a series of transactions, to Company or any wholly-owned
Subsidiary Guarantor; provided that, in the case of such a merger, Company
--------
or such wholly-owned Subsidiary Guarantor shall be the continuing or
surviving corporation;
(ii) Company and its wholly-owned Subsidiaries may acquire all or
substantially all the business, property or fixed assets of, or stock or
other evidence of beneficial ownership of, any Person, or any division or
line of business of any Person, in the Business or a business incidental or
related thereto (collectively, "PERMITTED ACQUISITION"); provided that (a)
--------
such Person becomes a wholly-owned Subsidiary of Company, or such business,
property or other assets are acquired by Company or a wholly-owned
Subsidiary of Company, and any such wholly-owned Subsidiary which is a
Foreign Subsidiary shall be a direct Subsidiary of Company; (b) the
aggregate consideration paid by Company or any of its Subsidiaries does not
exceed (1) for any single Permitted Acquisition, an amount equal to
$25,000,000 consisting of cash consideration, Indebtedness and other
liabilities incurred or assumed plus an equal or lesser amount equal to the
----
aggregate amount received by Company as cash capital contributions from
Holdings after the Closing Date to finance such transaction and/or equity
issued as consideration in such transaction, and (2) for all such Permitted
Acquisitions during the term of this Agreement, $75,000,000 consisting of
cash consideration, Indebtedness and other liabilities incurred or assumed
plus an equal or lesser amount equal to the aggregate amount received by
----
Company as cash capital contributions from Holdings after the Closing Date
and/or equity issued as consideration in such transactions; (c)
concurrently with the consummation of such Permitted Acquisition, Company
shall, and shall cause its Subsidiaries to, comply with the requirements of
subsections 6.8 and 6.9 with respect to such Permitted Acquisitions; and
(d) prior to the consummation of such Permitted Acquisition, Company shall
deliver to Administrative Agent an Officer's Certificate (1) certifying
that no Potential Event of Default or Event of Default under this Agreement
or under the Senior Subordinated Notes shall
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<PAGE>
then exist or shall occur as a result of such Permitted Acquisition, (2)
demonstrating that after giving effect to such Permitted Acquisition and to
all Indebtedness to be incurred or assumed or repaid in connection with or
as consideration for such Permitted Acquisition, that Company is in pro
---
forma compliance with the financial covenants referred to in subsection 7.6
-----
for the four consecutive Fiscal Quarter period ending immediately prior to
the date of the proposed Permitted Acquisition and that, giving effect to
such Permitted Acquisition, Company is in compliance with the clause (b) of
this subsection 7.7(ii) on a cumulative basis for all Permitted
Acquisitions, and (3) delivering a copy, prepared in conformity with GAAP,
of (i) financial statements of the Person or business so acquired for the
immediately preceding four consecutive Fiscal Quarter period corresponding
to the calculation period for the financial covenants in the immediately
preceding clause, and (ii) audited or reviewed financial statements of the
Person or business so acquired for the fiscal year ended within such
period;
(iii) Company and its Subsidiaries may dispose of obsolete, worn out
or surplus property in the ordinary course of business;
(iv) Company and its Subsidiaries may sell or otherwise dispose of
assets in transactions that do not constitute Asset Sales; provided that
--------
the consideration received for such assets shall be in an amount at least
equal to the fair market value thereof; and
(v) Company and its Subsidiaries may make Asset Sales of assets
having a fair market value not in excess of $3,000,000 in any Fiscal Year;
provided that (x) the consideration received for such asset shall be in an
--------
amount at least equal to the fair market value thereof; (y) at least 75% of
the consideration received therefor is in the form of Cash (provided that
--------
any liabilities which are assumed by the transferee of such Assets pursuant
to a customary novation agreement that releases Company or such Subsidiary
from further liability, and any promissory notes received that are
converted into Cash, shall be deemed to be cash for purposes of this
provision); and (z) the proceeds of such Asset Sales shall be applied as
required by subsection 2.4B(iii)(a).
7.8 CONSOLIDATED CAPITAL EXPENDITURES.
---------------------------------
Holdings shall not, and shall not permit its Subsidiaries to make or
incur Consolidated Capital Expenditures in any Fiscal Year in an aggregate
amount exceeding the amount equal to the sum of (i) $5,000,000 plus (ii) the
----
amount of Net
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<PAGE>
Sale Proceeds received in such Fiscal Year not required to be prepaid under
subsection 2.4B(iii)(a); provided that such amount for any Fiscal Year shall be
--------
increased by an amount equal to the excess, if any, of the amount permitted for
the preceding Fiscal Year over the actual amount of Consolidated Capital
Expenditures for such previous Fiscal Year (but such increase shall not exceed
$2,500,000); provided, however, to the extent that any expenditures of Company
-------- -------
or any of its Subsidiaries constitute a Permitted Acquisition permitted under
subsection 7.7(ii), then for purposes of this subsection 7.8 such expenditures
made at the time of such acquisition shall not constitute or be deemed to be
Consolidated Capital Expenditures under this subsection 7.8 but any and all
expenditures made in connection with such Permitted Acquisition thereafter shall
constitute Consolidated Capital Expenditures under this subsection 7.8.
7.9 RESTRICTION ON LEASES.
---------------------
Holdings shall not, and shall not permit any of its Subsidiaries to,
become liable in any way, whether directly or by assignment or as a guarantor or
other surety, for the obligations of the lessee under any lease, whether an
Operating Lease or a Capital Lease (other than intercompany leases between
Company and its wholly-owned Subsidiaries); unless, immediately after giving
effect to the incurrence of liability with respect to such lease, the
Consolidated Rental Payments at the time in effect during the then current
Fiscal Year shall not exceed $3,000,000.
7.10 SALES AND LEASE-BACKS.
---------------------
Holdings shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, become or remain liable as lessee or as a guarantor or
other surety with respect to any lease, whether an Operating Lease or a Capital
Lease, of any property (whether real, personal or mixed), whether now owned or
hereafter acquired, (i) which Company or any of its Subsidiaries has sold or
transferred or is to sell or transfer to any other Person (other than Company or
any of its Subsidiaries) or (ii) which Company or any of its Subsidiaries
intends to use for substantially the same purpose as any other property which
has been or is to be sold or transferred by Company or any of its Subsidiaries
to any Person (other than Company or any of its Subsidiaries) in connection with
such lease; provided that Company and its Subsidiaries may become and remain
--------
liable as lessee, guarantor or other surety with respect to any such lease with
respect to any such lease if and to the extent that Company or any of its
Subsidiaries would be permitted to enter into, and remain liable under, such
lease to the extent that the transaction would be permitted under subsection
7.1, assuming the sale and lease back transaction constituted Indebtedness in a
principal amount equal to the gross proceeds of the sale.
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<PAGE>
7.11 SALE OR DISCOUNT OF RECEIVABLES.
-------------------------------
Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, sell with recourse, or discount or otherwise sell for
less than the face value thereof, any of its notes or accounts receivable.
7.12 TRANSACTIONS WITH STOCKHOLDERS AND AFFILIATES.
---------------------------------------------
Except for the transactions described on Schedule 7.12, Company shall
-------------
not, and shall not permit any of its Subsidiaries to, directly or indirectly,
enter into or permit to exist any transaction (including the purchase, sale,
lease or exchange of any property or the rendering of any service) with any
Affiliate of Company, on terms that are less favorable to Company or that
Subsidiary, as the case may be, than those that might be obtained at the time
from Persons who are not such an Affiliate; provided that the foregoing
--------
restriction shall not apply to (i) any transaction between Company and any of
its wholly-owned Subsidiaries or between any of its wholly-owned Subsidiaries or
(ii) reasonable and customary fees paid to members of the Boards of Directors of
Company and its Subsidiaries.
7.13 DISPOSAL OF SUBSIDIARY EQUITY.
-----------------------------
Except for any sale of 100% of the capital stock or other equity
Securities of any of its Subsidiaries in compliance with subsection 7.7(i),
Company shall not:
(i) directly or indirectly sell, assign, pledge or otherwise
encumber or dispose of any shares of capital stock or other equity
Securities of any of its Subsidiaries, except to qualify directors if
required by applicable law; or
(ii) permit any of its Subsidiaries directly or indirectly to sell,
assign, pledge or otherwise encumber or dispose of any shares of capital
stock or other equity Securities of any of its Subsidiaries (including such
Subsidiary), except to Company, another Subsidiary of Company, or to
qualify directors if required by applicable law.
7.14 CONDUCT OF BUSINESS.
-------------------
From and after the Closing Date, Company shall not, and shall not
permit any of its Subsidiaries to, engage in any business other than (i) the
Business and similar or related businesses and (ii) such other lines of business
as may be consented to by Requisite Lenders (which consent shall not be
unreasonably withheld or delayed). From and after the Closing Date, Holdings
shall not engage in any business other than owning the capital stock of Company
and entering into and performing its
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<PAGE>
obligations under and in accordance with the Loan Documents and the Holdings
Discount Debenture Indenture, and shall not own any assets other than the
capital stock of Company; provided that Holdings may retain leasehold interests
with respect to certain items of personal property pursuant to leases identified
as items 1 and 10 on Schedule 5.8 until the consent of the lessor is obtained to
------------
transfer such interests and related leases to Company; provided, further, that
--------
Company agrees to use all reasonable efforts to effect the transfer of such
leasehold interests and leases to it as soon as practicable.
7.15 AMENDMENTS OF DOCUMENTS RELATING TO SUBORDINATED INDEBTEDNESS,
--------------------------------------------------------------
HOLDINGS DISCOUNT DEBENTURES AND HOLDINGS PREFERRED STOCK; AMENDMENT
--------------------------------------------------------------------
TO RECAPITALIZATION AGREEMENT.
-----------------------------
A. Company shall not, and shall not permit any of its Subsidiaries to,
amend or otherwise change the terms of any Subordinated Indebtedness, any of the
guaranties entered into by any Loan Party in connection with any Subordinated
Indebtedness or make any payment consistent with an amendment thereof or change
thereto, if the effect of such amendment or change is to increase the interest
rate on such Subordinated Indebtedness, change (to earlier dates) any dates upon
which payments of principal or interest are due thereon, change any event of
default or condition to an event of default with respect thereto (other than to
eliminate any such event of default or increase any grace period related
thereto), change the redemption, prepayment or defeasance provisions thereof,
change the subordination provisions thereof (or of any guaranty thereof), or
change any collateral therefor (other than to release such collateral), or if
the effect of such amendment or change, together with all other amendments or
changes made, is to increase materially the obligations of the obligor
thereunder or invalidity to confer any additional rights on the holders of such
Subordinated Indebtedness (or a trustee or other representative on their behalf)
which, in any such case, would be materially adverse to any Loan Party or
Lenders. Company shall not amend, waive or change any of its rights under or
otherwise change the terms of the Tax Sharing Agreement or the Tax Sharing
Agreement dated April 21, 1998, by and among Company and its Subsidiaries, in
each case as in effect on the Closing Date, without the prior written consent of
the Requisite Lenders, if such amendment, waiver or change would increase
materially the obligations of Company or confer additional rights on any other
party under any such agreement that would be materially adverse to Company.
B. Holdings shall not amend, waive any of its rights under, or otherwise
change the terms of any of the Recapitalization Agreement, Holdings Discount
Debentures, Holdings Discount Debentures Indenture, Holdings Preferred Stock,
the Tax Sharing Agreement and Holdings Certificate of Designation, in each case
as in effect on the Closing Date,
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<PAGE>
without the prior written consent of the Requisite Lenders, if such amendment,
waiver or change would increase materially the obligations of Holdings or confer
additional rights on any other party to any such agreement which, in any such
case, would be materially adverse to Holdings.
7.16 FISCAL YEAR
-----------
Company shall not change its Fiscal Year-end from December 31 of each
calendar year.
SECTION 8. EVENTS OF DEFAULT
If any of the following conditions or events ("Events of Default")
shall occur:
8.1 FAILURE TO MAKE PAYMENTS WHEN DUE.
---------------------------------
Failure by Company to pay any installment of principal of any Loan
when due, whether at stated maturity, by acceleration, by notice of voluntary
prepayment, by mandatory prepayment or otherwise; failure by Company to pay when
due any amount payable to an Issuing Lender in reimbursement of any drawing
under a Letter of Credit; or failure by Company to pay any interest on any Loan
or any fee or any other amount due under this Agreement within five days after
the date due; or
8.2 DEFAULT IN OTHER AGREEMENTS.
---------------------------
(i) Failure of Holdings or any of its Subsidiaries to pay when due
any principal of or interest on or any other amount payable in respect of one or
more items of Indebtedness (other than Indebtedness referred to in subsection
8.1) or Contingent Obligations in either an individual or an aggregate principal
amount of $7,500,000 or more, in each case beyond the end of any grace period
provided therefor; or (ii) breach or default by Holdings or any of its
Subsidiaries with respect to any other material term of (a) one or more items of
Indebtedness or Contingent Obligations in the individual or aggregate principal
amounts referred to in clause (i) above or (b) any loan agreement, mortgage,
indenture or other agreement relating to such item(s) of Indebtedness or
Contingent Obligation(s), if the effect of such breach or default is to cause,
or to permit the holder or holders of that Indebtedness or Contingent
Obligation(s) (or a trustee on behalf of such holder or holders) to cause, that
Indebtedness or Contingent Obligation(s) to become or be declared due and
payable prior to its stated maturity or the stated maturity of any underlying
obligation, as the case may be (upon the giving or receiving of notice, lapse of
time, both, or otherwise); or
147
<PAGE>
8.3 BREACH OF CERTAIN COVENANTS.
---------------------------
Failure of Company to perform or comply with any term or condition
contained in subsection 2.5 or 6.2 or Section 7 of this Agreement; or
8.4 BREACH OF REPRESENTATIONS AND WARRANTY.
--------------------------------------
Any representation, warranty, certification or other statement made by
Company or any of its Subsidiaries in any Loan Document or in any statement or
certificate at any time given by Company or any of its Subsidiaries in writing
pursuant hereto or thereto or in connection herewith or therewith shall be false
in any material respect on the date as of which made; or
8.5 OTHER DEFAULTS UNDER LOAN DOCUMENTS.
-----------------------------------
Any Loan Party shall default in the performance of or compliance with
any term contained in this Agreement or any of the other Loan Documents, other
than any such term referred to in any other subsection of this Section 8, and
such default shall not have been remedied or waived within twenty days after the
earlier of (i) an executive officer of Company or such Loan Party obtaining
actual knowledge of such default or (ii) receipt by Company and such Loan Party
of notice from any Agent of such default; or
8.6 INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.
-----------------------------------------------------
(i) A court having jurisdiction in the premises shall enter a
decree or order for relief in respect of Holdings or any of its Subsidiaries in
an involuntary case under the Bankruptcy Code or under any other applicable
bankruptcy, insolvency or similar law now or hereafter in effect, which decree
or order is not stayed; or any other similar relief shall be granted under any
applicable federal or state law; or (ii) an involuntary case shall be commenced
against Holdings or any of its Subsidiaries under the Bankruptcy Code or under
any other applicable bankruptcy, insolvency or similar law now or hereafter in
effect; or a decree or order of a court having jurisdiction in the premises for
the appointment of a receiver, liquidator, sequestrator, trustee, custodian or
other officer having similar powers over Holdings or any of its Subsidiaries, or
over all or a substantial part of its property, shall have been entered; or
there shall have occurred the involuntary appointment of an interim receiver,
trustee or other custodian of Holdings or any of its Subsidiaries for all or a
substantial part of its property; or a warrant of attachment, execution or
similar process shall have been issued against any substantial part of the
property of Holdings or any of its Subsidiaries, and any such event described in
this subsection 8.6 shall continue for 60 days unless dismissed, bonded or
discharged; or
148
<PAGE>
8.7 VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.
---------------------------------------------------
(i) Holdings or any of its Subsidiaries shall have an order for
relief entered with respect to it or commence a voluntary case under the
Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar
law now or hereafter in effect, or shall consent to the entry of an order for
relief in an involuntary case, or to the conversion of an involuntary case to a
voluntary case, under any such law, or shall consent to the appointment of or
taking possession by a receiver, trustee or other custodian for all or a
substantial part of its property; or Holdings or any of its Subsidiaries shall
make any assignment for the benefit of creditors; or (ii) Holdings or any of its
Subsidiaries shall be unable, or shall fail generally, or shall admit in writing
its inability, to pay its debts as such debts become due; or the Board of
Directors of Holdings or any of its Subsidiaries (or any committee thereof)
shall adopt any resolution or otherwise authorize any action to approve any of
the actions referred to in clause (i) above or this clause (ii); or
8.8 JUDGMENTS AND ATTACHMENTS.
-------------------------
Any money judgment, writ or warrant of attachment or similar process
involving either in any individual case or in the aggregate at any time an
amount in excess of $7,500,000 (in either case not adequately covered by
insurance as to which a solvent and unaffiliated insurance company has
acknowledged coverage) shall be entered or filed against Holdings or any of its
Subsidiaries or any of their respective assets and shall remain undischarged,
unvacated, unbonded or unstayed for a period of 60 days (or in any event later
than five days prior to the date of any proposed sale thereunder); or
8.9 DISSOLUTION.
-----------
Any order, judgment or decree shall be entered against Holdings or any
of its Subsidiaries decreeing the dissolution or split up of Holdings or that
Subsidiary and such order shall remain undischarged or unstayed for a period in
excess of 30 days; or
8.10 EMPLOYEE BENEFIT PLANS.
----------------------
There shall occur one or more ERISA Events which individually or in
the aggregate results in or might reasonably be expected to result in liability
of Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates
in excess of $5,000,000 during the term of this Agreement; or there shall exist
an amount of unfunded benefit liabilities (as defined in Section 4001(a)(18) of
ERISA), individually or in the aggregate for all Pension Plans (excluding for
purposes of such
149
<PAGE>
computation any Pension Plans with respect to which assets exceed benefit
liabilities), which exceeds $5,000,000; or
8.11 CHANGE IN CONTROL.
-----------------
(i) Prior to the IPO Event, (a) Principals and Related Parties
shall at any time fail to collectively and beneficially own and control and to
have economic ownership of, directly, or indirectly, at least 51% of all of the
issued and outstanding Holdings Common Stock on a fully diluted basis, or (b)
any "Change of Control" as such term is defined in the Senior Subordinated
Indenture has occurred and be continuing; and (ii) upon and after the IPO Event,
(a) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that (A) any "person" (as
defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a
person shall be deemed to have "beneficial ownership" of all securities that
such person has the right to acquire, whether such rights is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition), other than the Principals and their Related Parties, becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under
the Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire, whether
such right is currently exercisable or is exercisable only upon the occurrence
of a subsequent condition), directly or indirectly, of 35% or more of the voting
stock of Company (measured by voting power rather than number of shares) and (B)
the Principals and their Related Parties beneficially own, directly or
indirectly, in the aggregate a lesser percentage of the voting stock of Company
than such other "person," or (b) any "Change of Control" as such term is defined
in the Senior Subordinated Indenture has occurred and be continuing; or
8.12 INVALIDITY OF GUARANTIES; FAILURE OF SECURITY; REPUDIATION OF
-------------------------------------------------------------
OBLIGATIONS.
-----------
At any time after the execution and delivery thereof, (i) any Guaranty
for any reason, other than the satisfaction in full of all Obligations, shall
cease to be in full force and effect (other than in accordance with its terms)
or shall be declared to be null and void, (ii) any Collateral Document shall
cease to be in full force and effect with respect to any material portion of the
Collateral (other than by reason of a release of Collateral thereunder in
accordance with the terms hereof or thereof, the satisfaction in full of the
Obligations or any other termination of such Collateral Document in accordance
with the terms hereof or thereof or as the result of the action or inaction of
Administrative Agent or the Lenders imposed thereunder) or shall be declared
null and void, or Administrative Agent shall not have or shall cease to have a
valid and perfected First Priority Lien in any Collateral purported to be
covered
150
<PAGE>
thereby, in each case for any reason other than the failure of any Agent or any
Lender to take any action within its control, or (iii) any Loan Party shall
contest the validity or enforceability of any Loan Document in writing or deny
in writing that it has any further liability, including with respect to future
advances by Lenders, under any Loan Document to which it is a party; or
8.13 ACTION RELATING TO CERTAIN SUBORDINATED INDEBTEDNESS OF COMPANY AND
-------------------------------------------------------------------
HOLDINGS DISCOUNT DEBENTURES.
----------------------------
Any holder of any Subordinated Indebtedness evidenced by the Senior
Subordinated Notes shall file an action seeking the rescission thereof or
damages or injunctive relief relating thereto; or any event shall occur which,
under the terms of the Senior Subordinated Note Indenture or the Holdings
Discount Debentures Indenture, as the case may be, shall require Holdings,
Company or any of its Subsidiaries to purchase, redeem or otherwise acquire or
offer to purchase, redeem or otherwise acquire all or any portion of any such
Subordinated Indebtedness or the Holdings Discount Debentures; or Holdings or
any of its Subsidiaries shall for any other reason purchase, redeem or otherwise
acquire or offer to purchase, redeem or otherwise acquire, or make any other
payments in respect of, all or any portion of any such Subordinated Indebtedness
or the Holdings Discount Debentures, except to the extent expressly permitted by
subsection 7.5;
8.14 FAILURE TO CONSUMMATE THE TRANSACTIONS UNDER THE RECAPITALIZATION
-----------------------------------------------------------------
AGREEMENT.
---------
Holdings shall have failed to consummate the transactions contemplated
under the Recapitalization Agreement;
THEN (i) upon the occurrence of any Event of Default described in subsection 8.6
or 8.7, each of (a) the unpaid principal amount of and accrued interest on the
Loans, (b) an amount equal to the maximum amount that may at any time be drawn
under all Letters of Credit then outstanding (whether or not any beneficiary
under any such Letter of Credit shall have presented, or shall be entitled at
such time to present, the drafts or other documents or certificates required to
draw under such Letter of Credit), and (c) all other Obligations shall
automatically become immediately due and payable, without presentment, demand,
protest or other requirements of any kind, all of which are hereby expressly
waived by Company, and the obligation of each Lender to make any Loan, the
obligation of Administrative Agent to issue any Letter of Credit and the right
of any Lender to issue any Letter of Credit hereunder shall thereupon terminate,
and (ii) upon the occurrence and during the continuation of any other Event of
Default, Administrative Agent shall, upon the written request or with the
written consent of Requisite Lenders, by written notice to Company, declare all
or any portion of the amounts described
151
<PAGE>
in clauses (a) through (c) above to be, and the same shall forthwith become,
immediately due and payable, and the obligation of each Lender to make any Loan,
the obligation of Administrative Agent to issue any Letter of Credit and the
right of any Lender to issue any Letter of Credit hereunder shall thereupon
terminate; provided that the foregoing shall not affect in any way the
--------
obligations of Revolving Lenders under subsection 3.3C(i) or the obligations of
Revolving Lenders to purchase participations in any unpaid Swing Line Loans as
provided in subsection 2.1A(iv).
Any amounts described in clause (b) above, when received by
Administrative Agent, shall be held by Administrative Agent pursuant to the
terms of the Collateral Agency Agreement and shall be applied as therein
provided.
Notwithstanding anything contained in the second preceding paragraph,
if at any time within 60 days after an acceleration of the Loans pursuant to
clause (ii) of such paragraph Company shall pay all arrears of interest and all
payments on account of principal which shall have become due otherwise than as a
result of such acceleration (with interest on principal and, to the extent
permitted by law, on overdue interest, at the rates specified in this Agreement)
and all Events of Default and Potential Events of Default (other than non-
payment of the principal of and accrued interest on the Loans, in each case
which is due and payable solely by virtue of acceleration) shall be remedied or
waived pursuant to subsection 10.6, then Requisite Lenders, by written notice to
Company, may at their option rescind and annul such acceleration and its
consequences; but such action shall not affect any subsequent Event of Default
or Potential Event of Default or impair any right consequent thereon. The
provisions of this paragraph are intended merely to bind Lenders to a decision
which may be made at the election of Requisite Lenders and are not intended,
directly or indirectly, to benefit Company, and such provisions shall not at any
time be construed so as to grant Company the right to require Lenders to rescind
or annul any acceleration hereunder or to preclude Administrative Agent or
Lenders from exercising any of the rights or remedies available to them under
any of the Loan Documents, even if the conditions set forth in this paragraph
are met.
SECTION 9. THE AGENTS
9.1 APPOINTMENT.
-----------
A. APPOINTMENT OF AGENTS. Wells Fargo Bank, N.A. is hereby appointed
Administrative Agent hereunder and under the other Loan Documents and each
Lender hereby authorizes Administrative Agent to act as its agent in accordance
with the terms of this Agreement and the other Loan Documents. DLJ is
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<PAGE>
hereby appointed Syndication Agent hereunder and under the other Loan Documents
and each Lender hereby authorizes Syndication Agent to act as its agent in
accordance with the terms of this Agreement and the other Loan Documents. Each
of Syndication Agent and Administrative Agent agrees to act upon the express
conditions contained in this Agreement and the other Loan Documents, as
applicable. The provisions of this Section 9 are solely for the benefit of each
of Syndication Agent and Administrative Agent, and Lenders and Company shall
have no rights as a third party beneficiary of any of the provisions thereof.
In performing its functions and duties under this Agreement, each of Syndication
Agent and Administrative Agent shall act solely as an agent of Lenders and does
not assume and shall not be deemed to have assumed any obligation towards or
relationship of agency or trust with or for Company or any of its Subsidiaries.
Notwithstanding anything to the contrary stated in this Agreement, an
Agent (or any of its Affiliates) shall at all times be a Lender under this
Agreement, and at such time as such Agent (or such Affiliate) shall no longer be
a Lender under this Agreement, such Agent shall promptly resign pursuant to
subsection 9.5A hereof.
B. APPOINTMENT OF SUPPLEMENTAL COLLATERAL AGENTS. It is the purpose of
this Agreement and the other Loan Documents that there shall be no violation of
any law of any jurisdiction denying or restricting the right of banking
corporations or associations to transact business as agent or trustee in such
jurisdiction. It is recognized that in case of litigation under this Agreement
or any of the other Loan Documents, and in particular in case of the enforcement
of any of the Loan Documents, or in case Administrative Agent deems that by
reason of any present or future law of any jurisdiction it may not exercise any
of the rights, powers or remedies granted herein or in any of the other Loan
Documents or take any other action which may be desirable or necessary in
connection therewith, it may be necessary that Administrative Agent appoint an
additional individual or institution as a separate trustee, co-trustee,
collateral agent or collateral co-agent (any such additional individual or
institution being referred to herein individually as a "SUPPLEMENTAL COLLATERAL
AGENT" and collectively as "SUPPLEMENTAL COLLATERAL AGENTS").
In the event that Administrative Agent appoints a Supplemental
Collateral Agent with respect to any Collateral, (i) each and every right,
power, privilege or duty expressed or intended by this Agreement or any of the
other Loan Documents to be exercised by or vested in or conveyed to
Administrative Agent with respect to such Collateral shall be exercisable by and
vest in such Supplemental Collateral Agent to the extent, and only to the
extent, necessary to enable such Supplemental Collateral Agent to exercise such
rights, powers and privileges with respect
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to such Collateral and to perform such duties with respect to such Collateral,
and every covenant and obligation contained in the Loan Documents and necessary
to the exercise or performance thereof by such Supplemental Collateral Agent
shall run to and be enforceable by either Administrative Agent or such
Supplemental Collateral Agent, and (ii) the provisions of this Section 9 and of
subsections 10.2 and 10.3 that refer to Administrative Agent shall inure to the
benefit of such Supplemental Collateral Agent and all references therein to
Administrative Agent shall be deemed to be references to Administrative Agent
and/or such Supplemental Collateral Agent, as the context may require.
Should any instrument in writing from Company or any other Loan Party
be required by any Supplemental Collateral Agent so appointed by Administrative
Agent for more fully and certainly vesting in and confirming to him or it such
rights, powers, privileges and duties, Company shall, or shall cause such Loan
Party to, execute, acknowledge and deliver any and all such instruments promptly
upon request by Administrative Agent. In case any Supplemental Collateral
Agent, or a successor thereto, shall die, become incapable of acting, resign or
be removed, all the rights, powers, privileges and duties of such Supplemental
Collateral Agent, to the extent permitted by law, shall vest in and be exercised
by Administrative Agent until the appointment of a new Supplemental Collateral
Agent.
9.2 POWERS AND DUTIES; GENERAL IMMUNITY.
-----------------------------------
A. POWERS; DUTIES SPECIFIED. Each Lender irrevocably authorizes each
Agent to take such action on such Lender's behalf and to exercise such powers,
rights and remedies hereunder and under the other Loan Documents as are
specifically delegated or granted to such Agent by the terms hereof and thereof,
together with such powers, rights and remedies as are reasonably incidental
thereto. Each Agent shall have only those duties and responsibilities that are
expressly specified in this Agreement and the other Loan Documents. Each Agent
may exercise such powers, rights and remedies and perform such duties by or
through its agents or employees. No Agent shall have, by reason of this
Agreement or any of the other Loan Documents, a fiduciary relationship in
respect of any Lender; and nothing in this Agreement or any of the other Loan
Documents, expressed or implied, is intended to or shall be so construed as to
impose upon any Agent any obligations in respect of this Agreement or any of the
other Loan Documents except as expressly set forth herein or therein.
B. NO RESPONSIBILITY FOR CERTAIN MATTERS. No Agent shall be responsible
to any Lender for the execution, effectiveness, genuineness, validity,
enforceability, collectibility or sufficiency of this Agreement or any other
Loan Document or for any representations, warranties, recitals or statements
made herein or therein or made in any written or oral statements or in
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any financial or other statements, instruments, reports or certificates or any
other documents furnished or made by such Agent to Lenders or by or on behalf of
Company to such Agent or any Lender in connection with the Loan Documents and
the transactions contemplated thereby or for the financial condition or business
affairs of Company or any other Person liable for the payment of any
Obligations, nor shall such Agent be required to ascertain or inquire as to the
performance or observance of any of the terms, conditions, provisions, covenants
or agreements contained in any of the Loan Documents or as to the use of the
proceeds of the Loans or the use of the Letters of Credit or as to the existence
or possible existence of any Event of Default or Potential Event of Default.
Anything contained in this Agreement to the contrary notwithstanding,
Administrative Agent shall not have any liability arising from confirmations of
the amount of outstanding Loans or the Letter of Credit Usage or the component
amounts thereof.
C. EXCULPATORY PROVISIONS. Neither of the Agents nor any of their
respective officers, directors, employees or agents shall be liable to Lenders
for any action taken or omitted by any such Agent under or in connection with
any of the Loan Documents except to the extent caused by such Agent's gross
negligence or willful misconduct. Each Agent shall be entitled to refrain from
any act or the taking of any action (including the failure to take an action) in
connection with this Agreement or any of the other Loan Documents or from the
exercise of any power, discretion or authority vested in it hereunder or
thereunder unless and until such Agent shall have received instructions in
respect thereof from Requisite Lenders (or such other Lenders as may be required
to give such instructions under subsection 10.6) and, upon receipt of such
instructions from Requisite Lenders (or such other Lenders, as the case may be),
such Agent shall be entitled to act or (where so instructed) refrain from
acting, or to exercise such power, discretion or authority, in accordance with
such instructions. Without prejudice to the generality of the foregoing, (i)
each Agent shall be entitled to rely, and shall be fully protected in relying,
upon any communication, instrument or document believed by it to be genuine and
correct and to have been signed or sent by the proper person or persons, and
shall be entitled to rely and shall be protected in relying on opinions and
judgments of attorneys (who may be attorneys for Company and its Subsidiaries),
accountants, experts and other professional advisors selected by it; and (ii) no
Lender shall have any right of action whatsoever against any Agent as a result
of such Agent acting or (where so instructed) refraining from acting under this
Agreement or any of the other Loan Documents in accordance with the instructions
of Requisite Lenders (or such other Lenders as may be required to give such
instructions under subsection 10.6).
D. AGENTS ENTITLED TO ACT AS LENDER. The agency hereby created shall in
no way impair or affect any of the rights and
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powers of, or impose any duties or obligations upon, any Agent in its individual
capacity as a Lender hereunder. With respect to its participation in the Loans
and the Letters of Credit, each Agent shall have the same rights and powers
hereunder as any other Lender and may exercise the same as though it were not
performing the duties and functions delegated to it hereunder, and the term
"Lender" or "Lenders" or any similar term shall, unless the context clearly
otherwise indicates, include such Agent in its individual capacity. Any Agent
and its Affiliates may accept deposits from, lend money to and generally engage
in any kind of banking, trust, financial advisory or other business with Company
or any of its Affiliates as if it were not performing the duties specified
herein, and may accept fees and other consideration from Company for services in
connection with this Agreement and otherwise without having to account for the
same to Lenders.
9.3 REPRESENTATIONS AND WARRANTIES; NO RESPONSIBILITY FOR APPRAISAL OF
------------------------------------------------------------------
CREDITWORTHINESS.
----------------
Each Lender represents and warrants that it has made its own
independent investigation of the financial condition and affairs of Company and
its Subsidiaries in connection with the making of the Loans and the issuance of
Letters of Credit hereunder and that it has made and shall continue to make its
own appraisal of the creditworthiness of Company and its Subsidiaries. No Agent
shall have any duty or responsibility, either initially or on a continuing
basis, to make any such investigation or any such appraisal on behalf of Lenders
or to provide any Lender with any credit or other information with respect
thereto, whether coming into its possession before the making of the Loans or at
any time or times thereafter, and no Agent shall have any responsibility with
respect to the accuracy of or the completeness of any information provided to
Lenders.
9.4 RIGHT TO INDEMNITY.
------------------
Each Lender, in proportion to its Pro Rata Share, severally agrees to
indemnify each Agent, to the extent that such Agent shall not have been
reimbursed by Company, for and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses
(including counsel fees and disbursements) or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted against such
Agent in exercising its powers, rights and remedies or performing its duties
hereunder or under the other Loan Documents or otherwise in its capacity as
Administrative Agent or Syndication Agent, as the case may be, in any way
relating to or arising out of this Agreement or the other Loan Documents;
provided that no Lender shall be liable for any portion of such liabilities,
- --------
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from any Agent's gross negligence or willful
misconduct. If any
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indemnity furnished to any Agent for any purpose shall, in the opinion of such
Agent, be insufficient or become impaired, such Agent may call for additional
indemnity and cease, or not commence, to do the acts indemnified against until
such additional indemnity is furnished.
9.5 SUCCESSOR AGENTS AND SWING LINE LENDER.
--------------------------------------
A. SUCCESSOR AGENTS. The Syndication Agent may resign at any time upon
ten Business Days' prior notice thereof to Company and Administrative Agent.
Administrative Agent may resign at any time by giving 30 days' prior written
notice thereof to Syndication Agent, Lenders and Company, and Administrative
Agent may be removed at any time with or without cause by an instrument or
concurrent instruments in writing delivered to Company and Administrative Agent
and signed by Requisite Lenders. Upon any such notice of resignation of
Administrative Agent or any such removal of Administrative Agent, Requisite
Lenders shall have the right, upon five Business Days' notice to Company, to
appoint a successor Administrative Agent. If for any reason Requisite Lenders
cannot agree on a successor Administrative Agent, the resigning Administrative
Agent shall have the right to designate a successor Administrative Agent after
consulting with Company. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor Administrative Agent that
successor Administrative Agent, shall thereupon succeed to and become vested
with all the rights, powers, privileges and duties of the retiring or removed
Administrative Agent and the retiring or removed Administrative Agent shall be
discharged from its duties and obligations under this Agreement. After any
retiring or removed Administrative Agent's or Syndication Agent's resignation
hereunder as Administrative Agent or Syndication Agent, as the case may be, the
provisions of this Section 9 shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Administrative Agent or Syndication
Agent, as the case may be, under this Agreement.
B. SUCCESSOR SWING LINE LENDER. Any resignation or removal of
Administrative Agent pursuant to subsection 9.5A shall also constitute the
resignation or removal of Wells Fargo Bank, N.A. or its successor as Swing Line
Lender, and any successor Administrative Agent appointed pursuant to subsection
9.5A shall, upon its acceptance of such appointment, become the successor Swing
Line Lender for all purposes hereunder. In such event (i) Company shall prepay
any outstanding Swing Line Loans made by the retiring or removed Administrative
Agent in its capacity as Swing Line Lender, (ii) upon such prepayment, the
retiring or removed Administrative Agent and Swing Line Lender shall surrender
the Swing Line Note held by it to Company for cancellation, and (iii) Company
shall issue a new Swing Line Note to the successor Administrative Agent and
Swing Line Lender substantially in the form of Exhibit VII annexed hereto, in
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the
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principal amount of the Swing Line Loan Commitment then in effect and with other
appropriate insertions.
9.6 COLLATERAL DOCUMENTS AND GUARANTIES.
-----------------------------------
Each Lender hereby further authorizes Administrative Agent, on behalf
of and for the benefit of Lenders, to enter into each Collateral Document as
secured party and to be the agent for and representative of Lenders under each
Guaranty, and each Lender agrees to be bound by the terms of each Collateral
Document and Guaranty; provided that Administrative Agent shall not (i) enter
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into or consent to any material amendment, modification, termination or waiver
of any provision contained in any Collateral Document or Guaranty or (ii)
release any Collateral (except as otherwise expressly permitted or required
pursuant to the terms of this Agreement or the applicable Collateral Document),
in each case without the prior consent of Requisite Lenders (or, if required
pursuant to subsection 10.6, all Lenders); provided further, however, that,
-------- ------- -------
without further written consent or authorization from Lenders, Administrative
Agent may execute any documents or instruments necessary to (a) release any Lien
encumbering any item of Collateral that is the subject of a sale or other
disposition of assets permitted by this Agreement or to which Requisite Lenders
have otherwise consented, (b) release any Lien of the stock of any Subsidiary of
Company if all of the equity Securities of such Subsidiary is sold to any Person
(other than an Affiliate of Company) pursuant to a sale or other disposition
permitted hereunder (including pursuant to a merger of such Subsidiary where
such Subsidiary is the disappearing entity) or to which Requisite Lenders have
otherwise consented, or (c) release any Subsidiary Guarantor from the Subsidiary
Guaranty if all of the equity Securities of such Subsidiary Guarantor is sold to
any Person (other than an Affiliate of Company) pursuant to a sale or other
disposition permitted hereunder or to which Requisite Lenders have otherwise
consented. Anything contained in any of the Loan Documents to the contrary
notwithstanding, Company, each Agent and each Lender hereby agree that (X) no
Lender shall have any right individually to realize upon any of the Collateral
under any Collateral Document or to enforce any Guaranty, it being understood
and agreed that all rights and remedies under the Collateral Documents and the
Guaranties may be exercised solely by Administrative Agent for the benefit of
Lenders in accordance with the terms thereof, and (Y) in the event of a
foreclosure by Administrative Agent on any of the Collateral pursuant to a
public or private sale, any Agent or any Lender may be the purchaser of any or
all of such Collateral at any such sale and Administrative Agent, as agent for
and representative of Lenders (but not any Lender or Lenders in its or their
respective individual capacities unless Requisite Lenders shall otherwise agree
in writing) shall be entitled, for the purpose of bidding and making settlement
or payment of the purchase price for all or any portion of the Collateral sold
at any such public sale, to
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use and apply any of the Obligations as a credit on account of the purchase
price for any collateral payable by Administrative Agent at such sale.
SECTION 10. MISCELLANEOUS
10.1 ASSIGNMENTS AND PARTICIPATIONS IN LOANS AND LETTERS OF CREDIT.
-------------------------------------------------------------
A. GENERAL. Subject to subsection 10.1B, each Lender shall have the
right at any time to (i) sell, assign or transfer to any Eligible Assignee, or
(ii) sell participations to any Person in, all or any part of its Commitments or
any Loan or Loans made by it or its Letters of Credit or participations therein
or any other interest herein or in any other Obligations owed to it; provided
--------
that no such sale, assignment, transfer or participation shall, without the
consent of Company, require Company to file a registration statement with the
Securities and Exchange Commission or apply to qualify such sale, assignment,
transfer or participation under the securities laws of any state; provided,
--------
further that no such sale, assignment, transfer or participation of any Letter
- -------
of Credit or any participation therein may be made separately from a sale,
assignment, transfer or participation of a corresponding interest in the
Revolving Loan Commitment and the Revolving Loans of the Revolving Lender
effecting such sale, assignment, transfer or participation; and provided,
--------
further that, anything contained herein to the contrary notwithstanding, the
- -------
Swing Line Loan Commitment and the Swing Line Loans of Swing Line Lender may not
be sold, assigned or transferred as described in clause (i) above to any Person
other than a successor Administrative Agent and Swing Line Lender to the extent
contemplated by subsection 9.5. Except as otherwise provided in this subsection
10.1, no Lender shall, as between Company and such Lender, be relieved of any of
its obligations hereunder as a result of any sale, assignment or transfer of, or
any granting of participations in, all or any part of its Commitments or the
Loans, the Letters of Credit or participations therein, or the other Obligations
owed to such Lender.
B. ASSIGNMENTS.
(i) Amounts and Terms of Assignments. Each Commitment, Loan,
--------------------------------
Letter of Credit or participation therein, or other Obligation may (a) be
assigned in any amount to another Lender or any Agent, or to an Affiliate
or Affiliated Fund of the assigning Lender or another Lender or any Agent,
with the giving of notice to Company and Administrative Agent or (b) be
assigned in an aggregate amount of not less than $5,000,000 (or such lesser
amount as shall constitute the aggregate amount of the Commitments, Loans,
Letters of Credit and participations therein, and other Obligations of the
assigning Lender or as may be consented to by Company and Administrative
Agent) to any
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other Eligible Assignee (treating all Affiliated Funds as a single Eligible
Assignee and a single Lender) with the consent of Company (which consent
shall only be required so long as no Event of Default has occurred and is
continuing) and Administrative Agent (which consent of Company and
Administrative Agent shall not be unreasonably withheld or delayed). To
the extent of any such assignment in accordance with either clause (a) or
(b) above, the assigning Lender shall be relieved of its obligations with
respect to its Commitments, Loans, Letters of Credit or participations
therein, or other Obligations or the portion thereof so assigned. The
parties to each such assignment shall execute and deliver to Administrative
Agent, for its acceptance, an Assignment Agreement, together with a
processing fee of $2,500 (to be assessed only if the assignee is not a
Lender or Affiliate or Affiliated Fund of a Lender and otherwise at
Administrative Agent's discretion) and such forms, certificates or other
evidence, if any, with respect to United States federal income tax
withholding matters as the assignee under such Assignment Agreement may be
required to deliver to Administrative Agent pursuant to subsection
2.7B(iii)(a). Upon such execution, delivery and acceptance from and after
the effective date specified in such Assignment Agreement, (y) the assignee
thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment
Agreement, shall have the rights and obligations of a Lender hereunder and
(z) the assigning Lender thereunder shall, to the extent that rights and
obligations hereunder have been assigned by it pursuant to such Assignment
Agreement, relinquish its rights (other than any rights which survive the
termination of this Agreement under subsection 10.9B) and be released from
its obligations under this Agreement (and, in the case of an Assignment
Agreement 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; provided that, anything contained in any of the Loan
--------
Documents to the contrary notwithstanding, if such Lender is the Issuing
Lender with respect to any outstanding Letters of Credit such Lender shall
continue to have all rights and obligations of an Issuing Lender with
respect to such Letters of Credit until the cancellation or expiration of
such Letters of Credit and the reimbursement of any amounts drawn
thereunder). The Commitments hereunder shall be modified to reflect the
Commitment of such assignee and any remaining Commitment of such assigning
Lender and, if any such assignment occurs after the issuance of the Notes
hereunder, if requested pursuant to subsection 2.1E, the assigning Lender
shall, upon the effectiveness of such assignment or as promptly thereafter
as practicable, surrender its applicable Notes to Administrative Agent for
cancellation, and thereupon new Notes shall be issued to the
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assignee and to the assigning Lender, substantially in the form of Exhibit
-------
IV, Exhibit V, or Exhibit VI annexed hereto, as the case may be, with
-- --------- ----------
appropriate insertions, to reflect the new Commitments and/or outstanding
Term Loans, as the case may be, of the assignee and the assigning Lender.
(ii) Acceptance by Administrative Agent. Upon its receipt of an
----------------------------------
Assignment Agreement executed by an assigning Lender and an assignee
representing that it is an Eligible Assignee, together with the processing
fee referred to in subsection 10.1B(i) and any forms, certificates or other
evidence with respect to United States federal income tax withholding
matters that such assignee may be required to deliver to Administrative
Agent pursuant to subsection 2.7B(iii)(a), Administrative Agent shall, if
Administrative Agent and Company have consented to the assignment evidenced
thereby (in each case to the extent such consent is required pursuant to
subsection 10.1B(i)), (a) accept such Assignment Agreement by executing a
counterpart thereof as provided therein (which acceptance shall evidence
any required consent of Administrative Agent to such assignment) and (b)
give prompt notice thereof to Company. Administrative Agent shall maintain
a copy of each Assignment Agreement delivered to and accepted by it as
provided in this subsection 10.1B(ii).
C. PARTICIPATIONS. The holder of any participation, other than an
Affiliate of the Lender granting such participation, shall not be entitled to
require such Lender to take or omit to take any action hereunder except action
directly affecting (i) the extension of the scheduled final maturity date of any
Loan allocated to such participation or (ii) a reduction of the principal amount
of or the rate of interest payable on any Loan allocated to such participation,
and all amounts payable by Company hereunder shall be determined as if such
Lender had not sold such participation. Company and each Lender hereby
acknowledge and agree that, solely for purposes of subsections 2.6D, 2.7A,
2.7C, 3.6, 6.1, 10.4 and 10.5, (a) any participation will give rise to a direct
obligation of Company to the participant and (b) the participant shall be
considered to be a "Lender".
D. ASSIGNMENTS TO FEDERAL RESERVE BANKS; ASSIGNMENTS TO TRUSTEES. In
addition to the assignments and participations permitted under the foregoing
provisions of this subsection 10.1, (i) any Lender may assign and pledge all or
any portion of its Loans, the other Obligations owed to such Lender, and its
Notes to any Federal Reserve Bank as collateral security pursuant to Regulation
A of the Board of Governors of the Federal Reserve System and any operating
circular issued by such Federal Reserve Bank, (ii) any Lender that is an
investment fund that invests in bank loans may, without the consent of
Administrative Agent or Company, pledge all or any portion of its interest,
rights and obligations to any trustee or any other representative of holders
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of obligations owed or securities issued by such investment fund as security for
such obligations or securities, and (iii) such assignment or pledge referred to
in clause (i) and (ii) above shall not be subject to the provisions of
subsection 10.1B above; provided that (x) no Lender shall, as between Company
--------
and such Lender, be relieved of any of its obligations hereunder as a result of
any such assignment and pledge and (y) in no event shall such Federal Reserve
Bank be considered to be a "Lender" or be entitled to require the assigning
Lender to take or omit to take any action hereunder.
E. INFORMATION. Each Lender may furnish any information concerning
Company and its Subsidiaries in the possession of that Lender from time to time
to assignees and participants (including prospective assignees and
participants), subject to subsection 10.19.
F. REPRESENTATIONS OF LENDERS. Each Lender listed on the signature pages
hereof hereby represents and warrants (i) that it is an Eligible Assignee
described in clause (A) of the definition thereof; (ii) that it has experience
and expertise in the making of loans such as the Loans; and (iii) that it will
make its Loans for its own account in the ordinary course of its business and
without a view to distribution of such Loans within the meaning of the
Securities Act or the Exchange Act or other federal securities laws (it being
understood that, subject to the provisions of this subsection 10.1, the
disposition of such Loans or any interests therein shall at all times remain
within its exclusive control). Each Lender that becomes a party hereto pursuant
to an Assignment Agreement shall be deemed to agree that the representations and
warranties of such Lender contained in Section 2(c) of such Assignment Agreement
are incorporated herein by this reference.
10.2 EXPENSES.
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Whether or not the transactions contemplated hereby shall be
consummated, Company agrees to pay promptly (i) all the actual and reasonable
out-of-pocket costs and expenses of preparation of the Loan Documents and any
consents, amendments, waivers or other modifications thereto; (ii) all the costs
of furnishing all opinions by counsel for Company (including any opinions
requested by either Agent under this Agreement as to any legal matters arising
hereunder) and of Company's performance of and compliance with all agreements
and conditions on its part to be performed or complied with under this Agreement
and the other Loan Documents including with respect to confirming compliance
with environmental, insurance and solvency requirements; (iii) the reasonable
fees, expenses and disbursements of O'Melveny & Myers LLP, counsel to Arranger
and Syndication Agent in connection with the negotiation, preparation and
execution of the Loan Documents, (iv) the reasonable fees, expenses and
disbursements of Administrative Agent in connection with the
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development, preparation, delivery, administration and execution of, and any
amendment, supplement, waiver or modification to (in each case, whether or not
consummated), this Agreement, any Loan Document and any other documents prepared
in connection herewith or therewith, and the consummation of the transactions
contemplated hereby and thereby, including reasonable attorneys' fees (including
allocated costs of internal counsel) incurred by Administrative Agent with
respect thereto; provided, however, that the costs and expenses recoverable by
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Administrative Agent under this clause (iv) with respect to administration of
the Loan Documents incurred on or prior to the Closing Date shall be limited to
reasonable attorneys' fees not exceeding $10,000 and reasonable out-of-pocket
costs and expenses, (v) all the actual costs and reasonable expenses (including
the reasonable fees, expenses and disbursements of any environmental or other
consultants, advisors and agents employed or retained by Administrative Agent or
its counsel) of obtaining and reviewing any environmental audits or reports
provided for under subsection 4.1N or 6.9B(viii), (vi) all the actual reasonable
out-of-pocket costs and reasonable expenses of creating and perfecting Liens in
favor of Administrative Agent on behalf of Lenders pursuant to any Collateral
Document, including filing and recording fees, expenses and taxes, stamp or
documentary taxes, search fees, title insurance premiums, and reasonable fees,
expenses and disbursements of counsel to Agents and of counsel providing any
opinions that Agents may request in respect of the Collateral Documents or the
Liens created pursuant thereto; (vii) the custody or preservation of any of the
Collateral; (viii) all other actual and reasonable out-of-pocket costs and
expenses incurred by Arranger or Agents in connection with the syndication of
the Commitments and any due diligence investigation performed by Agents and
Arranger, and the negotiation, preparation and execution of the Loan Documents
and any consents, amendments, waivers or other modifications thereto and the
transactions contemplated thereby; and (ix) after the occurrence of an Event of
Default, all reasonable out-of-pocket costs and expenses, including reasonable
attorneys' fees (including allocated costs of internal counsel) and costs of
settlement, incurred by Administrative Agent and Lenders in enforcing any
Obligations of or in collecting any payments due from any Loan Party hereunder
or under the other Loan Documents by reason of such Event of Default (including
in connection with the sale of, collection from, or other realization upon any
of the Collateral or the enforcement of the Guaranties or in connection with any
refinancing or restructuring of the credit arrangements provided under this
Agreement in the nature of a "work-out" or pursuant to any insolvency or
bankruptcy proceedings).
10.3 INDEMNITY.
---------
In addition to the payment of expenses pursuant to subsection 10.2,
whether or not the transactions contemplated hereby shall be consummated,
Company agrees to defend (subject to
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Indemnitees' selection of counsel), indemnify, pay and hold harmless Arranger,
Agents and Lenders and the officers, directors, trustees, employees, agents and
affiliates of Arranger, Agents and Lenders (collectively called the
"INDEMNITEES"), from and against any and all Indemnified Liabilities (as
hereinafter defined); provided that Company shall not have any obligation to any
--------
Indemnitee hereunder with respect to any Indemnified Liabilities to the extent
such Indemnified Liabilities arise from the gross negligence or willful
misconduct of that Indemnitee as determined by a final judgment of a court of
competent jurisdiction.
As used herein, "INDEMNIFIED LIABILITIES" means, collectively, any and
all liabilities, obligations, losses, damages (including natural resource
damages), penalties, actions, judgments, suits, claims (including Environmental
Claims), costs (including the reasonable out-of-pocket costs of any
investigation, study, sampling, testing, abatement, cleanup, removal,
remediation or other response action necessary to remove, remediate, clean up or
abate any Hazardous Materials Activity), expenses and disbursements of any kind
or nature whatsoever (including the reasonable fees and disbursements of counsel
for Indemnitees in connection with any investigative, administrative or judicial
proceeding commenced or threatened by any Person, whether or not any such
Indemnitee shall be designated as a party or a potential party thereto, and any
reasonable fees or expenses incurred by Indemnitees in enforcing this
indemnity), whether direct, indirect or consequential and whether based on any
federal, state or foreign laws, statutes, rules or regulations (including
securities and commercial laws, statutes, rules or regulations and Environmental
Laws), on common law or equitable cause or on contract or otherwise, that may be
imposed on, incurred by, or asserted against any such Indemnitee, in any manner
relating to or arising out of (i) this Agreement or the other Loan Documents or
the transactions contemplated hereby or thereby (including Lenders' agreement to
make the Loans hereunder or the use or intended use of the proceeds thereof or
the issuance of Letters of Credit hereunder or the use or intended use of any
thereof, or any enforcement of any of the Loan Documents (including any sale of,
collection from, or other realization upon any of the Collateral or the
enforcement of the Guaranties), (ii) the statements contained in the commitment
letter delivered by any Lender to Company with respect thereto, or (iii) any
Environmental Claim or any Hazardous Materials Activity relating to or arising
from, directly or indirectly, any past or present activity, operation, land
ownership, or practice of Company or any of its Subsidiaries.
To the extent that the undertakings to defend, indemnify, pay and hold
harmless set forth in this subsection 10.3 may be unenforceable in whole or in
part because they are violative of any law or public policy, Company shall
contribute the maximum portion that it is permitted to pay and satisfy under
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applicable law to the payment and satisfaction of all Indemnified Liabilities
incurred by Indemnitees or any of them.
10.4 SET-OFF; SECURITY INTEREST IN DEPOSIT ACCOUNTS.
----------------------------------------------
In addition to any rights now or hereafter granted under applicable
law and not by way of limitation of any such rights, upon the occurrence and
continuance of any Event of Default each Lender is hereby authorized by Company
at any time or from time to time, without notice to Company or to any other
Person, any such notice being hereby expressly waived, to set off and to
appropriate and to apply any and all deposits (general or special, including
Indebtedness evidenced by certificates of deposit, whether matured or unmatured,
but not including trust accounts) and any other Indebtedness at any time held or
owing by that Lender to or for the credit or the account of Company against and
on account of the obligations and liabilities of Company to that Lender under
this Agreement, the Letters of Credit and participations therein and the other
Loan Documents, including all claims of any nature or description arising out of
or connected with this Agreement, the Letters of Credit and participations
therein or any other Loan Document, irrespective of whether or not (i) that
Lender shall have made any demand hereunder or (ii) the principal of or the
interest on the Loans or any amounts in respect of the Letters of Credit or any
other amounts due hereunder shall have become due and payable pursuant to
Section 8 and although said obligations and liabilities, or any of them, may be
contingent or unmatured. Company hereby further grants to each Agent and each
Lender a security interest in all deposits and accounts maintained with such
Agent or such Lender as security for the Obligations. Notwithstanding the
foregoing, no Lender shall exercise, or attempt to exercise, any right of set-
off, banker's lien or the like, against any deposit account or property of
Company or any Subsidiary of Company held or maintained by such Lender without
the prior written consent of Administrative Agent and Requisite Lenders.
10.5 RATABLE SHARING.
---------------
Lenders hereby agree among themselves that if any of them shall,
whether by voluntary payment (other than a voluntary prepayment of Loans made
and applied in accordance with the terms of this Agreement), by realization upon
security, through the exercise of any right of set-off or banker's lien, by
counterclaim or cross action or by the enforcement of any right under the Loan
Documents or otherwise, or as adequate protection of a deposit treated as cash
collateral under the Bankruptcy Code, receive payment or reduction of a
proportion of the aggregate amount of principal, interest, amounts payable in
respect of Letters of Credit, fees and other amounts then due and owing to that
Lender hereunder or under the other Loan Documents (collectively, the "AGGREGATE
AMOUNTS DUE" to such Lender) which
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is greater than the proportion received by any other Lender in respect of the
Aggregate Amounts Due to such other Lender, then the Lender receiving such
proportionately greater payment shall (i) notify Administrative Agent and each
other Lender of the receipt of such payment and (ii) apply a portion of such
payment to purchase participations (which it shall be deemed to have purchased
from each seller of a participation simultaneously upon the receipt by such
seller of its portion of such payment) in the Aggregate Amounts Due to the other
Lenders so that all such recoveries of Aggregate Amounts Due shall be shared by
all Lenders in proportion to the Aggregate Amounts Due to them; provided that if
--------
all or part of such proportionately greater payment received by such purchasing
Lender is thereafter recovered from such Lender upon the bankruptcy or
reorganization of Company or otherwise, those purchases shall be rescinded and
the purchase prices paid for such participations shall be returned to such
purchasing Lender ratably to the extent of such recovery, but without interest.
Company expressly consents to the foregoing arrangement and agrees that any
holder of a participation so purchased may exercise any and all rights of
banker's lien, set-off or counterclaim with respect to any and all monies owing
by Company to that holder with respect thereto as fully as if that holder were
owed the amount of the participation held by that holder.
10.6 AMENDMENTS AND WAIVERS.
----------------------
A. No amendment, modification, termination or waiver of any
provision of this Agreement or of the Notes, and no consent to any departure by
Company therefrom, shall in any event be effective without the written
concurrence of Requisite Lenders, the receipt of which shall be acknowledged in
writing by Administrative Agent; provided that any such amendment, modification,
--------
termination, waiver or consent which: increases the amount of any of the
Commitments or reduces or forgives the principal amount of any of the Loans;
changes in any manner the definition of "Pro Rata Share" or the definition of
"Requisite Lenders"; changes in any manner any provision of this Agreement
which, by its terms, expressly requires the approval or concurrence of all
Lenders; postpones the scheduled final maturity date or the date of any
scheduled installment of principal of any of the Loans; postpones the date on
which any interest or any fees are payable; decreases the interest rate borne by
any of the Loans (other than any waiver of any increase in the interest rate
applicable to any of the Loans pursuant to subsection 2.2E) or the amount of any
fees payable hereunder; increases the maximum duration of Interest Periods
permitted hereunder; reduces the amount or postpones the due date of any amount
payable in respect of, or extends the required expiration date of, any Letter of
Credit; changes in any manner the obligations of Lenders relating to the
purchase of participations in Letters of Credit; releases any Lien granted in
favor of Administrative Agent with respect to 25% or more in aggregate
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fair market value of the Collateral, other than in accordance with the Loan
Documents; releases Holdings or any Subsidiary Guarantor from its obligations
under a Guaranty, other than in accordance with the terms of the Loan Documents;
or changes in any manner the provisions contained in subsection 8.1, or this
subsection 10.6 shall be effective only if evidenced by a writing signed by or
on behalf of all Lenders with receipt acknowledged by Administrative Agent;
provided, further, that if any matter described in the foregoing proviso relates
- -------- -------
only to a Revolving Loan, the approval of all Revolving Lenders shall be
sufficient; if any matter described in the foregoing proviso relates only to a
Tranche A Term Loan, the approval of Tranche A Term Loan Lenders shall be
sufficient; if any matter described in the foregoing proviso relates only to a
Tranche B Term Loan, the approval of all Tranche B Term Loan Lenders shall be
sufficient; provided, still further that any amendment or modification of this
-------- ----- -------
Agreement which creates one or more additional tranches of term loans (without
increasing the Commitment of any Lender to make such additional term loans)
shall only require the consent of the Requisite Lenders. In addition, (i) any
amendment, modification, termination or waiver of any of the provisions
contained in Section 4 shall be effective only if evidenced by a writing signed
by or on behalf of Agents and Requisite Lenders (the receipt of which shall be
acknowledged in writing by Agents), (ii) no amendment, modification, termination
or waiver of any provision of any Note shall be effective without the written
concurrence of the Lender which is the holder of that Note, (iii) no amendment,
modification, termination or waiver of any provision of any Letter of Credit
shall be effective without the consent of the Issuing Lender of such Letter of
Credit and no amendment, modification, termination or waiver of Section 3 that
changes in any manner the rights and obligations of an Issuing Lender with
respect to an outstanding Letter of Credit shall be effective without the
consent of that Issuing Lender, (iv) no amendment, modification, termination or
waiver of subsection 2.1A(iv) or of any other provision of this Agreement
relating to the Swing Line Loan Commitment or the Swing Line Loans shall be
effective without the written concurrence of Swing Line Lender, and (v) no
amendment, modification, termination or waiver of any provision of Section 9 or
of any other provision of this Agreement which, by its terms, expressly requires
the approval or concurrence of Agents shall be effective to limit the rights or
increase the obligation of either Agent without the written concurrence of such
Agent. Administrative Agent may, but shall have no obligation to, with the
concurrence of any Lender, execute amendments, modifications, waivers or
consents on behalf of that Lender. Any waiver or consent shall be effective only
in the specific instance and for the specific purpose for which it was given. No
notice to or demand on Company in any case shall entitle Company to any other or
further notice or demand in similar or other circumstances. Any amendment,
modification, termination, waiver or consent effected in accordance with this
subsection 10.6 shall be binding upon each Lender at the time
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outstanding, each future Lender and, if signed by Company, on Company.
B. If, in connection with any proposed amendment, modification,
termination or waiver to any of the provisions of this Agreement or the Notes as
contemplated by the first proviso of subsection 10.6A, the consent of the
Requisite Lenders is obtained but the consent of one or more of such other
Lenders whose consent is required is not obtained, then Company shall have the
right, so long as all non-consenting Lenders whose individual consent is
required are treated as described in either clause (i) or (ii) below, to either
(i) replace each such non-consenting Lender or Lenders with one or more
Replacement Lenders pursuant to subsection 2.9 so long as at the time of such
replacement, each such Replacement Lender consents to the proposed amendment,
modification, termination or waiver, or (ii) terminate such non-consenting
Lender's Commitments and repay in full its outstanding Loans in accordance with
subsections 2.4B(i)(b) and 2.4B(ii)(b); provided that unless the Commitments
--------
that are terminated and the Loans that are repaid pursuant to the preceding
clause (ii) are immediately replaced in full at such time through the addition
of new Lenders or the increase of the Commitments and/or outstanding Loans of
existing Lenders (who in each case must specifically consent thereto), then in
the case of any action pursuant to the preceding clause (ii), the Requisite
Lenders (determined before giving effect to the proposed action) shall
specifically consent thereto; provided further that Company shall not have the
-------- -------
right to terminate such non-consenting Lender's Commitment and repay in full its
outstanding Loans pursuant to clause (ii) of this subsection 10.6B if,
immediately after the termination of such Lender's Revolving Loan Commitment in
accordance with subsection 2.4B(ii)(b), the Revolving Loan Exposure of all
Lenders would exceed the Revolving Loan Commitments of all Lenders; provided
--------
still further that Company shall not have the right to replace a Lender solely
- ----- -------
as a result of the exercise of such Lender's rights (and the withholding of any
required consent by such Lender) pursuant to the second sentence of subsection
10.6A.
10.7 INDEPENDENCE OF COVENANTS.
-------------------------
All covenants hereunder shall be given independent effect so that if a
particular action or condition is not permitted by any of such covenants, the
fact that it would be permitted by an exception to, or would otherwise be within
the limitations of, another covenant shall not avoid the occurrence of an Event
of Default or Potential Event of Default if such action is taken or condition
exists.
10.8 NOTICES.
-------
Unless otherwise specifically provided herein, any notice or other
communication herein required or permitted to be
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given shall be in writing and may be personally served, telexed or sent by
telefacsimile or United States mail or courier service and shall be deemed to
have been given when delivered in person or by courier service, upon receipt of
telefacsimile or telex, or three Business Days after depositing it in the United
States mail with postage prepaid and properly addressed; provided that notices
--------
to Agents shall not be effective until received. For the purposes hereof, the
address of each party hereto shall be as set forth under such party's name on
the signature pages hereof or (i) as to Company and Agents, such other address
as shall be designated by such Person in a written notice delivered to the other
parties hereto and (ii) as to each other party, such other address as shall be
designated by such party in a written notice delivered to Administrative Agent.
10.9 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
------------------------------------------------------
A. All representations, warranties and agreements made herein shall
survive the execution and delivery of this Agreement and the making of the Loans
and the issuance of the Letters of Credit hereunder.
B. Notwithstanding anything in this Agreement or implied by law to the
contrary, the agreements of Company set forth in subsections 2.6D, 2.7, 3.5A,
3.6, 10.2, 10.3 and 10.4 and the agreements of Lenders set forth in subsections
9.2C, 9.4 and 10.5 shall survive the payment of the Loans, the cancellation or
expiration of the Letters of Credit and the reimbursement of any amounts drawn
thereunder, and the termination of this Agreement.
10.10 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE.
-----------------------------------------------------
No failure or delay on the part of any Agent or any Lender in the
exercise of any power, right or privilege hereunder or under any other Loan
Document shall impair such power, right or privilege or be construed to be a
waiver of any default or acquiescence therein, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other power, right or privilege. All rights and
remedies existing under this Agreement and the other Loan Documents are
cumulative to, and not exclusive of, any rights or remedies otherwise available.
10.11 MARSHALLING; PAYMENTS SET ASIDE.
-------------------------------
None of Agents or Lenders shall be under any obligation to marshal any
assets in favor of Company or any other party or against or in payment of any or
all of the Obligations. To the extent that Company makes a payment or payments
to Administrative Agent or Lenders (or to Administrative Agent for the benefit
of Lenders), or any of Agents or Lenders enforce any security interests or
exercise their rights of setoff, and such payment or payments or the proceeds of
such enforcement or setoff or any
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part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to a trustee, receiver or
any other party under any bankruptcy law, any other state or federal law, common
law or any equitable cause, then, to the extent of such recovery, the obligation
or part thereof originally intended to be satisfied, and all Liens, rights and
remedies therefor or related thereto, shall be revived and continued in full
force and effect as if such payment or payments had not been made or such
enforcement or setoff had not occurred.
10.12 SEVERABILITY.
------------
In case any provision in or obligation under this Agreement or the
Notes shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
10.13 OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS' RIGHTS.
----------------------------------------------------------
The obligations of Lenders hereunder are several and no Lender shall
be responsible for the obligations or Commitments of any other Lender hereunder.
Nothing contained herein or in any other Loan Document, and no action taken by
Lenders pursuant hereto or thereto, shall be deemed to constitute Lenders as a
partnership, an association, a joint venture or any other kind of entity. The
amounts payable at any time hereunder to each Lender shall be a separate and
independent debt, and each Lender shall be entitled to protect and enforce its
rights arising out of this Agreement and it shall not be necessary for any other
Lender to be joined as an additional party in any proceeding for such purpose.
10.14 HEADINGS.
--------
Section and subsection headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
10.15 APPLICABLE LAW.
--------------
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE
GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS
OF LAWS PRINCIPLES.
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10.16 SUCCESSORS AND ASSIGNS.
----------------------
This Agreement shall be binding upon the parties hereto and their
respective successors and assigns and shall inure to the benefit of the parties
hereto and the successors and assigns of Lenders (it being understood that
Lenders' rights of assignment are subject to subsection 10.1). Neither
Company's rights or obligations hereunder nor any interest therein may be
assigned or delegated by Company without the prior written consent of all
Lenders.
10.17 CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
----------------------------------------------
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST COMPANY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY OBLIGATIONS
THEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND
DELIVERING THIS AGREEMENT, COMPANY, FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, IRREVOCABLY
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN
ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO COMPANY AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SUBSECTION
10.8;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER COMPANY IN ANY SUCH
PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT;
(V) AGREES THAT LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST COMPANY IN
THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 10.17 RELATING
TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR
OTHERWISE.
10.18 WAIVER OF JURY TRIAL.
--------------------
EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS
BETWEEN THEM RELATING TO
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THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE LENDER/BORROWER RELATIONSHIP
THAT IS BEING ESTABLISHED. The scope of this waiver is intended to be all-
encompassing of any and all disputes that may be filed in any court and that
relate to the subject matter of this transaction, including contract claims,
tort claims, breach of duty claims and all other common law and statutory
claims. Each party hereto acknowledges that this waiver is a material
inducement to enter into a business relationship, that each has already relied
on this waiver in entering into this Agreement, and that each will continue to
rely on this waiver in their related future dealings. Each party hereto further
warrants and represents that it has reviewed this waiver with its legal counsel
and that it knowingly and voluntarily waives its jury trial rights following
consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT
MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN
WAIVER SPECIFICALLY REFERRING TO THIS SUBSECTION 10.18 AND EXECUTED BY EACH OF
THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS
MADE HEREUNDER. In the event of litigation, this Agreement may be filed as a
written consent to a trial by the court.
10.19 CONFIDENTIALITY.
---------------
Each Lender shall hold all non-public information obtained pursuant to
the requirements of this Agreement which has been identified as confidential by
Company in accordance with such Lender's customary procedures for handling
confidential information of this nature and in accordance with safe and sound
banking practices, it being understood and agreed by Company that in any event a
Lender may make disclosures to Affiliates and professional advisors of such
Lender or disclosures reasonably required by (a) any bona fide assignee,
transferee or participant in connection with the contemplated assignment or
transfer by such Lender of any Loans or any participations therein or (b) by any
direct or indirect contractual counterparties in swap agreements or such
contractual counterparties' professional advisors provided that such contractual
counterparty or professional advisor to such contractual counterparty agrees in
writing to keep such information confidential to the same extent required of the
Lenders hereunder, or disclosures required or requested by any governmental
agency or representative thereof or pursuant to legal process; provided that,
--------
unless specifically prohibited by applicable law or court order, each Lender
shall notify Company of any request by any governmental agency or representative
thereof (other than any such request in connection with any examination of the
financial condition of such Lender by such governmental agency) for disclosure
of any such non-public information prior to disclosure of such information; and
provided, further that in no event shall any Lender be obligated
- -------- -------
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or required to return any materials furnished by Company or any of its
Subsidiaries.
10.20 COUNTERPARTS; EFFECTIVENESS.
---------------------------
This Agreement and any amendments, waivers, consents or supplements
hereto or in connection herewith may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document. This Agreement shall become effective upon the execution of a
counterpart hereof by each of the parties hereto and receipt by Company and
Agents of written or telephonic notification of such execution and authorization
of delivery thereof.
[Remainder of page intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
COMPANY:
DIAMOND BRANDS OPERATING CORP.
By: _____________________________________
Title:
Notice Address:
1800 Cloquet Avenue
Cloquet, MN 55720-2141
Attention: Tom Knuesel
S-1
<PAGE>
LENDERS:
WELLS FARGO BANK, N.A., individually and as
Administrative Agent
By: ________________________________________
Title: _____________________________________
Notice Address:
Capital Markets Group
555 Montgomery Street, 17th Floor
San Francisco, CA 94111
Attention: Alan W. Wray
S-2
<PAGE>
DLJ CAPITAL FUNDING, INC., individually and
as Syndication Agent
By: ________________________________________
Title: _____________________________________
Notice Address:
2121 Avenue of the Stars
Fox Plaza, 30th Floor
Los Angeles, CA 90067-5014
Attention: Eric Swanson
With a copy to:
277 Park Avenue, 17th Floor
New York, NY 10172
Attention: Dana Klein
S-3
<PAGE>
MORGAN STANLEY SENIOR FUNDING, INC.,
individually and as Documentation Agent
By: ________________________________________
Title: _____________________________________
Notice Address:
1585 Broadway, 10th Floor
New York, NY 10036
Attention: James Morgan
With a copy to:
1585 Broadway, 10th Floor
New York, NY 10036
Attention: Michael Hart
S-4
<PAGE>
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION
By: ________________________________________
Title: _____________________________________
Notice Address:
231 S. LaSalle Street
Chicago, IL 60697
Attention: William Stafeil
S-5
<PAGE>
BANQUE PARIBAS
By: ________________________________________
Title: _____________________________________
Notice Address:
227 West Monroe Street, Suite 3300
Chicago, IL 60606
Attention: Karen E. Coons
S-6
<PAGE>
BHF-BANK AKTIENGESELLSCHAFT
By: ________________________________________
Title: _____________________________________
By: ________________________________________
Title: _____________________________________
Notice Address:
111 West Ocean Blvd., Suite 1325
Long Beach, CA 90802-4645
Attention: L. John Stewart
With a copy to:
590 Madison Avenue
New York, NY 10022-2540
Attention: Dan Dobrjanskyj
S-7
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By: ________________________________________
Title: _____________________________________
Notice Address:
1301 Avenue of Americas
New York, NY 10019
Attention: Olivier Tabouret
S-8
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO
By: ________________________________________
Title: _____________________________________
Notice Address:
One First National Plaza
Suite 0323 1-15
Chicago, IL 60670
Attention: Christina Zautcke
S-9
<PAGE>
U.S. BANK, NATIONAL ASSOCIATION
By: ________________________________________
Title: _____________________________________
Notice Address:
601 Second Avenue South
Minneapolis, MN 55402
Attention: David A. Shapiro
S-10
<PAGE>
EXHIBIT XVIII
[FORM OF SUBSIDIARY GUARANTY]
SUBSIDIARY GUARANTY
This SUBSIDIARY GUARANTY is entered into as of April 21, 1998 by THE
UNDERSIGNED (each a "GUARANTOR" and collectively, "GUARANTORS") in favor of and
for the benefit of WELLS FARGO BANK, N.A., as administrative agent for and
representative of (in such capacity herein called "GUARANTIED PARTY") the
financial institutions ("LENDERS") party to the Credit Agreement referred to
below and any Interest Rate Exchangers (as hereinafter defined), and, subject to
subsection 5.14, for the benefit of the other Beneficiaries (as hereinafter
defined).
RECITALS
A. Diamond Brands Operating Corp., a Delaware corporation
("COMPANY"), has entered into that certain Credit Agreement dated as of April
21, 1998 with DLJ Capital Funding, Inc., as Syndication Agent, Guarantied Party,
Morgan Stanley Senior Funding, Inc., as Documentation Agent, and Lenders (said
Credit Agreement, as it may hereafter be amended, supplemented or otherwise
modified from time to time, being the "CREDIT AGREEMENT"; capitalized terms
defined therein and not otherwise defined herein being used herein as therein
defined).
B. Company may from time to time enter, or may from time to time have
entered, into one or more Interest Rate Agreements (collectively, the "LENDER
INTEREST RATE AGREEMENTS") with or one or more Lenders (in such capacity,
collectively, "INTEREST RATE EXCHANGERS") in accordance with the terms of the
Credit Agreement, and it is desired that the obligations of Company under the
Lender Interest Rate Agreements, including the obligation of Company to make
payments thereunder in the event of early termination thereof (all such
obligations being the "INTEREST RATE OBLIGATIONS"), together with all
obligations of Company under the Credit Agreement and the other Loan Documents,
be guarantied hereunder.
C. A portion of the proceeds of the Loans may be advanced to
Guarantors and thus the Guarantied Obligations (as hereinafter defined) are
being incurred for and will inure to the benefit of Guarantors (which benefits
are hereby acknowledged).
D. Guarantors are willing irrevocably and unconditionally to guaranty
such obligations of Company.
E. Diamond Brands Incorporated, a Minnesota corporation ("HOLDINGS"),
has entered into that certain Guaranty dated as of April 21, 1998 in favor of
Guarantied Party (the "HOLDINGS GUARANTY").
XVIII-1
<PAGE>
F. It is a condition precedent to the making of the initial Loans
under the Credit Agreement that Company's obligations thereunder be guarantied
by Guarantors.
NOW, THEREFORE, based upon the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
in order to induce Lenders and Guarantied Party to enter into the Credit
Agreement and to make Loans and other extensions of credit thereunder and to
induce Interest Rate Exchangers to enter into the Lender Interest Rate
Agreements, Guarantors hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 CERTAIN DEFINED TERMS. As used in this Guaranty, the following terms
---------------------
shall have the following meanings unless the context otherwise requires:
"BENEFICIARIES" means Guarantied Party, Lenders and any Interest Rate
Exchangers.
"GUARANTIED OBLIGATIONS" has the meaning assigned to that term in
subsection 2.1.
"GUARANTY" means this Subsidiary Guaranty dated as of April 21, 1998,
as it may be amended, supplemented or otherwise modified from time to time.
"PAYMENT IN FULL", "PAID IN FULL" or any similar term means payment in
full of the Guarantied Obligations, including all principal, interest,
costs, fees and expenses (including reasonable legal fees and expenses) of
Beneficiaries as required under the Loan Documents and the Lender Interest
Rate Agreements.
1.2 DEFINED TERMS IN CREDIT AGREEMENT. All capitalized terms used and not
---------------------------------
otherwise defined herein shall have the meanings given such terms in the Credit
Agreement.
1.3 INTERPRETATION.
--------------
(a) References to "Sections" and "subsections" shall be to Sections
and subsections, respectively, of this Guaranty unless otherwise
specifically provided.
(b) In the event of any conflict or inconsistency between the terms,
conditions and provisions of this Guaranty and the terms, conditions and
provisions of the Credit Agreement, the terms, conditions and provisions of
this Guaranty shall prevail.
SECTION 2. THE GUARANTY
XVIII-2
<PAGE>
2.1 GUARANTY OF THE GUARANTIED OBLIGATIONS. Subject to the provisions of
--------------------------------------
subsection 2.2(a), Guarantors jointly and severally hereby irrevocably and
unconditionally guaranty the due and punctual payment in full of all Guarantied
Obligations when the same shall become due, whether at stated maturity, by
required prepayment, declaration, acceleration, demand or otherwise (including
amounts that would become due but for the operation of the automatic stay under
Section 362(a) of the Bankruptcy Code, 11 U.S.C. (S) 362(a)). The term
"GUARANTIED OBLIGATIONS" is used herein in its most comprehensive sense and
includes:
(a) any and all Obligations of Company and any and all Interest Rate
Obligations, in each case now or hereafter made, incurred or created,
whether absolute or contingent, liquidated or unliquidated, whether due or
not due, and however arising under or in connection with the Credit
Agreement and the other Loan Documents and the Lender Interest Rate
Agreements, including those arising under successive borrowing transactions
under the Credit Agreement which shall either continue the Obligations of
Company or from time to time renew them after they have been satisfied and
including interest which, but for the filing of a petition in bankruptcy
with respect to Company, would have accrued on any Guarantied Obligations,
whether or not a claim is allowed against Company for such interest in the
related bankruptcy proceeding; and
(b) those expenses set forth in subsection 2.8 hereof.
2.2 LIMITATION ON AMOUNT GUARANTIED; CONTRIBUTION BY GUARANTORS. (a)
-----------------------------------------------------------
Anything contained in this Guaranty to the contrary notwithstanding, if any
Fraudulent Transfer Law (as hereinafter defined) is determined by a court of
competent jurisdiction to be applicable to the obligations of any Guarantor
under this Guaranty, such obligations of such Guarantor hereunder shall be
limited to a maximum aggregate amount equal to the largest amount that would not
render its obligations hereunder subject to avoidance as a fraudulent transfer
or conveyance under Section 548 of Title 11 of the United States Code or any
applicable provisions of comparable state law (collectively, the "FRAUDULENT
TRANSFER LAWS"), in each case after giving effect to all other liabilities of
such Guarantor, contingent or otherwise, that are relevant under the Fraudulent
Transfer Laws (specifically excluding, however, any liabilities of such
Guarantor (x) in respect of intercompany indebtedness to Company or other
affiliates of Company to the extent that such indebtedness would be discharged
in an amount equal to the amount paid by such Guarantor hereunder and (y) under
any guaranty of Subordinated Indebtedness which guaranty contains a limitation
as to maximum amount similar to that set forth in this subsection 2.2(a),
pursuant to which the liability of such 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,
reimbursement, indemnification or contribution of such Guarantor pursuant to
applicable law or pursuant to the terms of any agreement (including any such
right of contribution under subsection 2.2(b)).
XVIII-3
<PAGE>
(b) Each Guarantor under this Guaranty, and Holdings under the Holdings
Guaranty, together desire to allocate among themselves (collectively, the
"CONTRIBUTING GUARANTORS"), in a fair and equitable manner, their obligations
arising under this Guaranty and the Holdings Guaranty. Accordingly, in the
event any payment or distribution is made on any date by any Guarantor under
this Guaranty or Holdings under the Holdings Guaranty (a "FUNDING GUARANTOR")
that exceeds its Fair Share (as defined below) as of such date, that Funding
Guarantor shall be entitled to a contribution from each of the other
Contributing Guarantors in the amount of such other Contributing Guarantor's
Fair Share Shortfall (as defined below) as of such date, with the result that
all such contributions will cause each Contributing Guarantor's Aggregate
Payments (as defined below) to equal its Fair Share as of such date. "FAIR
SHARE" means, with respect to a Contributing Guarantor as of any date of
determination, an amount equal to (i) the ratio of (x) the Adjusted Maximum
Amount (as defined below) with respect to such Contributing Guarantor to (y) the
aggregate of the Adjusted Maximum Amounts with respect to all Contributing
Guarantors multiplied by (ii) the aggregate amount paid or distributed on or
---------- --
before such date by all Funding Guarantors under this Guaranty and the Holdings
Guaranty in respect of the obligations guarantied. "FAIR SHARE SHORTFALL"
means, with respect to a Contributing Guarantor as of any date of determination,
the excess, if any, of the Fair Share of such Contributing Guarantor over the
Aggregate Payments of such Contributing Guarantor. "ADJUSTED MAXIMUM AMOUNT"
means, with respect to a Contributing Guarantor as of any date of determination,
the maximum aggregate amount of the obligations of such Contributing Guarantor
under this Guaranty and the Holdings Guaranty, determined as of such date, in
the case of any Guarantor, in accordance with subsection 2.2(a), or, if
applicable, subsection 2.2(a) of the Holdings Guaranty; provided that, solely
--------
for purposes of calculating the "Adjusted Maximum Amount" with respect to any
Contributing Guarantor for purposes of this subsection 2.2(b), any assets or
liabilities of such Contributing Guarantor arising by virtue of any rights to
subrogation, reimbursement or indemnification or any rights to or obligations of
contribution hereunder or under the Holdings Guaranty shall not be considered as
assets or liabilities of such Contributing Guarantor. "AGGREGATE PAYMENTS"
means, with respect to a Contributing Guarantor as of any date of determination,
an amount equal to (i) the aggregate amount of all payments and distributions
made on or before such date by such Contributing Guarantor in respect of this
Guaranty and the Holdings Guaranty (including in respect of this subsection
2.2(b) or subsection 2.2(b) of the Holdings Guaranty) minus (ii) the aggregate
-----
amount of all payments received on or before such date by such Contributing
Guarantor from the other Contributing Guarantors as contributions under this
subsection 2.2(b) or subsection 2.2(b) of the Holdings Guaranty. The amounts
payable as contributions hereunder shall be determined as of the date on which
the related payment or distribution is made by the applicable Funding Guarantor.
The allocation among Contributing Guarantors of their obligations as set forth
in this subsection 2.2(b) or subsection 2.2(b) of the Holdings Guaranty shall
not be construed in any way to limit the liability of any Contributing Guarantor
hereunder or under the Holdings Guaranty. Holdings under the Holdings Guaranty
is a third party beneficiary to the contribution agreement set forth in this
subsection 2.2(b).
XVIII-4
<PAGE>
2.3 PAYMENT BY GUARANTORS; APPLICATION OF PAYMENTS. Subject to the
----------------------------------------------
provisions of subsection 2.2(a), Guarantors hereby jointly and severally agree,
in furtherance of the foregoing and not in limitation of any other right which
any Beneficiary may have at law or in equity against any Guarantor by virtue
hereof, that upon the failure of Company to pay any of the Guarantied
Obligations when and as the same shall become due, whether at stated maturity,
by required prepayment, declaration, acceleration, demand or otherwise
(including amounts that would become due but for the operation of the automatic
stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. (S) 362(a)),
Guarantors will upon demand pay, or cause to be paid, in cash, to Guarantied
Party for the ratable benefit of Beneficiaries, an amount equal to the sum of
the unpaid principal amount of all Guarantied Obligations then due as aforesaid,
accrued and unpaid interest on such Guarantied Obligations (including interest
which, but for the filing of a petition in bankruptcy with respect to Company,
would have accrued on such Guarantied Obligations, whether or not a claim is
allowed against Company for such interest in the related bankruptcy proceeding)
and all other Guarantied Obligations then owed to Beneficiaries as aforesaid.
All such payments shall be applied promptly from time to time by Guarantied
Party as provided in subsection 2.4D of the Credit Agreement.
2.4 LIABILITY OF GUARANTORS ABSOLUTE. Each Guarantor agrees that its
--------------------------------
obligations hereunder are irrevocable, absolute, independent and unconditional
and shall not be affected by any circumstance which constitutes a legal or
equitable discharge of a guarantor or surety other than payment in full of the
Guarantied Obligations. In furtherance of the foregoing and without limiting
the generality thereof, each Guarantor agrees as follows:
(a) This Guaranty is a guaranty of payment when due and not of
collectibility.
(b) Guarantied Party may enforce this Guaranty upon the occurrence
and continuation of an Event of Default under the Credit Agreement or the
occurrence and continuation of an Early Termination Date (as defined in a
Master Agreement or an Interest Rate Swap Agreement or Interest Rate and
Currency Exchange Agreement in the form prepared by the International Swap
and Derivatives Association Inc. or a similar event under any similar swap
agreement) under any Lender Interest Rate Agreement (either such occurrence
being an "EVENT OF DEFAULT" for purposes of this Guaranty).
(c) The obligations of each Guarantor hereunder are independent of
the obligations of Company under the Loan Documents or the Lender Interest
Rate Agreements and the obligations of any other guarantor (including any
other Guarantor) of the obligations of Company under the Loan Documents or
the Lender Interest Rate Agreements, and a separate action or actions may
be brought and prosecuted against such Guarantor whether or not any action
is brought against Company or any of such other guarantors and whether or
not Company is joined in any such action or actions.
XVIII-5
<PAGE>
(d) Payment by any Guarantor of a portion, but not all, of the
Guarantied Obligations shall in no way limit, affect, modify or abridge any
Guarantor's liability for any portion of the Guarantied Obligations which
has not been paid. Without limiting the generality of the foregoing, if
Guarantied Party is awarded a judgment in any suit brought to enforce any
Guarantor's covenant to pay a portion of the Guarantied Obligations, such
judgment shall not be deemed to release such Guarantor from its covenant to
pay the portion of the Guarantied Obligations that is not the subject of
such suit, and such judgment shall not, except to the extent satisfied by
such Guarantor, limit, affect, modify or abridge any other Guarantor's
liability hereunder in respect of the Guarantied Obligations.
(e) Any Beneficiary, upon such terms as it deems appropriate, without
notice or demand and without affecting the validity or enforceability of
this Guaranty or giving rise to any reduction, limitation, impairment,
discharge or termination of any Guarantor's liability hereunder, from time
to time may (i) renew, extend, accelerate, increase the rate of interest
on, or otherwise change the time, place, manner or terms of payment of the
Guarantied Obligations, (ii) settle, compromise, release or discharge, or
accept or refuse any offer of performance with respect to, or substitutions
for, the Guarantied Obligations or any agreement relating thereto and/or
subordinate the payment of the same to the payment of any other
obligations; (iii) request and accept other guaranties of the Guarantied
Obligations and take and hold security for the payment of this Guaranty or
the Guarantied Obligations; (iv) release, surrender, exchange, substitute,
compromise, settle, rescind, waive, alter, subordinate or modify, with or
without consideration, any security for payment of the Guarantied
Obligations, any other guaranties of the Guarantied Obligations, or any
other obligation of any Person (including any other Guarantor) with respect
to the Guarantied Obligations; (v) enforce and apply any security now or
hereafter held by or for the benefit of such Beneficiary in respect of this
Guaranty or the Guarantied Obligations and direct the order or manner of
sale thereof, or exercise any other right or remedy that such Beneficiary
may have against any such security, in each case as such Beneficiary in its
discretion may determine consistent with the Credit Agreement or the
applicable Lender Interest Rate Agreement and any applicable security
agreement, including foreclosure on any such security pursuant to one or
more judicial or nonjudicial sales, whether or not every aspect of any such
sale is commercially reasonable, and even though such action operates to
impair or extinguish any right of reimbursement or subrogation or other
right or remedy of any Guarantor against Company or any security for the
Guarantied Obligations; and (vi) exercise any other rights available to it
under the Loan Documents or the Lender Interest Rate Agreements.
(f) This Guaranty and the obligations of Guarantors hereunder shall
be valid and enforceable and shall not be subject to any reduction,
limitation, impairment, discharge or termination for any reason (other than
payment in full of the Guarantied Obligations), including the occurrence of
any of the following, whether
XVIII-6
<PAGE>
or not any Guarantor shall have had notice or knowledge of any of them: (i)
any failure or omission to assert or enforce or agreement or election not
to assert or enforce, or the stay or enjoining, by order of court, by
operation of law or otherwise, of the exercise or enforcement of, any claim
or demand or any right, power or remedy (whether arising under the Loan
Documents or the Lender Interest Rate Agreements, at law, in equity or
otherwise) with respect to the Guarantied Obligations or any agreement
relating thereto, or with respect to any other guaranty of or security for
the payment of the Guarantied Obligations; (ii) any rescission, waiver,
amendment or modification of, or any consent to departure from, any of the
terms or provisions (including provisions relating to events of default) of
the Credit Agreement, any of the other Loan Documents, any of the Lender
Interest Rate Agreements or any agreement or instrument executed pursuant
thereto, or of any other guaranty or security for the Guarantied
Obligations, in each case whether or not in accordance with the terms of
the Credit Agreement or such Loan Document, such Lender Interest Rate
Agreement or any agreement relating to such other guaranty or security;
(iii) the Guarantied Obligations, or any agreement relating thereto, at any
time being found to be illegal, invalid or unenforceable in any respect;
(iv) the application of payments received from any source (other than
payments received pursuant to the other Loan Documents or any of the
Lender Interest Rate Agreements or from the proceeds of any security for
the Guarantied Obligations, except to the extent such security also serves
as collateral for indebtedness other than the Guarantied Obligations) to
the payment of indebtedness other than the Guarantied Obligations, even
though any Beneficiary might have elected to apply such payment to any part
or all of the Guarantied Obligations; (v) any Beneficiary's consent to the
change, reorganization or termination of the corporate structure or
existence of Company or any of its Subsidiaries and to any corresponding
restructuring of the Guarantied Obligations; (vi) any failure to perfect or
continue perfection of a security interest in any collateral which secures
any of the Guarantied Obligations; (vii) any defenses (other than the
expiration of applicable statute of limitations), set-offs or counterclaims
which Company may allege or assert against any Beneficiary in respect of
the Guarantied Obligations, including failure of consideration, breach of
warranty, payment, statute of frauds, accord and satisfaction and usury;
and (viii) any other act or thing or omission, or delay to do any other act
or thing, which may or might in any manner or to any extent vary the risk
of any Guarantor as an obligor in respect of the Guarantied Obligations.
2.5 WAIVERS BY GUARANTORS. Each Guarantor hereby waives, for the benefit
---------------------
of Beneficiaries:
(a) any right to require any Beneficiary, as a condition of payment
or performance by such Guarantor, to (i) proceed against Company, any other
guarantor (including any other Guarantor) of the Guarantied Obligations or
any other Person, (ii) proceed against or exhaust any security held from
Company, any such other guarantor or any other Person, (iii) proceed
against or have resort to
XVIII-7
<PAGE>
any balance of any deposit account or credit on the books of any
Beneficiary in favor of Company or any other Person, or (iv) pursue any
other remedy in the power of any Beneficiary whatsoever;
(b) any defense arising by reason of the incapacity, lack of
authority or any disability or other defense of Company (other than the
expiration of applicable statute of limitations) including any defense
based on or arising out of the lack of validity or the unenforceability of
the Guarantied Obligations or any agreement or instrument relating thereto
or by reason of the cessation of the liability of Company from any cause
other than payment in full of the Guarantied Obligations;
(c) any defense based upon any statute or rule of law which provides
that the obligation of a surety must be neither larger in amount nor in
other respects more burdensome than that of the principal;
(d) any defense based upon any Beneficiary's errors or omissions in
the administration of the Guarantied Obligations, except behavior which
amounts to gross negligence, willful misconduct or bad faith;
(e) (i) any principles or provisions of law, statutory or otherwise,
which are or might be in conflict with the terms of this Guaranty and any
legal or equitable discharge of such Guarantor's obligations hereunder,
(ii) any rights to set-offs, recoupments and counterclaims, and (iii)
promptness, diligence and any requirement that any Beneficiary protect,
secure, perfect or insure any security interest or lien or any property
subject thereto;
(f) notices, demands, presentments, protests, notices of protest,
notices of dishonor and notices of any action or inaction, including
acceptance of this Guaranty, notices of default under the Credit Agreement,
the Lender Interest Rate Agreements or any agreement or instrument related
thereto, notices of any renewal, extension or modification of the
Guarantied Obligations or any agreement related thereto, notices of any
extension of credit to Company and notices of any of the matters referred
to in subsection 2.4 and any right to consent to any thereof; and
(g) any defenses (other than expiration of statutes of limitations)
or benefits that may be derived from or afforded by law which limit the
liability of or exonerate guarantors or sureties, or which may conflict
with the terms of this Guaranty.
2.6 GUARANTORS' RIGHTS OF SUBROGATION, CONTRIBUTION, ETC. Until the
----------------------------------------------------
Guarantied Obligations shall have been indefeasibly paid in full and the
Commitments shall have terminated and all Letters of Credit shall have expired
or been cancelled, each Guarantor hereby waives any claim, right or remedy,
direct or indirect, that such
XVIII-8
<PAGE>
Guarantor now has or may hereafter have against Company or any of its assets in
connection with this Guaranty or the performance by such Guarantor of its
obligations hereunder, in each case whether such claim, right or remedy arises
in equity, under contract, by statute, under common law or otherwise and
including without limitation (a) any right of subrogation, reimbursement or
indemnification that such Guarantor now has or may hereafter have against
Company, (b) any right to enforce, or to participate in, any claim, right or
remedy that any Beneficiary now has or may hereafter have against Company, and
(c) any benefit of, and any right to participate in, any collateral or security
now or hereafter held by any Beneficiary. In addition, until the Guarantied
Obligations shall have been indefeasibly paid in full and the Commitments shall
have terminated and all Letters of Credit shall have expired or been cancelled,
each Guarantor shall withhold exercise of any right of contribution such
Guarantor may have against any other guarantor (including any other Guarantor)
of the Guarantied Obligations. Each Guarantor further agrees that, to the extent
the waiver or agreement to withhold the exercise of its rights of subrogation,
reimbursement, indemnification and contribution as set forth herein is found by
a court of competent jurisdiction to be void or voidable for any reason, any
rights of subrogation, reimbursement or indemnification such Guarantor may have
against Company or against any collateral or security, and any rights of
contribution such Guarantor may have against any such other guarantor, shall be
junior and subordinate to any rights any Beneficiary may have against Company,
to all right, title and interest any Beneficiary may have in any such collateral
or security, and to any right any Beneficiary may have against such other
guarantor. If any amount shall be paid to any Guarantor on account of any such
subrogation, reimbursement, indemnification or contribution rights at any time
when all Guarantied Obligations shall not have been paid in full, such amount
shall be held in trust for Guarantied Party on behalf of Beneficiaries and shall
forthwith be paid over to Guarantied Party for the benefit of Beneficiaries to
be credited and applied against the Guarantied Obligations, whether matured or
unmatured, in accordance with the terms hereof.
2.7 SUBORDINATION OF OTHER OBLIGATIONS. Any indebtedness of Company or any
----------------------------------
Guarantor now or hereafter held by any Guarantor (the "OBLIGEE GUARANTOR") is
hereby subordinated in right of payment to the Guarantied Obligations, and any
such indebtedness collected or received by the Obligee Guarantor after an Event
of Default has occurred and is continuing shall be held in trust for Guarantied
Party on behalf of Beneficiaries and shall forthwith be paid over to Guarantied
Party for the benefit of Beneficiaries to be credited and applied against the
Guarantied Obligations but without affecting, impairing or limiting in any
manner the liability of the Obligee Guarantor under any other provision of this
Guaranty.
2.8 EXPENSES. Guarantors jointly and severally agree to pay, or cause to
--------
be paid, on demand, and to save Beneficiaries harmless against liability for,
any and all reasonable out-of-pocket costs and expenses (including reasonable
fees and disbursements of counsel and allocated costs of internal counsel)
incurred or expended by any Beneficiary in connection with the enforcement of or
preservation of any rights under this Guaranty.
XVIII-9
<PAGE>
2.9 CONTINUING GUARANTY. This Guaranty is a continuing guaranty and shall
-------------------
remain in effect until all of the Guarantied Obligations shall have been paid in
full and the Commitments shall have terminated and all Letters of Credit shall
have expired or been cancelled. Each Guarantor hereby irrevocably waives any
right to revoke this Guaranty as to future transactions giving rise to any
Guarantied Obligations.
2.10 AUTHORITY OF GUARANTORS OR COMPANY. It is not necessary for any
----------------------------------
Beneficiary to inquire into the capacity or powers of any Guarantor or Company
or the officers, directors, members, governors or any agents acting or
purporting to act on behalf of any of them.
2.11 FINANCIAL CONDITION OF COMPANY. Any Loans may be granted to Company
------------------------------
or continued from time to time, and any Lender Interest Rate Agreements may be
entered into from time to time, in each case without notice to or authorization
from any Guarantor regardless of the financial or other condition of Company at
the time of any such grant or continuation or at the time such Lender Interest
Rate Agreement is entered into, as the case may be. No Beneficiary shall have
any obligation to disclose or discuss with any Guarantor its assessment, or any
Guarantor's assessment, of the financial condition of Company. Each Guarantor
has adequate means to obtain information from Company on a continuing basis
concerning the financial condition of Company and its ability to perform its
obligations under the Loan Documents and the Lender Interest Rate Agreements,
and each Guarantor assumes the responsibility for being and keeping informed of
the financial condition of Company and of all circumstances bearing upon the
risk of nonpayment of the Guarantied Obligations. Each Guarantor hereby waives
and relinquishes any duty on the part of any Beneficiary to disclose any matter,
fact or thing relating to the business, operations or conditions of Company now
known or hereafter known by any Beneficiary.
2.12 RIGHTS CUMULATIVE. The rights, powers and remedies given to
-----------------
Beneficiaries by this Guaranty are cumulative and shall be in addition to and
independent of all rights, powers and remedies given to Beneficiaries by virtue
of any statute or rule of law or in any of the other Loan Documents, any of the
Lender Interest Rate Agreements or any agreement between any Guarantor and any
Beneficiary or Beneficiaries or between Company and any Beneficiary or
Beneficiaries. Any forbearance or failure to exercise, and any delay by any
Beneficiary in exercising, any right, power or remedy hereunder shall not impair
any such right, power or remedy or be construed to be a waiver thereof, nor
shall it preclude the further exercise of any such right, power or remedy.
2.13 BANKRUPTCY; POST-PETITION INTEREST; REINSTATEMENT OF GUARANTY. (a) So
-------------------------------------------------------------
long as any Guarantied Obligations remain outstanding, no Guarantor shall,
without the prior written consent of Guarantied Party acting pursuant to the
instructions of Requisite Lenders, commence or join with any other Person in
commencing any bankruptcy, reorganization or insolvency proceedings of or
against Company. The obligations of Guarantors under this Guaranty shall not be
reduced, limited, impaired, discharged,
XVIII-10
<PAGE>
deferred, suspended or terminated by any proceeding, voluntary or involuntary,
involving the bankruptcy, insolvency, receivership, reorganization, liquidation
or arrangement of Company or by any defense which Company may have by reason of
the order, decree or decision of any court or administrative body resulting from
any such proceeding.
(b) Each Guarantor acknowledges and agrees that any interest on any
portion of the Guarantied Obligations which accrues after the commencement of
any proceeding referred to in clause (a) above (or, if interest on any portion
of the Guarantied Obligations ceases to accrue by operation of law by reason of
the commencement of said proceeding, such interest as would have accrued on such
portion of the Guarantied Obligations if said proceedings had not been
commenced) shall be included in the Guarantied Obligations because it is the
intention of Guarantors and Beneficiaries that the Guarantied Obligations which
are guarantied by Guarantors pursuant to this Guaranty should be determined
without regard to any rule of law or order which may relieve Company of any
portion of such Guarantied Obligations. Guarantors will permit any trustee in
bankruptcy, receiver, debtor in possession, assignee for the benefit of
creditors or similar person to pay Guarantied Party, or allow the claim of
Guarantied Party in respect of, any such interest accruing after the date on
which such proceeding is commenced.
(c) In the event that all or any portion of the Guarantied
Obligations is paid by Company, the obligations of Guarantors hereunder shall
continue and remain in full force and effect or be reinstated, as the case may
be, in the event that all or any part of such payment(s) are rescinded or
recovered directly or indirectly from any Beneficiary as a preference,
fraudulent transfer or otherwise, and any such payments which are so rescinded
or recovered shall constitute Guarantied Obligations for all purposes under this
Guaranty.
2.14 NOTICE OF EVENTS. As soon as any Guarantor obtains knowledge thereof,
----------------
each such Guarantor shall give Guarantied Party written notice of any condition
or event which has resulted in (a) a material adverse change in the financial
condition of such Guarantor or Company or (b) a breach of or noncompliance with
any term, condition or covenant contained herein or in the Credit Agreement, any
other Loan Document, any Lender Interest Rate Agreements or any other document
delivered pursuant hereto or thereto.
2.15 SET OFF. In addition to any other rights any Beneficiary may have
-------
under law or in equity, if any amount shall at any time be due and owing by any
Guarantor to any Beneficiary under this Guaranty, such Beneficiary is authorized
at any time or from time to time, without notice (any such notice being hereby
expressly waived), to set off and to appropriate and to apply any and all
deposits (general or special, including indebtedness evidenced by certificates
of deposit, whether matured or unmatured) and any other indebtedness of such
Beneficiary owing to such Guarantor and any other property of such Guarantor
held by any Beneficiary to or for the credit or the account of such
XVIII-11
<PAGE>
Guarantor against and on account of the Guarantied Obligations and liabilities
of such Guarantor to any Beneficiary under this Guaranty.
2.16 DISCHARGE OF GUARANTY UPON SALE OF GUARANTOR. If all of the stock or
--------------------------------------------
limited liability company interests of any Guarantor or any of its successors in
interest under this Guaranty shall be sold or otherwise disposed of (including
by merger or consolidation) in an Asset Sale not prohibited by subsection 7.7 of
the Credit Agreement or otherwise consented to by Requisite Lenders, the
Guaranty of such Guarantor or such successor in interest, as the case may be,
hereunder shall automatically be discharged and released without any further
action by any Beneficiary or any other Person effective as of the time of such
Asset Sale; provided that, as a condition precedent to such discharge and
--------
release, Guarantied Party shall have received evidence satisfactory to it that
arrangements satisfactory to it have been made for delivery to Guarantied Party
of the applicable Net Asset Sale Proceeds if required under the Credit
Agreement; provided further that no such delivery shall be required in
----------------
connection with a merger or consolidation of such entity into or with Company or
another subsidiary of Company.
SECTION 3. REPRESENTATIONS AND WARRANTIES
In order to induce Beneficiaries to accept this Guaranty and to enter
into the Credit Agreement and to make the Loans thereunder, each Guarantor
hereby represents and warrants to Beneficiaries that the following statements
are true and correct:
3.1 CORPORATE EXISTENCE. Each Guarantor is duly organized, validly
-------------------
existing and in good standing under the laws of the state of its incorporation,
has the corporate power to own its assets and to transact the business in which
it is now engaged and is duly qualified as a foreign corporation and in good
standing under the laws of each jurisdiction where its ownership or lease of
property or the conduct of its business requires such qualification, except for
failures to be so qualified, authorized or licensed that would not in the
aggregate have a material adverse effect on the business, operations, assets or
financial condition of Guarantor.
3.2 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. Each
-------------------------------------------------------
Guarantor has the corporate power, authority and legal right to execute, deliver
and perform this Guaranty and all obligations required hereunder and has taken
all necessary corporate action to authorize its Guaranty hereunder on the terms
and conditions hereof and its execution, delivery and performance of this
Guaranty and all obligations required hereunder. No consent of any other Person
including, without limitation, stockholders and creditors of either Guarantor,
and no license, permit, approval or authorization of, exemption by, notice or
report to, or registration, filing or declaration with, any governmental
authority is required by either Guarantor in connection with this Guaranty or
the execution, delivery, performance, validity or enforceability of this
Guaranty and all obligations required hereunder. This Guaranty has been, and
each instrument or document
XVIII-12
<PAGE>
required hereunder will be, executed and delivered by a duly authorized officer
of each of the Guarantors, and this Guaranty constitutes, and each instrument or
document required hereunder when executed and delivered hereunder will
constitute, the legally valid and binding obligation of each of the Guarantors,
enforceable against each of the Guarantors in accordance with its terms, except
as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws or equitable principles
relating to or limiting creditors' rights generally.
3.3 NO LEGAL BAR TO THIS GUARANTY. The execution, delivery and performance
-----------------------------
of this Guaranty and the documents or instruments required hereunder, and the
use of the proceeds of the borrowings under the Credit Agreement, will not
violate any provision of any existing law or regulation binding on either
Guarantor, or any order, judgment, award or decree of any court, arbitrator or
governmental authority binding on either Guarantor, or the certificate of
incorporation or bylaws of either Guarantor or any securities issued by either
Guarantor, or any mortgage, indenture, lease, contract or other agreement,
instrument or undertaking to which either Guarantor is a party or by which
either Guarantor or any of its assets may be bound, the violation of which would
have a material adverse effect on the business, operations, assets or financial
condition of either Guarantor and will not result in, or require, the creation
or imposition of any Lien on any of its property, assets or revenues pursuant to
the provisions of any such mortgage, indenture, lease, contract or other
agreement, instrument or undertaking.
SECTION 4. AFFIRMATIVE COVENANTS
Each Guarantor covenants and agrees that, unless and until all of the
Guarantied Obligations shall have been paid in full and the Commitments shall
have terminated, unless Requisite Lenders shall otherwise consent in writing:
4.1 CORPORATE EXISTENCE, ETC. Each Guarantor shall at all times preserve
------------------------
and keep in full force and effect its corporate existence and all rights and
franchises material to its business.
4.2 COMPLIANCE WITH LAWS, ETC. Each Guarantor shall comply in all material
-------------------------
respects with all applicable laws, rules, regulations and orders, such
compliance to include, without limitation, paying when due all taxes,
assessments and governmental charges imposed upon it or upon any of its
properties or assets or in respect of any of its franchises, businesses, income
or property before any penalty or interest accrues thereon.
4.3 BOOKS AND RECORDS. Subject to the terms of the Credit Agreement, each
-----------------
Guarantor shall keep and maintain books of record and account with respect to
its operations in accordance with generally accepted accounting principles and
shall permit any Beneficiary and its officers, employees and authorized agents,
to the extent Guarantied Party in good faith deems necessary for the proper
administration of this Guaranty, to examine, copy and make excerpts from the
books and records of either Guarantor and its Subsidiaries and to inspect the
properties of either Guarantor and its Subsidiaries, both real and personal, at
such reasonable times as Guarantied Party may request.
XVIII-13
<PAGE>
SECTION 5. MISCELLANEOUS
5.1 SURVIVAL OF WARRANTIES. All agreements, representations and warranties
----------------------
made herein shall survive the execution and delivery of this Guaranty and the
other Loan Documents and the Lender Interest Rate Agreements and any increase in
the Commitments under the Credit Agreement.
5.2 NOTICES. Any communications between Guarantied Party and any Guarantor
-------
and any notices or requests provided herein to be given shall be given as
provided in the Credit Agreement to each such party at its address set forth in
the Credit Agreement, on the signature pages hereof or to such other addresses
as each such party may in writing hereafter indicate. Any notice, request or
demand to or upon Guarantied Party or any Guarantor shall not be effective until
received.
5.3 SEVERABILITY. In case any provision in or obligation under this
------------
Guaranty shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
5.4 AMENDMENTS AND WAIVERS. No amendment, modification, termination or
----------------------
waiver of any provision of this Guaranty, and no consent to any departure by any
Guarantor therefrom, shall in any event be effective without the written
concurrence of Guarantied Party and, in the case of any such amendment or
modification, each Guarantor against whom enforcement of such amendment or
modification is sought. Any such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which it was given.
5.5 HEADINGS. Section and subsection headings in this Guaranty are
--------
included herein for convenience of reference only and shall not constitute a
part of this Guaranty for any other purpose or be given any substantive effect.
5.6 APPLICABLE LAW; RULES OF CONSTRUCTION. THIS GUARANTY AND THE RIGHTS
-------------------------------------
AND OBLIGATIONS OF GUARANTORS AND BENEFICIARIES HEREUNDER SHALL BE GOVERNED BY,
AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF
THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. The
rules of construction set forth in subsection 1.3 of the Credit Agreement shall
be applicable to this Guaranty mutatis mutandis.
5.7 SUCCESSORS AND ASSIGNS. This Guaranty is a continuing guaranty and
----------------------
shall be binding upon each Guarantor and its respective successors and assigns.
This Guaranty shall inure to the benefit of Beneficiaries and their respective
successors and assigns. No Guarantor shall assign this Guaranty or any of the
rights or obligations of such Guarantor
XVIII-14
<PAGE>
hereunder without the prior written consent of all Lenders. Any Beneficiary may,
without notice or consent, assign its interest in this Guaranty in whole or in
part. The terms and provisions of this Guaranty shall inure to the benefit of
any transferee or assignee of any Loan, and in the event of such transfer or
assignment the rights and privileges herein conferred upon such Beneficiary
shall automatically extend to and be vested in such transferee or assignee, all
subject to the terms and conditions hereof.
5.8 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL JUDICIAL
----------------------------------------------
PROCEEDINGS BROUGHT AGAINST ANY GUARANTOR ARISING OUT OF OR RELATING TO THIS
GUARANTY, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL
COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY
EXECUTING AND DELIVERING THIS AGREEMENT, EACH GUARANTOR, FOR ITSELF AND IN
CONNECTION WITH ITS PROPERTIES, IRREVOCABLY
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN
ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO SUCH GUARANTOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH
SUBSECTION 5.2;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER SUCH GUARANTOR IN ANY SUCH
PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT;
(V) AGREES THAT BENEFICIARIES RETAIN THE RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST SUCH
GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 5.8 RELATING TO
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR
OTHERWISE.
5.9 WAIVER OF TRIAL BY JURY. EACH GUARANTOR AND, BY ITS ACCEPTANCE OF THE
-----------------------
BENEFITS HEREOF, EACH BENEFICIARY EACH
XVIII-15
<PAGE>
HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS GUARANTY. The scope of this
waiver is intended to be all encompassing of any and all disputes that may be
filed in any court and that relate to the subject matter of this transaction,
including contract claims, tort claims, breach of duty claims and all other
common law and statutory claims. Each Guarantor and, by its acceptance of the
benefits hereof, each Beneficiary, each (i) acknowledges that this waiver is a
material inducement for such Guarantor and Beneficiaries to enter into a
business relationship, that such Guarantor and Beneficiaries have already relied
on this waiver in entering into this Guaranty or accepting the benefits thereof,
as the case may be, and that each will continue to rely on this waiver in their
related future dealings and (ii) further warrants and represents that each has
reviewed this waiver with its legal counsel, and that each knowingly and
voluntarily waives its jury trial rights following consultation with legal
counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY
REFERRING TO THIS SUBSECTION 5.9 AND EXECUTED BY GUARANTIED PARTY AND EACH
GUARANTOR), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY. In the event of litigation, this
Guaranty may be filed as a written consent to a trial by the court.
5.10 NO OTHER WRITING. This writing is intended by Guarantors and
----------------
Beneficiaries as the final expression of this Guaranty and is also intended as a
complete and exclusive statement of the terms of their agreement with respect to
the matters covered hereby. No course of dealing, course of performance or
trade usage, and no parol evidence of any nature, shall be used to supplement or
modify any terms of this Guaranty. There are no conditions to the full
effectiveness of this Guaranty.
5.11 FURTHER ASSURANCES. At any time or from time to time, upon the
------------------
request of Guarantied Party, Guarantors shall execute and deliver such further
documents and do such other acts and things as Guarantied Party may reasonably
request in order to effect fully the purposes of this Guaranty.
5.12 ADDITIONAL GUARANTORS. The initial Guarantors hereunder shall be
---------------------
such of the Subsidiaries of Company as are signatories hereto on the date
hereof. From time to time subsequent to the date hereof, additional
Subsidiaries of Company may become parties hereto, as additional Guarantors
(each an "ADDITIONAL GUARANTOR"), by executing a counterpart of this Guaranty.
Upon delivery of any such counterpart to Administrative Agent, notice of which
is hereby waived by Guarantors, each such Additional Guarantor shall be a
Guarantor and shall be as fully a party hereto as if such Additional Guarantor
were an original signatory hereof. Each Guarantor expressly agrees that its
obligations arising hereunder shall not be affected or diminished by the
addition or release of any other Guarantor hereunder, nor by any election of
Administrative Agent not to cause any Subsidiary of Company to become an
Additional Guarantor hereunder. This Guaranty
XVIII-16
<PAGE>
shall be fully effective as to any Guarantor that is or becomes a party hereto
regardless of whether any other Person becomes or fails to become or ceases to
be a Guarantor hereunder.
5.13 COUNTERPARTS; EFFECTIVENESS. This Guaranty may be executed in any
---------------------------
number of counterparts and by the different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original for all purposes; but all such counterparts together shall
constitute but one and the same instrument. This Guaranty shall become
effective as to each Guarantor upon the execution of a counterpart hereof by
such Guarantor (whether or not a counterpart hereof shall have been executed by
any other Guarantor) and receipt by Guarantied Party of written or telephonic
notification of such execution and authorization of delivery thereof.
5.14 GUARANTIED PARTY AS ADMINISTRATIVE AGENT.
----------------------------------------
(a) Guarantied Party has been appointed to act as Guarantied Party
hereunder by Lenders and, by their acceptance of the benefits hereof, Interest
Rate Exchangers. Guarantied Party shall be obligated, and shall have the right
hereunder, to make demands, to give notices, to exercise or refrain from
exercising any rights, and to take or refrain from taking any action, solely in
accordance with this Guaranty and the Credit Agreement; provided that Guarantied
--------
Party shall exercise, or refrain from exercising, any remedies hereunder in
accordance with the instructions of (i) Requisite Lenders or (ii) after payment
in full of all Obligations under the Credit Agreement and the other Loan
Documents, the holders of a majority of the aggregate notional amount (or, with
respect to any Lender Interest Rate Agreement that has been terminated in
accordance with its terms, the amount then due and payable (exclusive of
expenses and similar payments but including any early termination payments then
due) under such Lender Interest Rate Agreement) under all Lender Interest Rate
Agreements (Requisite Lenders or, if applicable, such holders being referred to
herein as "REQUISITE OBLIGEES"). In furtherance of the foregoing provisions of
this subsection 5.14, each Interest Rate Exchanger, by its acceptance of the
benefits hereof, agrees that it shall have no right individually to enforce this
Guaranty, it being understood and agreed by such Interest Rate Exchanger that
all rights and remedies hereunder may be exercised solely by Guarantied Party
for the benefit of Beneficiaries in accordance with the terms of this subsection
5.14.
(b) Guarantied Party shall at all times be the same Person that is
Administrative Agent under the Credit Agreement. Written notice of resignation
by Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall
also constitute notice of resignation as Guarantied Party under this Guaranty;
removal of Administrative Agent pursuant to subsection 9.5 of the Credit
Agreement shall also constitute removal as Guarantied Party under this Guaranty;
and appointment of a successor Administrative Agent pursuant to subsection 9.5
of the Credit Agreement shall also constitute appointment of a successor
Guarantied Party under this Guaranty. Upon the acceptance of any appointment as
Administrative Agent under subsection 9.5 of the
XVIII-17
<PAGE>
Credit Agreement by a successor Administrative Agent, that successor
Administrative Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring or removed Guarantied
Party under this Guaranty, and the retiring or removed Guarantied Party under
this Guaranty shall promptly (i) transfer to such successor Guarantied Party all
sums held hereunder, together with all records and other documents necessary or
appropriate in connection with the performance of the duties of the successor
Guarantied Party under this Guaranty, and (ii) take such other actions as may be
necessary or appropriate in connection with the assignment to such successor
Guarantied Party of the rights created hereunder, whereupon such retiring or
removed Guarantied Party shall be discharged from its duties and obligations
under this Guaranty. After any retiring or removed Guarantied Party's
resignation or removal hereunder as Guarantied Party, the provisions of this
Guaranty shall inure to its benefit as to any actions taken or omitted to be
taken by it under this Guaranty while it was Guarantied Party hereunder.
[Remainder of page intentionally left blank]
XVIII-18
<PAGE>
IN WITNESS WHEREOF, each of the undersigned Guarantors has caused this
Guaranty to be duly executed and delivered by its officer thereunto duly
authorized as of the date first written above.
EMPIRE CANDLE, INC.
By: ____________________________
Name: ____________________________
Title: ____________________________
Address:
1800 Cloquet Avenue
Cloquet, MN 55720-2141
Attention: Tom Knuesel
FORSTER, INC.
By: ____________________________
Name: ____________________________
Title: ____________________________
Address:
1800 Cloquet Avenue
Cloquet, MN 55720-2141
Attention: Tom Knuesel
S-1
<PAGE>
IN WITNESS WHEREOF, the undersigned Additional Guarantor has caused
this Guaranty to be duly executed and delivered by its officer thereunto duly
authorized as of ______________, _____.
________________________________________
(Name of Additional Guarantor)
By _____________________________________
Title __________________________________
Address: _________________________
____________________________
____________________________
<PAGE>
SUBSIDIARY GUARANTY
This SUBSIDIARY GUARANTY is entered into as of April 21, 1998 by THE
UNDERSIGNED (each a "GUARANTOR" and collectively, "GUARANTORS") in favor of and
for the benefit of WELLS FARGO BANK, N.A., as administrative agent for and
representative of (in such capacity herein called "GUARANTIED PARTY") the
financial institutions ("LENDERS") party to the Credit Agreement referred to
below and any Interest Rate Exchangers (as hereinafter defined), and, subject to
subsection 5.14, for the benefit of the other Beneficiaries (as hereinafter
defined).
RECITALS
A. Diamond Brands Operating Corp., a Delaware corporation
("COMPANY"), has entered into that certain Credit Agreement dated as of April
21, 1998 with DLJ Capital Funding, Inc., as Syndication Agent, Guarantied Party,
Morgan Stanley Senior Funding, Inc., as Documentation Agent, and Lenders (said
Credit Agreement, as it may hereafter be amended, supplemented or otherwise
modified from time to time, being the "CREDIT AGREEMENT"; capitalized terms
defined therein and not otherwise defined herein being used herein as therein
defined).
B. Company may from time to time enter, or may from time to time have
entered, into one or more Interest Rate Agreements (collectively, the "LENDER
INTEREST RATE AGREEMENTS") with or one or more Lenders (in such capacity,
collectively, "INTEREST RATE EXCHANGERS") in accordance with the terms of the
Credit Agreement, and it is desired that the obligations of Company under the
Lender Interest Rate Agreements, including the obligation of Company to make
payments thereunder in the event of early termination thereof (all such
obligations being the "INTEREST RATE OBLIGATIONS"), together with all
obligations of Company under the Credit Agreement and the other Loan Documents,
be guarantied hereunder.
C. A portion of the proceeds of the Loans may be advanced to
Guarantors and thus the Guarantied Obligations (as hereinafter defined) are
being incurred for and will inure to the benefit of Guarantors (which benefits
are hereby acknowledged).
D. Guarantors are willing irrevocably and unconditionally to guaranty
such obligations of Company.
E. Diamond Brands Incorporated, a Minnesota corporation ("HOLDINGS"),
has entered into that certain Guaranty dated as of April 21, 1998 in favor of
Guarantied Party (the "HOLDINGS GUARANTY").
F. It is a condition precedent to the making of the initial Loans
under the Credit Agreement that Company's obligations thereunder be guarantied
by Guarantors.
1
<PAGE>
NOW, THEREFORE, based upon the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
in order to induce Lenders and Guarantied Party to enter into the Credit
Agreement and to make Loans and other extensions of credit thereunder and to
induce Interest Rate Exchangers to enter into the Lender Interest Rate
Agreements, Guarantors hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 CERTAIN DEFINED TERMS. As used in this Guaranty, the following terms
---------------------
shall have the following meanings unless the context otherwise requires:
"BENEFICIARIES" means Guarantied Party, Lenders and any Interest Rate
Exchangers.
"GUARANTIED OBLIGATIONS" has the meaning assigned to that term in
subsection 2.1.
"GUARANTY" means this Subsidiary Guaranty dated as of April 21, 1998,
as it may be amended, supplemented or otherwise modified from time to time.
"PAYMENT IN FULL", "PAID IN FULL" or any similar term means payment in
full of the Guarantied Obligations, including all principal, interest,
costs, fees and expenses (including reasonable legal fees and expenses) of
Beneficiaries as required under the Loan Documents and the Lender Interest
Rate Agreements.
1.2 DEFINED TERMS IN CREDIT AGREEMENT. All capitalized terms used and not
---------------------------------
otherwise defined herein shall have the meanings given such terms in the Credit
Agreement.
1.3 INTERPRETATION.
--------------
(a) References to "Sections" and "subsections" shall be to Sections and
subsections, respectively, of this Guaranty unless otherwise specifically
provided.
(b) In the event of any conflict or inconsistency between the terms,
conditions and provisions of this Guaranty and the terms, conditions and
provisions of the Credit Agreement, the terms, conditions and provisions of
this Guaranty shall prevail.
SECTION 2. THE GUARANTY
2.1 GUARANTY OF THE GUARANTIED OBLIGATIONS. Subject to the provisions of
--------------------------------------
subsection 2.2(a), Guarantors jointly and severally hereby irrevocably and
unconditionally guaranty the due and punctual payment in full of all Guarantied
Obligations when the
2
<PAGE>
same shall become due, whether at stated maturity, by required prepayment,
declaration, acceleration, demand or otherwise (including amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code, 11 U.S.C. (S) 362(a)). The term "GUARANTIED OBLIGATIONS" is
used herein in its most comprehensive sense and includes:
(a) any and all Obligations of Company and any and all Interest Rate
Obligations, in each case now or hereafter made, incurred or created,
whether absolute or contingent, liquidated or unliquidated, whether due or
not due, and however arising under or in connection with the Credit
Agreement and the other Loan Documents and the Lender Interest Rate
Agreements, including those arising under successive borrowing transactions
under the Credit Agreement which shall either continue the Obligations of
Company or from time to time renew them after they have been satisfied and
including interest which, but for the filing of a petition in bankruptcy
with respect to Company, would have accrued on any Guarantied Obligations,
whether or not a claim is allowed against Company for such interest in the
related bankruptcy proceeding; and
(b) those expenses set forth in subsection 2.8 hereof.
2.2 LIMITATION ON AMOUNT GUARANTIED; CONTRIBUTION BY GUARANTORS. (a)
-----------------------------------------------------------
Anything contained in this Guaranty to the contrary notwithstanding, if any
Fraudulent Transfer Law (as hereinafter defined) is determined by a court of
competent jurisdiction to be applicable to the obligations of any Guarantor
under this Guaranty, such obligations of such Guarantor hereunder shall be
limited to a maximum aggregate amount equal to the largest amount that would not
render its obligations hereunder subject to avoidance as a fraudulent transfer
or conveyance under Section 548 of Title 11 of the United States Code or any
applicable provisions of comparable state law (collectively, the "FRAUDULENT
TRANSFER LAWS"), in each case after giving effect to all other liabilities of
such Guarantor, contingent or otherwise, that are relevant under the Fraudulent
Transfer Laws (specifically excluding, however, any liabilities of such
Guarantor (x) in respect of intercompany indebtedness to Company or other
affiliates of Company to the extent that such indebtedness would be discharged
in an amount equal to the amount paid by such Guarantor hereunder
and (y) under any guaranty of Subordinated Indebtedness which guaranty contains
a limitation as to maximum amount similar to that set forth in this subsection
2.2(a), pursuant to which the liability of such 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,
reimbursement, indemnification or contribution of such Guarantor pursuant to
applicable law or pursuant to the terms of any agreement (including any such
right of contribution under subsection 2.2(b)).
(b) Each Guarantor under this Guaranty, and Holdings under the Holdings
Guaranty, together desire to allocate among themselves (collectively, the
"CONTRIBUTING GUARANTORS"), in a fair and equitable manner, their obligations
arising under this
3
<PAGE>
Guaranty and the Holdings Guaranty. Accordingly, in the event any payment or
distribution is made on any date by any Guarantor under this Guaranty or
Holdings under the Holdings Guaranty (a "FUNDING GUARANTOR") that exceeds its
Fair Share (as defined below) as of such date, that Funding Guarantor shall be
entitled to a contribution from each of the other Contributing Guarantors in the
amount of such other Contributing Guarantor's Fair Share Shortfall (as defined
below) as of such date, with the result that all such contributions will cause
each Contributing Guarantor's Aggregate Payments (as defined below) to equal its
Fair Share as of such date. "FAIR SHARE" means, with respect to a Contributing
Guarantor as of any date of determination, an amount equal to (i) the ratio of
(x) the Adjusted Maximum Amount (as defined below) with respect to such
Contributing Guarantor to (y) the aggregate of the Adjusted Maximum Amounts with
respect to all Contributing Guarantors multiplied by (ii) the aggregate amount
-------------
paid or distributed on or before such date by all Funding Guarantors under this
Guaranty and the Holdings Guaranty in respect of the obligations guarantied.
"FAIR SHARE SHORTFALL" means, with respect to a Contributing Guarantor as of any
date of determination, the excess, if any, of the Fair Share of such
Contributing Guarantor over the Aggregate Payments of such Contributing
Guarantor. "ADJUSTED MAXIMUM AMOUNT" means, with respect to a Contributing
Guarantor as of any date of determination, the maximum aggregate amount of the
obligations of such Contributing Guarantor under this Guaranty and the Holdings
Guaranty, determined as of such date, in the case of any Guarantor, in
accordance with subsection 2.2(a), or, if applicable, subsection 2.2(a) of the
Holdings Guaranty; provided that, solely for purposes of calculating the
--------
"Adjusted Maximum Amount" with respect to any Contributing Guarantor for
purposes of this subsection 2.2(b), any assets or liabilities of such
Contributing Guarantor arising by virtue of any rights to subrogation,
reimbursement or indemnification or any rights to or obligations of contribution
hereunder or under the Holdings Guaranty shall not be considered as assets or
liabilities of such Contributing Guarantor. "AGGREGATE PAYMENTS" means, with
respect to a Contributing Guarantor as of any date of determination, an amount
equal to (i) the aggregate amount of all payments and distributions made on or
before such date by such Contributing Guarantor in respect of this Guaranty and
the Holdings Guaranty (including in respect of this subsection 2.2(b) or
subsection 2.2(b) of the Holdings Guaranty) minus (ii) the aggregate amount of
-----
all payments received on or before such date by such Contributing Guarantor
from the other Contributing Guarantors as contributions under this subsection
2.2(b) or subsection 2.2(b) of the Holdings Guaranty. The amounts payable as
contributions hereunder shall be determined as of the date on which the related
payment or distribution is made by the applicable Funding Guarantor. The
allocation among Contributing Guarantors of their obligations as set forth in
this subsection 2.2(b) or subsection 2.2(b) of the Holdings Guaranty shall not
be construed in any way to limit the liability of any Contributing Guarantor
hereunder or under the Holdings Guaranty. Holdings under the Holdings Guaranty
is a third party beneficiary to the contribution agreement set forth in this
subsection 2.2(b).
2.3 PAYMENT BY GUARANTORS; APPLICATION OF PAYMENTS. Subject to the
----------------------------------------------
provisions of subsection 2.2(a), Guarantors hereby jointly and severally agree,
in furtherance of the foregoing and not in limitation of any other right which
any Beneficiary
4
<PAGE>
may have at law or in equity against any Guarantor by virtue hereof, that upon
the failure of Company to pay any of the Guarantied Obligations when and as the
same shall become due, whether at stated maturity, by required prepayment,
declaration, acceleration, demand or otherwise (including amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code, 11 U.S.C. (S) 362(a)), Guarantors will upon demand pay, or
cause to be paid, in cash, to Guarantied Party for the ratable benefit of
Beneficiaries, an amount equal to the sum of the unpaid principal amount of all
Guarantied Obligations then due as aforesaid, accrued and unpaid interest on
such Guarantied Obligations (including interest which, but for the filing of a
petition in bankruptcy with respect to Company, would have accrued on such
Guarantied Obligations, whether or not a claim is allowed against Company for
such interest in the related bankruptcy proceeding) and all other Guarantied
Obligations then owed to Beneficiaries as aforesaid. All such payments shall be
applied promptly from time to time by Guarantied Party as provided in subsection
2.4D of the Credit Agreement.
2.4 LIABILITY OF GUARANTORS ABSOLUTE. Each Guarantor agrees that its
--------------------------------
obligations hereunder are irrevocable, absolute, independent and unconditional
and shall not be affected by any circumstance which constitutes a legal or
equitable discharge of a guarantor or surety other than payment in full of the
Guarantied Obligations. In furtherance of the foregoing and without limiting
the generality thereof, each Guarantor agrees as follows:
(a) This Guaranty is a guaranty of payment when due and not of
collectibility.
(b) Guarantied Party may enforce this Guaranty upon the occurrence and
continuation of an Event of Default under the Credit Agreement or the
occurrence and continuation of an Early Termination Date (as defined in a
Master Agreement or an Interest Rate Swap Agreement or Interest Rate and
Currency Exchange Agreement in the form prepared by the International Swap
and Derivatives Association Inc. or a similar event under any similar swap
agreement) under any Lender Interest Rate Agreement (either such occurrence
being an "EVENT OF DEFAULT" for purposes of this Guaranty).
(c) The obligations of each Guarantor hereunder are independent of the
obligations of Company under the Loan Documents or the Lender Interest Rate
Agreements and the obligations of any other guarantor (including any other
Guarantor) of the obligations of Company under the Loan Documents or the
Lender Interest Rate Agreements, and a separate action or actions may be
brought and prosecuted against such Guarantor whether or not any action is
brought against Company or any of such other guarantors and whether or not
Company is joined in any such action or actions.
(d) Payment by any Guarantor of a portion, but not all, of the
Guarantied Obligations shall in no way limit, affect, modify or abridge any
Guarantor's
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liability for any portion of the Guarantied Obligations which has not been
paid. Without limiting the generality of the foregoing, if Guarantied Party
is awarded a judgment in any suit brought to enforce any Guarantor's
covenant to pay a portion of the Guarantied Obligations, such judgment shall
not be deemed to release such Guarantor from its covenant to pay the portion
of the Guarantied Obligations that is not the subject of such suit, and such
judgment shall not, except to the extent satisfied by such Guarantor, limit,
affect, modify or abridge any other Guarantor's liability hereunder in
respect of the Guarantied Obligations.
(e) Any Beneficiary, upon such terms as it deems appropriate, without
notice or demand and without affecting the validity or enforceability of
this Guaranty or giving rise to any reduction, limitation, impairment,
discharge or termination of any Guarantor's liability hereunder, from time
to time may (i) renew, extend, accelerate, increase the rate of interest on,
or otherwise change the time, place, manner or terms of payment of the
Guarantied Obligations, (ii) settle, compromise, release or discharge, or
accept or refuse any offer of performance with respect to, or substitutions
for, the Guarantied Obligations or any agreement relating thereto and/or
subordinate the payment of the same to the payment of any other obligations;
(iii) request and accept other guaranties of the Guarantied Obligations and
take and hold security for the payment of this Guaranty or the Guarantied
Obligations; (iv) release, surrender, exchange, substitute, compromise,
settle, rescind, waive, alter, subordinate or modify, with or without
consideration, any security for payment of the Guarantied Obligations, any
other guaranties of the Guarantied Obligations, or any other obligation of
any Person (including any other Guarantor) with respect to the Guarantied
Obligations; (v) enforce and apply any security now or hereafter held by or
for the benefit of such Beneficiary in respect of this Guaranty or the
Guarantied Obligations and direct the order or manner of sale thereof, or
exercise any other right or remedy that such Beneficiary may have against
any such security, in each case as such Beneficiary in its discretion may
determine consistent with the Credit Agreement or the applicable Lender
Interest Rate Agreement and any applicable security agreement, including
foreclosure on any such security pursuant to one or more judicial or
nonjudicial sales, whether or not every aspect of any such sale is
commercially reasonable, and even though such action operates to impair or
extinguish any right of reimbursement or subrogation or other right or
remedy of any Guarantor against Company or any security for the Guarantied
Obligations; and (vi) exercise any other rights available to it under the
Loan Documents or the Lender Interest Rate Agreements.
(f) This Guaranty and the obligations of Guarantors hereunder shall be
valid and enforceable and shall not be subject to any reduction, limitation,
impairment, discharge or termination for any reason (other than payment in
full of the Guarantied Obligations), including the occurrence of any of the
following, whether or not any Guarantor shall have had notice or knowledge
of any of them: (i) any failure or omission to assert or enforce or
agreement or election not to assert or
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enforce, or the stay or enjoining, by order of court, by operation of law or
otherwise, of the exercise or enforcement of, any claim or demand or any
right, power or remedy (whether arising under the Loan Documents or the
Lender Interest Rate Agreements, at law, in equity or otherwise) with
respect to the Guarantied Obligations or any agreement relating thereto, or
with respect to any other guaranty of or security for the payment of the
Guarantied Obligations; (ii) any rescission, waiver, amendment or
modification of, or any consent to departure from, any of the terms or
provisions (including provisions relating to events of default) of the
Credit Agreement, any of the other Loan Documents, any of the Lender
Interest Rate Agreements or any agreement or instrument executed pursuant
thereto, or of any other guaranty or security for the Guarantied
Obligations, in each case whether or not in accordance with the terms of the
Credit Agreement or such Loan Document, such Lender Interest Rate Agreement
or any agreement relating to such other guaranty or security; (iii) the
Guarantied Obligations, or any agreement relating thereto, at any time being
found to be illegal, invalid or unenforceable in any respect; (iv) the
application of payments received from any source (other than payments
received pursuant to the other Loan Documents or any of the Lender Interest
Rate Agreements or from the proceeds of any security for the Guarantied
Obligations, except to the extent such security also serves as collateral
for indebtedness other than the Guarantied Obligations) to the payment of
indebtedness other than the Guarantied Obligations, even though any
Beneficiary might have elected to apply such payment to any part or all of
the Guarantied Obligations; (v) any Beneficiary's consent to the change,
reorganization or termination of the corporate structure or existence of
Company or any of its Subsidiaries and to any corresponding restructuring of
the Guarantied Obligations; (vi) any failure to perfect or continue
perfection of a security interest in any collateral which secures any of the
Guarantied Obligations; (vii) any defenses (other than the expiration of
applicable statute of limitations), set-offs or counterclaims which Company
may allege or assert against any Beneficiary in respect of the Guarantied
Obligations, including failure of consideration, breach of warranty,
payment, statute of frauds, accord and satisfaction and usury; and (viii)
any other act or thing or omission, or delay to do any other act or thing,
which may or might in any manner or to any extent vary the risk of any
Guarantor as an obligor in respect of the Guarantied Obligations.
2.5 WAIVERS BY GUARANTORS. Each Guarantor hereby waives, for the benefit
---------------------
of Beneficiaries:
(a) any right to require any Beneficiary, as a condition of payment or
performance by such Guarantor, to (i) proceed against Company, any other
guarantor (including any other Guarantor) of the Guarantied Obligations or
any other Person, (ii) proceed against or exhaust any security held from
Company, any such other guarantor or any other Person, (iii) proceed against
or have resort to any balance of any deposit account or credit on the books
of any Beneficiary in
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favor of Company or any other Person, or (iv) pursue any other remedy in the
power of any Beneficiary whatsoever;
(b) any defense arising by reason of the incapacity, lack of authority
or any disability or other defense of Company (other than the expiration of
applicable statute of limitations) including any defense based on or arising
out of the lack of validity or the unenforceability of the Guarantied
Obligations or any agreement or instrument relating thereto or by reason of
the cessation of the liability of Company from any cause other than payment
in full of the Guarantied Obligations;
(c) any defense based upon any statute or rule of law which provides
that the obligation of a surety must be neither larger in amount nor in
other respects more burdensome than that of the principal;
(d) any defense based upon any Beneficiary's errors or omissions in the
administration of the Guarantied Obligations, except behavior which amounts
to gross negligence, willful misconduct or bad faith;
(e) (i) any principles or provisions of law, statutory or otherwise,
which are or might be in conflict with the terms of this Guaranty and any
legal or equitable discharge of such Guarantor's obligations hereunder, (ii)
any rights to set-offs, recoupments and counterclaims, and (iii) promptness,
diligence and any requirement that any Beneficiary protect, secure, perfect
or insure any security interest or lien or any property subject thereto;
(f) notices, demands, presentments, protests, notices of protest,
notices of dishonor and notices of any action or inaction, including
acceptance of this Guaranty, notices of default under the Credit Agreement,
the Lender Interest Rate Agreements or any agreement or instrument related
thereto, notices of any renewal, extension or modification of the Guarantied
Obligations or any agreement related thereto, notices of any extension of
credit to Company and notices of any of the matters referred to in
subsection 2.4 and any right to consent to any thereof; and
(g) any defenses (other than expiration of statutes of limitations) or
benefits that may be derived from or afforded by law which limit the
liability of or exonerate guarantors or sureties, or which may conflict with
the terms of this Guaranty.
2.6 GUARANTORS' RIGHTS OF SUBROGATION, CONTRIBUTION, ETC. Until the
----------------------------------------------------
Guarantied Obligations shall have been indefeasibly paid in full and the
Commitments shall have terminated and all Letters of Credit shall have expired
or been cancelled, each Guarantor hereby waives any claim, right or remedy,
direct or indirect, that such Guarantor now has or may hereafter have against
Company or any of its assets in
8
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connection with this Guaranty or the performance by such Guarantor of its
obligations hereunder, in each case whether such claim, right or remedy arises
in equity, under contract, by statute, under common law or otherwise and
including without limitation (a) any right of subrogation, reimbursement or
indemnification that such Guarantor now has or may hereafter have against
Company, (b) any right to enforce, or to participate in, any claim, right or
remedy that any Beneficiary now has or may hereafter have against Company, and
(c) any benefit of, and any right to participate in, any collateral or security
now or hereafter held by any Beneficiary. In addition, until the Guarantied
Obligations shall have been indefeasibly paid in full and the Commitments shall
have terminated and all Letters of Credit shall have expired or been cancelled,
each Guarantor shall withhold exercise of any right of contribution such
Guarantor may have against any other guarantor (including any other Guarantor)
of the Guarantied Obligations. Each Guarantor further agrees that, to the extent
the waiver or agreement to withhold the exercise of its rights of subrogation,
reimbursement, indemnification and contribution as set forth herein is found by
a court of competent jurisdiction to be void or voidable for any reason, any
rights of subrogation, reimbursement or indemnification such Guarantor may have
against Company or against any collateral or security, and any rights of
contribution such Guarantor may have against any such other guarantor, shall be
junior and subordinate to any rights any Beneficiary may have against Company,
to all right, title and interest any Beneficiary may have in any such collateral
or security, and to any right any Beneficiary may have against such other
guarantor. If any amount shall be paid to any Guarantor on account of any such
subrogation, reimbursement, indemnification or contribution rights at any time
when all Guarantied Obligations shall not have been paid in full, such amount
shall be held in trust for Guarantied Party on behalf of Beneficiaries and shall
forthwith be paid over to Guarantied Party for the benefit of Beneficiaries to
be credited and applied against the Guarantied Obligations, whether matured or
unmatured, in accordance with the terms hereof.
2.7 SUBORDINATION OF OTHER OBLIGATIONS. Any indebtedness of Company or any
----------------------------------
Guarantor now or hereafter held by any Guarantor (the "OBLIGEE GUARANTOR") is
hereby subordinated in right of payment to the Guarantied Obligations, and any
such indebtedness collected or received by the Obligee Guarantor after an Event
of Default has occurred and is continuing shall be held in trust for Guarantied
Party on behalf of Beneficiaries and shall forthwith be paid over to Guarantied
Party for the benefit of Beneficiaries to be credited and applied against the
Guarantied Obligations but without affecting, impairing or limiting in any
manner the liability of the Obligee Guarantor under any other provision of this
Guaranty.
2.8 EXPENSES. Guarantors jointly and severally agree to pay, or cause to
--------
be paid, on demand, and to save Beneficiaries harmless against liability for,
any and all reasonable out-of-pocket costs and expenses (including reasonable
fees and disbursements of counsel and allocated costs of internal counsel)
incurred or expended by any Beneficiary in connection with the enforcement of or
preservation of any rights under this Guaranty.
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2.9 CONTINUING GUARANTY. This Guaranty is a continuing guaranty and shall
-------------------
remain in effect until all of the Guarantied Obligations shall have been paid in
full and the Commitments shall have terminated and all Letters of Credit shall
have expired or been cancelled. Each Guarantor hereby irrevocably waives any
right to revoke this Guaranty as to future transactions giving rise to any
Guarantied Obligations.
2.10 AUTHORITY OF GUARANTORS OR COMPANY. It is not necessary for any
----------------------------------
Beneficiary to inquire into the capacity or powers of any Guarantor or Company
or the officers, directors, members, governors or any agents acting or
purporting to act on behalf of any of them.
2.11 FINANCIAL CONDITION OF COMPANY. Any Loans may be granted to Company or
------------------------------
continued from time to time, and any Lender Interest Rate Agreements may be
entered into from time to time, in each case without notice to or authorization
from any Guarantor regardless of the financial or other condition of Company at
the time of any such grant or continuation or at the time such Lender Interest
Rate Agreement is entered into, as the case may be. No Beneficiary shall have
any obligation to disclose or discuss with any Guarantor its assessment, or any
Guarantor's assessment, of the financial condition of Company. Each Guarantor
has adequate means to obtain information from Company on a continuing basis
concerning the financial condition of Company and its ability to perform its
obligations under the Loan Documents and the Lender Interest Rate Agreements,
and each Guarantor assumes the responsibility for being and keeping informed of
the financial condition of Company and of all circumstances bearing upon the
risk of nonpayment of the Guarantied Obligations. Each Guarantor hereby waives
and relinquishes any duty on the part of any Beneficiary to disclose any matter,
fact or thing relating to the business, operations or conditions of Company now
known or hereafter known by any Beneficiary.
2.12 RIGHTS CUMULATIVE. The rights, powers and remedies given to
-----------------
Beneficiaries by this Guaranty are cumulative and shall be in addition to and
independent of all rights, powers and remedies given to Beneficiaries by virtue
of any statute or rule of law or in any of the other Loan Documents, any of the
Lender Interest Rate Agreements or any agreement between any Guarantor and any
Beneficiary or Beneficiaries or between Company and any Beneficiary or
Beneficiaries. Any forbearance or failure to exercise, and any delay by any
Beneficiary in exercising, any right, power or remedy hereunder shall not impair
any such right, power or remedy or be construed to be a waiver thereof, nor
shall it preclude the further exercise of any such right, power or remedy.
2.13 BANKRUPTCY; POST-PETITION INTEREST; REINSTATEMENT OF GUARANTY. (a) So
-------------------------------------------------------------
long as any Guarantied Obligations remain outstanding, no Guarantor shall,
without the prior written consent of Guarantied Party acting pursuant to the
instructions of Requisite Lenders, commence or join with any other Person in
commencing any bankruptcy, reorganization or insolvency proceedings of or
against Company. The obligations of Guarantors under this Guaranty shall not be
reduced, limited, impaired, discharged,
10
<PAGE>
deferred, suspended or terminated by any proceeding, voluntary or involuntary,
involving the bankruptcy, insolvency, receivership, reorganization, liquidation
or arrangement of Company or by any defense which Company may have by reason of
the order, decree or decision of any court or administrative body resulting from
any such proceeding.
(b) Each Guarantor acknowledges and agrees that any interest on any
portion of the Guarantied Obligations which accrues after the commencement of
any proceeding referred to in clause (a) above (or, if interest on any portion
of the Guarantied Obligations ceases to accrue by operation of law by reason of
the commencement of said proceeding, such interest as would have accrued on such
portion of the Guarantied Obligations if said proceedings had not been
commenced) shall be included in the Guarantied Obligations because it is the
intention of Guarantors and Beneficiaries that the Guarantied Obligations which
are guarantied by Guarantors pursuant to this Guaranty should be determined
without regard to any rule of law or order which may relieve Company of any
portion of such Guarantied Obligations. Guarantors will permit any trustee in
bankruptcy, receiver, debtor in possession, assignee for the benefit of
creditors or similar person to pay Guarantied Party, or allow the claim of
Guarantied Party in respect of, any such interest accruing after the date on
which such proceeding is commenced.
(c) In the event that all or any portion of the Guarantied Obligations
is paid by Company, the obligations of Guarantors hereunder shall continue and
remain in full force and effect or be reinstated, as the case may be, in the
event that all or any part of such payment(s) are rescinded or recovered
directly or indirectly from any Beneficiary as a preference, fraudulent transfer
or otherwise, and any such payments which are so rescinded or recovered shall
constitute Guarantied Obligations for all purposes under this Guaranty.
2.14 NOTICE OF EVENTS. As soon as any Guarantor obtains knowledge thereof,
----------------
each such Guarantor shall give Guarantied Party written notice of any condition
or event which has resulted in (a) a material adverse change in the financial
condition of such Guarantor or Company or (b) a breach of or noncompliance with
any term, condition or covenant contained herein or in the Credit Agreement, any
other Loan Document, any Lender Interest Rate Agreements or any other document
delivered pursuant hereto or thereto.
2.15 SET OFF. In addition to any other rights any Beneficiary may have
-------
under law or in equity, if any amount shall at any time be due and owing by any
Guarantor to any Beneficiary under this Guaranty, such Beneficiary is authorized
at any time or from time to time, without notice (any such notice being hereby
expressly waived), to set off and to appropriate and to apply any and all
deposits (general or special, including indebtedness evidenced by certificates
of deposit, whether matured or unmatured) and any other indebtedness of such
Beneficiary owing to such Guarantor and any other property of such Guarantor
held by any Beneficiary to or for the credit or the account of such
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<PAGE>
Guarantor against and on account of the Guarantied Obligations and liabilities
of such Guarantor to any Beneficiary under this Guaranty.
2.16 DISCHARGE OF GUARANTY UPON SALE OF GUARANTOR. If all of the stock or
--------------------------------------------
limited liability company interests of any Guarantor or any of its successors in
interest under this Guaranty shall be sold or otherwise disposed of (including
by merger or consolidation) in an Asset Sale not prohibited by subsection 7.7 of
the Credit Agreement or otherwise consented to by Requisite Lenders, the
Guaranty of such Guarantor or such successor in interest, as the case may be,
hereunder shall automatically be discharged and released without any further
action by any Beneficiary or any other Person effective as of the time of such
Asset Sale; provided that, as a condition precedent to such discharge and
--------
release, Guarantied Party shall have received evidence satisfactory to it that
arrangements satisfactory to it have been made for delivery to Guarantied Party
of the applicable Net Asset Sale Proceeds if required under the Credit
Agreement; provided further that no such delivery shall be required in
----------------
connection with a merger or consolidation of such entity into or with Company or
another subsidiary of Company.
SECTION 3. REPRESENTATIONS AND WARRANTIES
In order to induce Beneficiaries to accept this Guaranty and to enter
into the Credit Agreement and to make the Loans thereunder, each Guarantor
hereby represents and warrants to Beneficiaries that the following statements
are true and correct:
3.1 CORPORATE EXISTENCE. Each Guarantor is duly organized, validly
-------------------
existing and in good standing under the laws of the state of its incorporation,
has the corporate power to own its assets and to transact the business in which
it is now engaged and is duly qualified as a foreign corporation and in good
standing under the laws of each jurisdiction where its ownership or lease of
property or the conduct of its business requires such qualification, except for
failures to be so qualified, authorized or licensed that would not in the
aggregate have a material adverse effect on the business, operations, assets or
financial condition of Guarantor.
3.2 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. Each
-------------------------------------------------------
Guarantor has the corporate power, authority and legal right to execute, deliver
and perform this Guaranty and all obligations required hereunder and has taken
all necessary corporate action to authorize its Guaranty hereunder on the terms
and conditions hereof and its execution, delivery and performance of this
Guaranty and all obligations required hereunder. No consent of any other Person
including, without limitation, stockholders and creditors of either Guarantor,
and no license, permit, approval or authorization of, exemption by, notice or
report to, or registration, filing or declaration with, any governmental
authority is required by either Guarantor in connection with this Guaranty or
the execution, delivery, performance, validity or enforceability of this
Guaranty and all obligations required hereunder. This Guaranty has been, and
each instrument or document required hereunder will be, executed and delivered
by a duly authorized officer of each of the Guarantors, and this Guaranty
constitutes, and each instrument or document
12
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required hereunder when executed and delivered hereunder will constitute, the
legally valid and binding obligation of each of the Guarantors, enforceable
against each of the Guarantors in accordance with its terms, except as
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws or equitable principles relating to or limiting
creditors' rights generally.
3.3 NO LEGAL BAR TO THIS GUARANTY. The execution, delivery and performance
-----------------------------
of this Guaranty and the documents or instruments required hereunder, and the
use of the proceeds of the borrowings under the Credit Agreement, will not
violate any provision of any existing law or regulation binding on either
Guarantor, or any order, judgment, award or decree of any court, arbitrator or
governmental authority binding on either Guarantor, or the certificate of
incorporation or bylaws of either Guarantor or any securities issued by either
Guarantor, or any mortgage, indenture, lease, contract or other agreement,
instrument or undertaking to which either Guarantor is a party or by which
either Guarantor or any of its assets may be bound, the violation of which would
have a material adverse effect on the business, operations, assets or financial
condition of either Guarantor and will not result in, or require, the creation
or imposition of any Lien on any of its property, assets or revenues pursuant to
the provisions of any such mortgage, indenture, lease, contract or other
agreement, instrument or undertaking.
SECTION 4. AFFIRMATIVE COVENANTS
Each Guarantor covenants and agrees that, unless and until all of the
Guarantied Obligations shall have been paid in full and the Commitments shall
have terminated, unless Requisite Lenders shall otherwise consent in writing:
4.1 CORPORATE EXISTENCE, ETC. Each Guarantor shall at all times preserve
------------------------
and keep in full force and effect its corporate existence and all rights and
franchises material to its business.
4.2 COMPLIANCE WITH LAWS, ETC. Each Guarantor shall comply in all material
-------------------------
respects with all applicable laws, rules, regulations and orders, such
compliance to include, without limitation, paying when due all taxes,
assessments and governmental charges imposed upon it or upon any of its
properties or assets or in respect of any of its franchises, businesses, income
or property before any penalty or interest accrues thereon.
4.3 BOOKS AND RECORDS. Subject to the terms of the Credit Agreement, each
-----------------
Guarantor shall keep and maintain books of record and account with respect to
its operations in accordance with generally accepted accounting principles and
shall permit any Beneficiary and its officers, employees and authorized agents,
to the extent Guarantied Party in good faith deems necessary for the proper
administration of this Guaranty, to examine, copy and make excerpts from the
books and records of either Guarantor and its Subsidiaries and to inspect the
properties of either Guarantor and its Subsidiaries, both real and personal, at
such reasonable times as Guarantied Party may request.
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SECTION 5. MISCELLANEOUS
5.1 SURVIVAL OF WARRANTIES. All agreements, representations and warranties
----------------------
made herein shall survive the execution and delivery of this Guaranty and the
other Loan Documents and the Lender Interest Rate Agreements and any increase in
the Commitments under the Credit Agreement.
5.2 NOTICES. Any communications between Guarantied Party and any Guarantor
-------
and any notices or requests provided herein to be given shall be given as
provided in the Credit Agreement to each such party at its address set forth in
the Credit Agreement, on the signature pages hereof or to such other addresses
as each such party may in writing hereafter indicate. Any notice, request or
demand to or upon Guarantied Party or any Guarantor shall not be effective until
received.
5.3 SEVERABILITY. In case any provision in or obligation under this
------------
Guaranty shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
5.4 AMENDMENTS AND WAIVERS. No amendment, modification, termination or
----------------------
waiver of any provision of this Guaranty, and no consent to any departure by any
Guarantor therefrom, shall in any event be effective without the written
concurrence of Guarantied Party and, in the case of any such amendment or
modification, each Guarantor against whom enforcement of such amendment or
modification is sought. Any such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which it was given.
5.5 HEADINGS. Section and subsection headings in this Guaranty are
--------
included herein for convenience of reference only and shall not constitute a
part of this Guaranty for any other purpose or be given any substantive effect.
5.6 APPLICABLE LAW; RULES OF CONSTRUCTION. THIS GUARANTY AND THE RIGHTS
-------------------------------------
AND OBLIGATIONS OF GUARANTORS AND BENEFICIARIES HEREUNDER SHALL BE GOVERNED BY,
AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF
THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. The
rules of construction set forth in subsection 1.3 of the Credit Agreement shall
be applicable to this Guaranty mutatis mutandis.
5.7 SUCCESSORS AND ASSIGNS. This Guaranty is a continuing guaranty and
----------------------
shall be binding upon each Guarantor and its respective successors and assigns.
This Guaranty shall inure to the benefit of Beneficiaries and their respective
successors and assigns. No Guarantor shall assign this Guaranty or any of the
rights or obligations of such Guarantor
14
<PAGE>
hereunder without the prior written consent of all Lenders. Any Beneficiary may,
without notice or consent, assign its interest in this Guaranty in whole or in
part. The terms and provisions of this Guaranty shall inure to the benefit of
any transferee or assignee of any Loan, and in the event of such transfer or
assignment the rights and privileges herein conferred upon such Beneficiary
shall automatically extend to and be vested in such transferee or assignee, all
subject to the terms and conditions hereof.
5.8 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL JUDICIAL
----------------------------------------------
PROCEEDINGS BROUGHT AGAINST ANY GUARANTOR ARISING OUT OF OR RELATING TO THIS
GUARANTY, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL
COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY
EXECUTING AND DELIVERING THIS AGREEMENT, EACH GUARANTOR, FOR ITSELF AND IN
CONNECTION WITH ITS PROPERTIES, IRREVOCABLY
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY
SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO SUCH GUARANTOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH
SUBSECTION 5.2;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER SUCH GUARANTOR IN ANY SUCH
PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT;
(V) AGREES THAT BENEFICIARIES RETAIN THE RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST SUCH
GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 5.8 RELATING TO
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR
OTHERWISE.
5.9 WAIVER OF TRIAL BY JURY. EACH GUARANTOR AND, BY ITS ACCEPTANCE OF THE
-----------------------
BENEFITS HEREOF, EACH BENEFICIARY EACH
15
<PAGE>
HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS GUARANTY. The scope of this
waiver is intended to be all encompassing of any and all disputes that may be
filed in any court and that relate to the subject matter of this transaction,
including contract claims, tort claims, breach of duty claims and all other
common law and statutory claims. Each Guarantor and, by its acceptance of the
benefits hereof, each Beneficiary, each (i) acknowledges that this waiver is a
material inducement for such Guarantor and Beneficiaries to enter into a
business relationship, that such Guarantor and Beneficiaries have already relied
on this waiver in entering into this Guaranty or accepting the benefits thereof,
as the case may be, and that each will continue to rely on this waiver in their
related future dealings and (ii) further warrants and represents that each has
reviewed this waiver with its legal counsel, and that each knowingly and
voluntarily waives its jury trial rights following consultation with legal
counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY
REFERRING TO THIS SUBSECTION 5.9 AND EXECUTED BY GUARANTIED PARTY AND EACH
GUARANTOR), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY. In the event of litigation, this
Guaranty may be filed as a written consent to a trial by the court.
5.10 NO OTHER WRITING. This writing is intended by Guarantors and
----------------
Beneficiaries as the final expression of this Guaranty and is also intended as a
complete and exclusive statement of the terms of their agreement with respect to
the matters covered hereby. No course of dealing, course of performance or
trade usage, and no parol evidence of any nature, shall be used to supplement or
modify any terms of this Guaranty. There are no conditions to the full
effectiveness of this Guaranty.
5.11 FURTHER ASSURANCES. At any time or from time to time, upon the
------------------
request of Guarantied Party, Guarantors shall execute and deliver such further
documents and do such other acts and things as Guarantied Party may reasonably
request in order to effect fully the purposes of this Guaranty.
5.12 ADDITIONAL GUARANTORS. The initial Guarantors hereunder shall be
---------------------
such of the Subsidiaries of Company as are signatories hereto on the date
hereof. From time to time subsequent to the date hereof, additional
Subsidiaries of Company may become parties hereto, as additional Guarantors
(each an "ADDITIONAL GUARANTOR"), by executing a counterpart of this Guaranty.
Upon delivery of any such counterpart to Administrative Agent, notice of which
is hereby waived by Guarantors, each such Additional Guarantor shall be a
Guarantor and shall be as fully a party hereto as if such Additional Guarantor
were an original signatory hereof. Each Guarantor expressly agrees that its
obligations arising hereunder shall not be affected or diminished by the
addition or release of any other Guarantor hereunder, nor by any election of
Administrative Agent not to cause any Subsidiary of Company to become an
Additional Guarantor hereunder. This Guaranty
16
<PAGE>
shall be fully effective as to any Guarantor that is or becomes a party hereto
regardless of whether any other Person becomes or fails to become or ceases to
be a Guarantor hereunder.
5.13 COUNTERPARTS; EFFECTIVENESS. This Guaranty may be executed in any
---------------------------
number of counterparts and by the different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original for all purposes; but all such counterparts together shall
constitute but one and the same instrument. This Guaranty shall become effective
as to each Guarantor upon the execution of a counterpart hereof by such
Guarantor (whether or not a counterpart hereof shall have been executed by any
other Guarantor) and receipt by Guarantied Party of written or telephonic
notification of such execution and authorization of delivery thereof.
5.14 GUARANTIED PARTY AS ADMINISTRATIVE AGENT.
----------------------------------------
(a) Guarantied Party has been appointed to act as Guarantied Party
hereunder by Lenders and, by their acceptance of the benefits hereof, Interest
Rate Exchangers. Guarantied Party shall be obligated, and shall have the right
hereunder, to make demands, to give notices, to exercise or refrain from
exercising any rights, and to take or refrain from taking any action, solely in
accordance with this Guaranty and the Credit Agreement; provided that Guarantied
--------
Party shall exercise, or refrain from exercising, any remedies hereunder in
accordance with the instructions of (i) Requisite Lenders or (ii) after payment
in full of all Obligations under the Credit Agreement and the other Loan
Documents, the holders of a majority of the aggregate notional amount (or, with
respect to any Lender Interest Rate Agreement that has been terminated in
accordance with its terms, the amount then due and payable (exclusive of
expenses and similar payments but including any early termination payments then
due) under such Lender Interest Rate Agreement) under all Lender Interest Rate
Agreements (Requisite Lenders or, if applicable, such holders being referred to
herein as "REQUISITE OBLIGEES"). In furtherance of the foregoing provisions of
this subsection 5.14, each Interest Rate Exchanger, by its acceptance of the
benefits hereof, agrees that it shall have no right individually to enforce this
Guaranty, it being understood and agreed by such Interest Rate Exchanger that
all rights and remedies hereunder may be exercised solely by Guarantied Party
for the benefit of Beneficiaries in accordance with the terms of this subsection
5.14.
(b) Guarantied Party shall at all times be the same Person that is
Administrative Agent under the Credit Agreement. Written notice of resignation
by Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall
also constitute notice of resignation as Guarantied Party under this Guaranty;
removal of Administrative Agent pursuant to subsection 9.5 of the Credit
Agreement shall also constitute removal as Guarantied Party under this Guaranty;
and appointment of a successor Administrative Agent pursuant to subsection 9.5
of the Credit Agreement shall also constitute appointment of a successor
Guarantied Party under this Guaranty. Upon the acceptance of any appointment as
Administrative Agent under subsection 9.5 of the
17
<PAGE>
Credit Agreement by a successor Administrative Agent, that successor
Administrative Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring or removed Guarantied
Party under this Guaranty, and the retiring or removed Guarantied Party under
this Guaranty shall promptly (i) transfer to such successor Guarantied Party all
sums held hereunder, together with all records and other documents necessary or
appropriate in connection with the performance of the duties of the successor
Guarantied Party under this Guaranty, and (ii) take such other actions as may be
necessary or appropriate in connection with the assignment to such successor
Guarantied Party of the rights created hereunder, whereupon such retiring or
removed Guarantied Party shall be discharged from its duties and obligations
under this Guaranty. After any retiring or removed Guarantied Party's
resignation or removal hereunder as Guarantied Party, the provisions of this
Guaranty shall inure to its benefit as to any actions taken or omitted to be
taken by it under this Guaranty while it was Guarantied Party hereunder.
[Remainder of page intentionally left blank]
18
<PAGE>
IN WITNESS WHEREOF, each of the undersigned Guarantors has caused this
Guaranty to be duly executed and delivered by its officer thereunto duly
authorized as of the date first written above.
EMPIRE CANDLE, INC.
By: ____________________________
Name: ____________________________
Title: ____________________________
Address:
1800 Cloquet Avenue
Cloquet, MN 55720-2141
Attention: Tom Knuesel
FORSTER, INC.
By: ____________________________
Name: ____________________________
Title: ____________________________
Address:
1800 Cloquet Avenue
Cloquet, MN 55720-2141
Attention: Tom Knuesel
S-1
<PAGE>
IN WITNESS WHEREOF, the undersigned Additional Guarantor has caused
this Guaranty to be duly executed and delivered by its officer thereunto duly
authorized as of ______________, _____.
________________________________________
(Name of Additional Guarantor)
By _____________________________________
Title __________________________________
Address: _______________________________
_______________________________
_______________________________
<PAGE>
EXHIBIT XIX
[FORM OF SUBSIDIARY PLEDGE AGREEMENT]
SUBSIDIARY PLEDGE AGREEMENT
This SUBSIDIARY PLEDGE AGREEMENT (this "AGREEMENT") is dated as of
April 21, 1998 and entered into by and between [NAME OF SUBSIDIARY], a
[_____________] corporation ("PLEDGOR"), and WELLS FARGO BANK, N.A., as
administrative agent for and representative of (in such capacity herein called
"SECURED PARTY") the financial institutions ("LENDERS") party to the Credit
Agreement referred to below and any Interest Rate Exchangers (as hereinafter
defined).
PRELIMINARY STATEMENTS
A. Pledgor is the legal and beneficial owner of (i) the shares of
stock or other equity Securities (the "PLEDGED SHARES") described in Part A of
Schedule I annexed hereto and issued by the companies named therein and (ii) the
- ----------
indebtedness (the "PLEDGED DEBT") described in Part B of said Schedule I and
----------
issued by the obligors named therein.
B. Secured Party and Lenders have entered into a Credit Agreement
dated as of April 21, 1998 (said Credit Agreement, as it may hereafter be
amended, supplemented or otherwise modified from time to time, being the "CREDIT
AGREEMENT", the terms defined therein and not otherwise defined herein being
used herein as therein defined) with Diamond Brands Operating Corp., a Delaware
corporation ("COMPANY"), pursuant to which Lenders have made certain
commitments, subject to the terms and conditions set forth in the Credit
Agreement, to extend certain credit facilities to Company.
C. Company may from time to time enter, or may from time to time have
entered, into one or more Interest Rate Agreements (collectively, the "LENDER
INTEREST RATE AGREEMENTS") with one or more Lenders (in such capacity,
collectively, "INTEREST RATE EXCHANGERS").
D. Pledgor has executed and delivered that certain Subsidiary
Guaranty dated as of April 21, 1998 (said Subsidiary Guaranty, as it may
hereafter be amended, supplemented or otherwise modified from time to time,
being the "SUBSIDIARY GUARANTY") in favor of Secured Party for the benefit of
Lenders and any Interest Rate Exchangers, pursuant to which Pledgor has
guarantied the prompt payment and performance when due of all obligations of
Company under the Credit Agreement and all obligations of Company under the
Lender Interest Rate Agreements, including the obligation of Company to make
payments thereunder in the event of early termination thereof.
XIX-1
<PAGE>
E. It is a condition precedent to the initial extensions of credit by
Lenders under the Credit Agreement that Pledgor shall have granted the security
interests and undertaken the obligations contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce
Lenders to make Loans and other extensions of credit under the Credit Agreement
and to induce Interest Rate Exchangers to enter into Lender Interest Rate
Agreements, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Pledgor hereby agrees with Secured
Party as follows:
SECTION 1. PLEDGE OF SECURITY. Pledgor hereby pledges and assigns to
------------------
Secured Party, and hereby grants to Secured Party a security interest in, all of
Pledgor's right, title and interest in and to the following (the "PLEDGED
COLLATERAL"):
(a) the Pledged Shares and the certificates representing the Pledged
Shares and any interest of Pledgor in the entries on the books of any financial
intermediary pertaining to the Pledged Shares, and all dividends, cash,
warrants, rights, instruments and other property or proceeds from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of the Pledged Shares;
(b) the Pledged Debt and the instruments evidencing the Pledged Debt,
and all interest, cash, instruments and other property or proceeds from time to
time received, receivable or otherwise distributed in respect of or in exchange
for any or all of the Pledged Debt;
(c) all additional shares of, and all securities convertible into and
warrants, options and other rights to purchase or otherwise acquire, stock of
any issuer of the Pledged Shares from time to time acquired by Pledgor in any
manner (which shares shall be deemed to be part of the Pledged Shares), the
certificates or other instruments representing such additional shares,
securities, warrants, options or other rights and any interest of Pledgor in the
entries on the books of any financial intermediary pertaining to such additional
shares, and all dividends, cash, warrants, rights, instruments and other
property or proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such additional
shares, securities, warrants, options or other rights; provided, however, that,
-------- -------
Pledgor shall not be required to pledge more than 66.6% of any class of capital
stock of any direct or indirect Subsidiary of Pledgor which is incorporated in a
jurisdiction other than the states of the United States and the District of
Columbia ("Foreign Subsidiary") hereunder;
(d) all additional indebtedness from time to time owed to Pledgor by
any obligor on the Pledged Debt and the instruments evidencing such
indebtedness, and all interest, cash, instruments and other property or proceeds
from time to time received, receivable or otherwise distributed in respect of or
in exchange for any or all of such indebtedness;
XIX-2
<PAGE>
(e) all shares of, and all securities convertible into and warrants,
options and other rights to purchase or otherwise acquire, stock of any Person
that, after the date of this Agreement, becomes, as a result of any occurrence,
a direct Subsidiary of Pledgor (which shares shall be deemed to be part of the
Pledged Shares), the certificates or other instruments representing such shares,
securities, warrants, options or other rights and any interest of Pledgor in the
entries on the books of any financial intermediary pertaining to such shares,
and all dividends, cash, warrants, rights, instruments and other property or
proceeds from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such shares, securities, warrants,
options or other rights; provided, however, that Pledgor shall not be required
-------- -------
to pledge more than 66.6% of any class of capital stock of any Foreign
Subsidiary hereunder;
(f) all indebtedness from time to time owed to Pledgor by any Person
that, after the date of this Agreement, becomes, as a result of any occurrence,
a direct or indirect Subsidiary of Pledgor, and all interest, cash, instruments
and other property or proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
indebtedness;
(g) to the extent not covered by clauses (a) through (f) above, all
proceeds of any or all of the foregoing Pledged Collateral. For purposes of
this Agreement, the term "PROCEEDS" includes whatever is receivable or received
when Pledged Collateral or proceeds are sold, exchanged, collected or otherwise
disposed of, whether such disposition is voluntary or involuntary, and includes
proceeds of any indemnity or guaranty payable to Pledgor or Secured Party from
time to time with respect to any of the Pledged Collateral.
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures, and the
------------------------
Pledged Collateral is collateral security for, the prompt payment or performance
in full when due, whether at stated maturity, by required prepayment,
declaration, acceleration, demand or otherwise (including the payment of amounts
that would become due but for the operation of the automatic stay under Section
362(a) of the Bankruptcy Code, 11 U.S.C. (S) 362(a)), of all obligations and
liabilities of every nature of Pledgor now or hereafter existing under or
arising out of or in connection with the Subsidiary Guaranty and all extensions
or renewals thereof, whether for principal, interest (including interest that,
but for the filing of a petition in bankruptcy with respect to Company, would
accrue on such obligations, whether or not a claim is allowed against Company
for such interest in the related bankruptcy proceeding), reimbursement of
amounts drawn under Letters of Credit, payments for early termination of Lender
Interest Rate Agreements, fees, expenses, indemnities or otherwise, whether
voluntary or involuntary, direct or indirect, absolute or contingent, liquidated
or unliquidated, whether or not jointly owed with others, and whether or not
from time to time decreased or extinguished and later increased, created or
incurred, and all or any portion of such obligations or liabilities that are
paid, to the extent all or any part of such payment is avoided or recovered
directly or indirectly from Secured Party or any Lender or Interest Rate
Exchanger as a preference, fraudulent transfer or otherwise, and all obligations
of every nature of Pledgor now or
XIX-3
<PAGE>
hereafter existing under this Agreement (all such obligations of Pledgor being
the "SECURED OBLIGATIONS").
SECTION 3. DELIVERY OF PLEDGED COLLATERAL. All certificates or
------------------------------
instruments representing or evidencing the Pledged Collateral shall be delivered
to and held by or on behalf of Secured Party pursuant hereto and shall be in
suitable form for transfer by delivery or, as applicable, shall be accompanied
by Pledgor's endorsement, where necessary, or duly executed instruments of
transfer or assignment in blank, all in form and substance satisfactory to
Secured Party. Upon the occurrence and during the continuation of an Event of
Default (as defined in the Credit Agreement) or the occurrence of an Early
Termination Date (as defined in a Master Agreement or an Interest Rate Swap
Agreement or Interest Rate and Currency Exchange Agreement in the form prepared
by the International Swap and Derivatives Association Inc. or a similar event
under any similar swap agreement) under any Lender Interest Rate Agreement
(either such occurrence being an "EVENT OF DEFAULT" for purposes of this
Agreement), Secured Party shall have the right, without notice to Pledgor, to
transfer to or to register in the name of Secured Party or any of its nominees
any or all of the Pledged Collateral, subject only to the revocable rights
specified in Section 7(a). In addition, upon the occurrence and during the
continuation of an Event of Default, Secured Party shall have the right at any
time to exchange certificates or instruments representing or evidencing Pledged
Collateral for certificates or instruments of smaller or larger denominations.
SECTION 4. REPRESENTATIONS AND WARRANTIES. Pledgor represents and
------------------------------
warrants as follows:
(a) Due Authorization, etc. of Pledged Collateral. All of the Pledged
---------------------------------------------
Shares have been duly authorized and validly issued and are fully paid and non-
assessable. All of the Pledged Debt has been duly authorized, authenticated or
issued, and delivered and is the legal, valid and binding obligation of the
issuers thereof and is not in default.
(b) Description of Pledged Collateral. The Pledged Shares constitute
---------------------------------
(i) all of the issued and outstanding shares of stock or other equity Securities
of each of the Subsidiaries of Pledgor which are incorporated in a state of the
United States or in the District of Columbia, and (ii) 66.6% of the issued and
outstanding shares of stock or other equity Securities of each Foreign
Subsidiary of Pledgor, and there are no outstanding warrants, options or other
rights to purchase, or other agreements outstanding with respect to, or property
that is now or hereafter convertible into, or that requires the issuance or sale
of, any Pledged Shares. The Pledged Debt constitutes all of the issued and
outstanding intercompany indebtedness evidenced by a promissory note of the
respective issuers thereof owing to Pledgor.
(c) Ownership of Pledged Collateral. Pledgor is the legal, record and
-------------------------------
beneficial owner of the Pledged Collateral free and clear of any Lien except for
the security interest created by this Agreement.
XIX-4
<PAGE>
(d) Governmental Authorizations. No authorization, approval or other
---------------------------
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for either (i) the pledge by Pledgor of the Pledged
Collateral pursuant to this Agreement and the grant by Pledgor of the security
interest granted hereby, or (ii) the execution, delivery or performance of this
Agreement by Pledgor, or (iii) the exercise by Secured Party of the voting or
other rights, or the remedies in respect of the Pledged Collateral, provided for
in this Agreement (except as may be required in connection with a disposition of
Pledged Collateral by laws affecting the offering and sale of securities
generally).
(e) Perfection. The pledge of the Pledged Collateral pursuant to this
----------
Agreement creates a valid and perfected first priority security interest in the
Pledged Collateral, securing the payment of the Secured Obligations; provided
--------
that Secured Party retains physical possession of such Pledged Collateral.
(f) Margin Regulations. The pledge of the Pledged Collateral pursuant
------------------
to this Agreement does not violate Regulation T, U or X of the Board of
Governors of the Federal Reserve System.
(g) Other Information. All information heretofore, herein or hereafter
-----------------
supplied to Secured Party by or on behalf of Pledgor with respect to the Pledged
Collateral is accurate and complete in all material respects.
SECTION 5. TRANSFERS AND OTHER LIENS; ADDITIONAL PLEDGED COLLATERAL;
---------------------------------------------------------
ETC. Pledgor shall:
- ----
(a) not, except as expressly permitted by the Credit Agreement, (i)
sell, assign (by operation of law or otherwise) or otherwise dispose of, or
grant any option with respect to, any of the Pledged Collateral, (ii) create or
suffer to exist any Lien upon or with respect to any of the Pledged Collateral,
except for the security interest under this Agreement and the Permitted
Encumbrances, or (iii) permit any issuer of Pledged Shares to merge or
consolidate unless all the outstanding capital stock or other equity Security of
the surviving or resulting corporation is, upon such merger or consolidation,
pledged hereunder and no cash, securities or other property is distributed in
respect of the outstanding shares of any other constituent corporation; provided
--------
that Pledgor shall not be required to pledge more than 66.6% of any class of
capital stock of any Foreign Subsidiary; provided, further, that in the event
-------- -------
Pledgor makes an Asset Sale permitted by the Credit Agreement and the assets
subject to such Asset Sale are Pledged Shares, Secured Party shall release the
Pledged Shares that are the subject of such Asset Sale to Pledgor free and clear
of the lien and security interest under this Agreement concurrently with the
consummation of such Asset Sale; provided, further that, as a condition
-------- -------
precedent to such release, Secured Party shall have received evidence
satisfactory to it that arrangements satisfactory to it have been made for
delivery to Secured Party of the Net Asset Sale Proceeds of such Asset Sale if
required under the Credit Agreement;
XIX-5
<PAGE>
(b) (i) cause each issuer of Pledged Shares not to issue any stock or
other securities in addition to or in substitution for the Pledged Shares issued
by such issuer, except to Pledgor, (ii) pledge hereunder, within 5 days of its
acquisition (directly or indirectly) thereof, any and all additional shares of
stock or other securities of each issuer of Pledged Shares, and (iii) pledge
hereunder, within 5 days of its acquisition (directly or indirectly) thereof,
any and all shares of stock of any Person that, after the date of this
Agreement, becomes, as a result of any occurrence, a direct Subsidiary of
Pledgor; provided that Pledgor shall not be required to pledge more than 66.6%
--------
of any class of capital stock of any Foreign Subsidiary hereunder;
(c) (i) pledge hereunder, within 5 days of their issuance, any and
all instruments or other evidences of additional indebtedness from time to time
owed to Pledgor by any obligor on the Pledged Debt, and (ii) pledge hereunder,
within 5 days of their issuance, any and all instruments or other evidences of
indebtedness from time to time owed to Pledgor by any Person that after the date
of this Agreement becomes, as a result of any occurrence, a direct or indirect
Subsidiary of Pledgor;
(d) promptly notify Secured Party of any event of which Pledgor
becomes aware causing material loss or depreciation in the value of the Pledged
Collateral;
(e) promptly deliver to Secured Party all material written notices
received by it with respect to the Pledged Collateral; and
(f) pay promptly when due all taxes, assessments and governmental
charges or levies imposed upon, and all claims against, the Pledged Collateral,
except to the extent permitted by the terms of the Credit Agreement.
SECTION 6. FURTHER ASSURANCES; PLEDGE AMENDMENTS.
-------------------------------------
(a) Pledgor agrees that from time to time, at the expense of Pledgor,
Pledgor will promptly execute and deliver all further instruments and documents,
and take all further action, that may reasonably be necessary or desirable, or
that Secured Party may reasonably request, in order to perfect and protect any
security interest granted or purported to be granted hereby or to enable Secured
Party to exercise and enforce its rights and remedies hereunder with respect to
any Pledged Collateral. Without limiting the generality of the foregoing,
Pledgor will: (i) execute and file such financing or continuation statements,
or amendments thereto, and such other instruments or notices, as may be
necessary or desirable, or as Secured Party may reasonably request, in order to
perfect and preserve the security interests granted or purported to be granted
hereby and (ii) at Secured Party's reasonable request, appear in and defend any
action or proceeding that may affect Pledgor's title to or Secured Party's
security interest in all or any part of the Pledged Collateral.
(b) Pledgor further agrees that it will, upon obtaining any additional
shares of stock or other securities required to be pledged hereunder as provided
in Section
XIX-6
<PAGE>
5(b) or (c), promptly (and in any event within five Business Days) deliver to
Secured Party a Pledge Amendment, duly executed by Pledgor, in substantially the
form of Schedule II annexed hereto (a "PLEDGE AMENDMENT"), in respect of the
-----------
additional Pledged Shares or Pledged Debt to be pledged pursuant to this
Agreement. Pledgor hereby authorizes Secured Party to attach each Pledge
Amendment to this Agreement and agrees that all Pledged Shares or Pledged Debt
listed on any Pledge Amendment delivered to Secured Party shall for all purposes
hereunder be considered Pledged Collateral; provided that the failure of Pledgor
--------
to execute a Pledge Amendment with respect to any additional Pledged Shares or
Pledged Debt pledged pursuant to this Agreement shall not impair the security
interest of Secured Party therein or otherwise adversely affect the rights and
remedies of Secured Party hereunder with respect thereto.
SECTION 7. VOTING RIGHTS; DIVIDENDS; ETC.
------------------------------
(a) So long as no Event of Default shall have occurred and be
continuing:
(i) Pledgor shall be entitled to exercise any and all voting and other
consensual rights pertaining to the Pledged Collateral or any part thereof
for any purpose not inconsistent with the terms of this Agreement or the
Credit Agreement and as long as such action would not have a material
adverse effect on the value of the Pledged Collateral. It is understood,
however, that neither (A) the voting by Pledgor of any Pledged Shares for
or Pledgor's consent to the election of directors at a regularly scheduled
annual or other meeting of stockholders or members or with respect to
incidental matters at any such meeting nor (B) Pledgor's consent to or
approval of any action otherwise permitted under this Agreement and the
Credit Agreement shall be deemed inconsistent with the terms of this
Agreement or the Credit Agreement within the meaning of this Section
7(a)(i), and no notice of any such voting or consent need be given to
Secured Party;
(ii) Pledgor shall be entitled to receive and retain, and to utilize
free and clear of the lien of this Agreement, any and all dividends and
interest paid in respect of the Pledged Collateral; provided, however, that
-------- -------
any and all
(A) dividends and interest paid or payable other than in cash in
respect of, and instruments and other property received, receivable or
otherwise distributed in respect of, or in exchange for, any Pledged
Collateral,
(B) dividends and other distributions paid or payable in cash in
respect of any Pledged Collateral in connection with a partial or total
liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in-surplus, and
(C) cash paid, payable or otherwise distributed in respect of
principal or in redemption of or in exchange for any Pledged
Collateral,
XIX-7
<PAGE>
shall be, and shall forthwith be delivered to Secured Party to hold as,
Pledged Collateral and shall, if received by Pledgor, be received in trust
for the benefit of Secured Party, be segregated from the other property or
funds of Pledgor and be forthwith delivered to Secured Party as Pledged
Collateral in the same form as so received (with all necessary
indorsements); provided, however, that to the extent that property
-------- -------
distributed to Pledgor in respect of the Pledged Collateral continues or
becomes, after such distribution, to be otherwise subject to a Lien in
favor of Secured Party under the Loan Documents, such property shall not be
otherwise required to be forthwith delivered to Secured Party pursuant to
clause (ii); and
(iii) Secured Party shall promptly execute and deliver (or cause to be
executed and delivered) to Pledgor all such proxies, dividend payment
orders and other instruments as Pledgor may from time to time reasonably
request for the purpose of enabling Pledgor to exercise the voting and
other consensual rights which it is entitled to exercise pursuant to
paragraph (i) above and to receive the dividends, principal or interest
payments which it is authorized to receive and retain pursuant to paragraph
(ii) above.
(b) Upon the occurrence and during the continuation of an Event of
Default:
(i) upon written notice from Secured Party to Pledgor, all rights of
Pledgor to exercise the voting and other consensual rights which it would
otherwise be entitled to exercise pursuant to Section 7(a)(i) shall cease,
and all such rights shall thereupon become vested in Secured Party who
shall thereupon have the sole right to exercise such voting and other
consensual rights;
(ii) all rights of Pledgor to receive the dividends and interest
payments which it would otherwise be authorized to receive and retain
pursuant to Section 7(a)(ii) shall cease, and all such rights shall
thereupon become vested in Secured Party who shall thereupon have the sole
right to receive and hold as Pledged Collateral such dividends and interest
payments; and
(iii) all dividends, principal and interest payments which are
received by Pledgor contrary to the provisions of paragraph (ii) of this
Section 7(b) shall be received in trust for the benefit of Secured Party,
shall be segregated from other funds of Pledgor and shall forthwith be paid
over to Secured Party as Pledged Collateral in the same form as so received
(with any necessary indorsements).
(c) In order to permit Secured Party to exercise the voting and
other consensual rights which it may be entitled to exercise pursuant to Section
7(b)(i) and to receive all dividends and other distributions which it may be
entitled to receive under Section 7(a)(ii) or Section 7(b)(ii), (i) Pledgor
shall promptly execute and deliver (or cause to be executed and delivered) to
Secured Party all such proxies, dividend payment orders and other instruments as
Secured Party may from time to time reasonably request, including without
limitation to the extent necessary so that the pledge of any shares of
XIX-8
<PAGE>
stock of any Foreign Subsidiary is registered (if not already so registered) on
the appropriate books and records of the issuer of the applicable Pledged Shares
if such registration is required under applicable law in order to permit Secured
Party to exercise such rights or to receive such dividends and other
distributions, and (ii) without limiting the effect of the immediately preceding
clause (i), Pledgor hereby grants to Secured Party an irrevocable proxy to vote
the Pledged Shares and to exercise all other rights, powers, privileges and
remedies to which a holder of the Pledged Shares would be entitled (including
giving or withholding written consents of shareholders, calling special meetings
of shareholders and voting at such meetings), which proxy shall be effective,
automatically and without the necessity of any action (including any transfer of
any Pledged Shares on the record books of the issuer thereof) by any other
Person (including the issuer of the Pledged Shares or any officer or agent
thereof), upon the written notice of an Event of Default from Secured Party
delivered at any time, including at a member or shareholder meeting, and which
proxy shall only terminate upon cure of the circumstances which gave rise to the
Event of Default.
SECTION 8. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Pledgor hereby
----------------------------------------
irrevocably appoints Secured Party as Pledgor's attorney-in-fact, with full
authority in the place and stead of Pledgor and in the name of Pledgor, Secured
Party or otherwise, from time to time during the continuation of an Event of
Default in Secured Party's discretion to take any action and to execute any
instrument that Secured Party may deem necessary or advisable to accomplish the
purposes of this Agreement, including:
(a) to file one or more financing or continuation statements, or
amendments thereto, relative to all or any part of the Pledged Collateral
without the signature of Pledgor;
(b) to ask, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Pledged Collateral;
(c) to receive, endorse and collect any instruments made payable to
Pledgor representing any dividend, principal or interest payment or other
distribution in respect of the Pledged Collateral or any part thereof and to
give full discharge for the same; and
(d) to file any claims or take any action or institute any proceedings
that Secured Party may deem necessary or desirable for the collection of any of
the Pledged Collateral or otherwise to enforce the rights of Secured Party with
respect to any of the Pledged Collateral.
SECTION 9. SECURED PARTY MAY PERFORM. If Pledgor fails to perform any
-------------------------
agreement contained herein, Secured Party may itself perform, or cause
performance of, such agreement, and the expenses of Secured Party incurred in
connection therewith shall be payable by Pledgor under Section 13(b).
XIX-9
<PAGE>
SECTION 10. STANDARD OF CARE. The powers conferred on Secured Party
----------------
hereunder are solely to protect its interest in the Pledged Collateral and shall
not impose any duty upon it to exercise any such powers. Except for the
exercise of reasonable care in the custody of any Pledged Collateral in its
possession and the accounting for moneys actually received by it hereunder,
Secured Party shall have no duty as to any Pledged Collateral, it being
understood that Secured Party shall have no responsibility for (a) ascertaining
or taking action with respect to calls, conversions, exchanges, maturities,
tenders or other matters relating to any Pledged Collateral, whether or not
Secured Party has or is deemed to have knowledge of such matters, (b) taking any
necessary steps (other than steps taken in accordance with the standard of care
set forth above to maintain possession of the Pledged Collateral) to preserve
rights against any parties with respect to any Pledged Collateral, (c) taking
any necessary steps to collect or realize upon the Secured Obligations or any
guarantee therefor, or any part thereof, or any of the Pledged Collateral, or
(d) initiating any action to protect the Pledged Collateral against the
possibility of a decline in market value. Secured Party shall be deemed to have
exercised reasonable care in the custody and preservation of Pledged Collateral
in its possession if such Pledged Collateral is accorded treatment substantially
equal to that which Secured Party accords its own property consisting of
negotiable securities.
SECTION 11. REMEDIES.
--------
(a) If any Event of Default shall have occurred and be continuing,
Secured Party may exercise in respect of the Pledged Collateral, in addition to
all other rights and remedies provided for herein or otherwise available to it,
all the rights and remedies of a secured party on default under the Uniform
Commercial Code as in effect in any relevant jurisdiction (the "CODE") (whether
or not the Code applies to the affected Pledged Collateral), or any other
applicable laws whether of the United States or any state thereof or any other
foreign jurisdiction, and Secured Party may also in its sole discretion, without
notice except as specified below, sell the Pledged Collateral or any part
thereof in one or more parcels at public or private sale, at any exchange or
broker's board or at any of Secured Party's offices or elsewhere, for cash, on
credit or for future delivery, at such time or times and at such price or prices
and upon such other terms as Secured Party may deem commercially reasonable,
irrespective of the impact of any such sales on the market price of the Pledged
Collateral. Secured Party or any Lender or Interest Rate Exchanger may be the
purchaser of any or all of the Pledged Collateral at any such sale and Secured
Party, as agent for and representative of Lenders and Interest Rate Exchangers
(but not any Lender or Lenders or Interest Rate Exchanger or Interest Rate
Exchangers in its or their respective individual capacities unless Requisite
Lenders or Requisite Obligees (as defined in Section 15(a)) shall otherwise
agree in writing), shall be entitled, for the purpose of bidding and making
settlement or payment of the purchase price for all or any portion of the
Pledged Collateral sold at any such public sale, to use and apply any of the
Secured Obligations as a credit on account of the purchase price for any Pledged
Collateral payable by Secured Party at such sale. Each purchaser at any such
sale shall hold the property sold absolutely free from any claim or right on the
part of Pledgor, and Pledgor hereby waives (to the extent permitted by
applicable law) all rights of redemption, stay and/or appraisal which it now has
or may at any time in the
XIX-10
<PAGE>
future have under any rule of law or statute now existing or hereafter enacted.
Pledgor agrees that, to the extent notice of sale shall be required by law, at
least ten days' notice to Pledgor of the time and place of any public sale or
the time after which any private sale is to be made shall constitute reasonable
notification. Secured Party shall not be obligated to make any sale of Pledged
Collateral regardless of notice of sale having been given. Secured Party may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. Pledgor hereby waives any
claims against Secured Party arising by reason of the fact that the price at
which any Pledged Collateral may have been sold at such a private sale was less
than the price which might have been obtained at a public sale, even if Secured
Party accepts the first offer received and does not offer such Pledged
Collateral to more than one offeree. If the proceeds of any sale or other
disposition of the Pledged Collateral are insufficient to pay all the Secured
Obligations, Pledgor shall be liable for the deficiency and the fees of any
attorneys employed by Secured Party to collect such deficiency.
(b) Pledgor recognizes that, by reason of certain prohibitions
contained in the Securities Act and applicable state securities laws, Secured
Party may be compelled, with respect to any sale of all or any part of the
Pledged Collateral conducted without prior registration or qualification of such
Pledged Collateral under the Securities Act and/or such state securities laws,
to limit purchasers to those who will agree, among other things, to acquire the
Pledged Collateral for their own account, for investment and not with a view to
the distribution or resale thereof. Pledgor acknowledges that any such private
sales may be at prices and on terms less favorable than those obtainable through
a public sale without such restrictions (including a public offering made
pursuant to a registration statement under the Securities Act) and,
notwithstanding such circumstances, Pledgor agrees that any such private sale
shall be deemed to have been made in a commercially reasonable manner and that
Secured Party shall have no obligation to engage in public sales and no
obligation to delay the sale of any Pledged Collateral for the period of time
necessary to permit the issuer thereof to register it for a form of public sale
requiring registration under the Securities Act or under applicable state
securities laws, even if such issuer would, or should, agree to so register it.
(c) If Secured Party determines to exercise its right to sell any or
all of the Pledged Collateral, upon written request, Pledgor shall and shall
cause each issuer of any Pledged Shares to be sold hereunder from time to time
to furnish to Secured Party all such information as Secured Party may request in
order to determine the number of shares and other instruments included in the
Pledged Collateral which may be sold by Secured Party in exempt transactions
under the Securities Act and the rules and regulations of the Securities and
Exchange Commission thereunder, as the same are from time to time in effect.
SECTION 12. APPLICATION OF PROCEEDS. All proceeds received by Secured
-----------------------
Party in respect of any sale of, collection from, or other realization upon all
or any part of the Pledged Collateral shall be applied as provided in subsection
2.4D of the Credit Agreement.
XIX-11
<PAGE>
SECTION 13. INDEMNITY AND EXPENSES.
----------------------
(a) Pledgor agrees to indemnify Secured Party and each Lender from
and against any and all claims, losses and liabilities in any way relating to,
growing out of or resulting from this Agreement and the transactions
contemplated hereby (including, without limitation, enforcement of this
Agreement), except to the extent such claims, losses or liabilities result from
Secured Party's or such Lender's gross negligence or willful misconduct as
finally determined by a court of competent jurisdiction.
(b) Pledgor shall pay to Secured Party upon demand the amount of any
and all reasonable out-of-pocket costs and expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents, that Secured
Party 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 Pledged Collateral, (iii) the exercise or
enforcement of any of the rights of Secured Party hereunder, or (iv) the failure
by Pledgor to perform or observe any of the provisions hereof.
SECTION 14. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS. This
-----------------------------------------------
Agreement shall create a continuing security interest in the Pledged Collateral
and shall (a) remain in full force and effect until the payment in full of all
Secured Obligations, the cancellation or termination of the Commitments and the
cancellation or expiration of all outstanding Letters of Credit, (b) be binding
upon Pledgor, its successors and assigns, and (c) inure, together with the
rights and remedies of Secured Party hereunder, to the benefit of Secured Party
and its successors, transferees and assigns. Without limiting the generality of
the foregoing clause (c), but subject to the provisions of subsection 10.1 of
the Credit Agreement, any Lender may assign or otherwise transfer any Loans held
by it to any other Person, and such other Person shall thereupon become vested
with all the benefits in respect thereof granted to Lenders herein or otherwise.
Upon the payment in full of all Secured Obligations, the cancellation or
termination of the Commitments and the cancellation or expiration of all
outstanding Letters of Credit, the security interest granted hereby shall
terminate and all rights to the Pledged Collateral shall revert to Pledgor. Upon
any such termination Secured Party will, at Pledgor's expense, execute and
deliver to Pledgor such documents as Pledgor shall reasonably request to
evidence such termination and Pledgor shall be entitled to the return, upon its
request and at its expense, against receipt and without recourse to Secured
Party, of such of the Pledged Collateral as shall not have been sold or
otherwise applied pursuant to the terms hereof.
SECTION 15. SECURED PARTY AS ADMINISTRATIVE AGENT.
-------------------------------------
(a) Secured Party has been appointed to act as Secured Party hereunder
by Lenders and, by their acceptance of the benefits hereof, Interest Rate
Exchangers. Secured Party shall be obligated, and shall have the right
hereunder, to make demands, to give notices, to exercise or refrain from
exercising any rights, and to take or refrain from taking any action (including
the release or substitution of Pledged Collateral), solely in accordance with
this Agreement and the Credit Agreement; provided that Secured Party
--------
XIX-12
<PAGE>
shall exercise, or refrain from exercising, any remedies provided for in Section
11 in accordance with the instructions of (i) Requisite Lenders or (ii) after
payment in full of all Obligations under the Credit Agreement and the other Loan
Documents, the holders of a majority of the aggregate notional amount (or, with
respect to any Lender Interest Rate Agreement that has been terminated in
accordance with its terms, the amount then due and payable (exclusive of
expenses and similar payments but including any early termination payments then
due) under such Lender Interest Rate Agreement) under all Lender Interest Rate
Agreements (Requisite Lenders or, if applicable, such holders being referred to
herein as "REQUISITE OBLIGEES"). In furtherance of the foregoing provisions of
this Section 15(a), each Interest Rate Exchanger, by its acceptance of the
benefits hereof, agrees that it shall have no right individually to realize upon
any of the Pledged Collateral hereunder, it being understood and agreed by such
Interest Rate Exchanger that all rights and remedies hereunder may be exercised
solely by Secured Party for the benefit of Lenders and Interest Rate Exchangers
in accordance with the terms of this Section 15(a).
(b) Secured Party shall at all times be the same Person that is
Administrative Agent under the Credit Agreement. Written notice of resignation
by Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall
also constitute notice of resignation as Secured Party under this Agreement;
removal of Administrative Agent pursuant to subsection 9.5 of the Credit
Agreement shall also constitute removal as Secured Party under this Agreement;
and appointment of a successor Administrative Agent pursuant to subsection 9.5
of the Credit Agreement shall also constitute appointment of a successor Secured
Party under this Agreement. Upon the acceptance of any appointment as
Administrative Agent under subsection 9.5 of the Credit Agreement by a successor
Administrative Agent, that successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring or removed Secured Party under this Agreement, and the retiring
or removed Secured Party under this Agreement shall promptly (i) transfer to
such successor Secured Party all sums, securities and other items of Collateral
held hereunder, together with all records and other documents necessary or
appropriate in connection with the performance of the duties of the successor
Secured Party under this Agreement, and (ii) execute and deliver to such
successor Secured Party such amendments to financing statements, and take such
other actions, as may be necessary or appropriate in connection with the
assignment to such successor Secured Party of the security interests created
hereunder, whereupon such retiring or removed Secured Party shall be discharged
from its duties and obligations under this Agreement. After any retiring or
removed Administrative Agent's resignation or removal hereunder as Secured
Party, the provisions of this Agreement shall inure to its benefit as to any
actions taken or omitted to be taken by it under this Agreement while it was
Secured Party hereunder.
SECTION 16. AMENDMENTS; ETC. No amendment, modification, termination
---------------
or waiver of any provision of this Agreement, and no consent to any departure by
Pledgor therefrom, shall in any event be effective unless the same shall be in
writing and signed by Secured Party and, in the case of any such amendment or
modification, by Pledgor. Any such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which it was given.
XIX-13
<PAGE>
SECTION 17. NOTICES. Any notice or other communication herein
-------
required or permitted to be given shall be given as provided in the Credit
Agreement. For the purposes hereof, the address of each party hereto shall be as
set forth under such party's name on the signature pages hereof or, as to either
party, such other address as shall be designated by such party in a written
notice delivered to the other party hereto.
SECTION 18. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
-----------------------------------------------------
failure or delay on the part of Secured Party in the exercise of any power,
right or privilege hereunder shall impair such power, right or privilege or be
construed to be a waiver of any default or acquiescence therein, nor shall any
single or partial exercise of any such power, right or privilege preclude any
other or further exercise thereof or of any other power, right or privilege.
All rights and remedies existing under this Agreement are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
SECTION 19. SEVERABILITY. In case any provision in or obligation
------------
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 20. HEADINGS. Section and subsection headings in this
--------
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given any
substantive effect.
SECTION 21. GOVERNING LAW; TERMS; RULES OF CONSTRUCTION. THIS
-------------------------------------------
AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE
GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL
OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES, EXCEPT TO THE EXTENT THAT THE CODE PROVIDES THAT THE PERFECTION OF
THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY
PARTICULAR PLEDGED COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER
THAN THE STATE OF NEW YORK. Unless otherwise defined herein or in the Credit
Agreement, terms used in Articles 8 and 9 of the Uniform Commercial Code in the
State of New York are used herein as therein defined. The rules of construction
set forth in subsection 1.3 of the Credit Agreement shall be applicable to this
Agreement mutatis mutandis.
SECTION 22. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
----------------------------------------------
(A) ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST PLEDGOR ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY
STATE OR
XIX-14
<PAGE>
FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY
OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, PLEDGOR, FOR ITSELF
AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY
SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO PLEDGOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 17;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER PLEDGOR IN ANY SUCH
PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT;
(V) AGREES THAT SECURED PARTY RETAINS THE RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST PLEDGOR IN
THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SECTION 22 RELATING TO
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR
OTHERWISE.
(b) Without limiting the generality of the last sentence of Section
22(a), any judicial proceedings brought against Pledgor arising out of or
relating to the pledge of shares of capital stock of any Foreign Subsidiary
hereunder may be brought in any court of competent jurisdiction in the
jurisdiction in which such Foreign Subsidiary is organized, and by execution and
delivery of this Agreement, Pledgor accepts for itself and in connection with
its properties (including without limitation the applicable Pledged Shares),
generally and unconditionally, the nonexclusive jurisdiction of any such court
and waives any defense of forum non conveniens (or any similar defense under the
laws of such jurisdiction) and irrevocably agrees to be bound by any judgement
rendered thereby in connection with such pledge or the enforcement thereof.
SECTION 23. WAIVER OF JURY TRIAL. PLEDGOR AND SECURED PARTY HEREBY
--------------------
AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR
XIX-15
<PAGE>
ARISING OUT OF THIS AGREEMENT. The scope of this waiver is intended to be all-
encompassing of any and all disputes that may be filed in any court and that
relate to the subject matter of this transaction, including contract claims,
tort claims, breach of duty claims, and all other common law and statutory
claims. Pledgor and Secured Party each acknowledge that this waiver is a
material inducement for Pledgor and Secured Party to enter into a business
relationship, that Pledgor and Secured Party have already relied on this waiver
in entering into this Agreement and that each will continue to rely on this
waiver in their related future dealings. Pledgor and Secured Party further
warrant and represent that each has reviewed this waiver with its legal counsel,
and that each knowingly and voluntarily waives its jury trial rights following
consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN
WAIVER SPECIFICALLY REFERRING TO THIS SECTION 23 AND EXECUTED BY EACH OF THE
PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. In the event of
litigation, this Agreement may be filed as a written consent to a trial by the
court.
SECTION 24. COUNTERPARTS. This Agreement may be executed in one or
------------
more counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
[Remainder of page intentionally left blank]
XIX-16
<PAGE>
IN WITNESS WHEREOF, Pledgor and Secured Party have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
[NAME OF SUBSIDIARY],
as Pledgor
By: ____________________________
Name: __________________________
Title: __________________________
Notice Address:
1800 Cloquet Avenue
Cloquet, MN 55720-2141
Attention: Tom Knuesel
WELLS FARGO BANK, N.A., as
Administrative Agent
By: _____________________________
Name: __________________________
Title: __________________________
Notice Address:
Attention:
S-1
<PAGE>
SCHEDULE I
Attached to and forming a part of the Pledge Agreement dated as of
April 21, 1998 between [_______________], as Pledgor, and Wells Fargo Bank,
N.A., as Secured Party.
Part A
Class of Stock Certi- Par Number of
Stock Issuer Stock ficate Nos. Value Shares
- ------------ ----- ----------- ----- -------
Part B
Debt Issuer Amount of Indebtedness
- ----------- ----------------------
<PAGE>
SCHEDULE II
PLEDGE AMENDMENT
This Pledge Amendment, dated ____________, _____, is delivered
pursuant to Section 6(b) of the Subsidiary Pledge Agreement referred to below.
The undersigned hereby agrees that this Subsidiary Pledge Amendment may be
attached to the Subsidiary Pledge Agreement dated April 21, 1998, between the
undersigned and Wells Fargo Bank, N.A., as Secured Party (the "SUBSIDIARY PLEDGE
AGREEMENT," capitalized terms defined therein being used herein as therein
defined), and that the [Pledged Shares] [Pledged Debt] listed on this Pledge
Amendment shall be deemed to be part of the [Pledged Shares] [Pledged Debt] and
shall become part of the Pledged Collateral and shall secure all Secured
Obligations.
[NAME OF PLEDGOR]
By: ___________________________
Title:
Class of Stock Certi- Par Number of
Stock Issuer Stock ficate Nos. Value Shares
- ------------ ----- ----------- ----- ------
Debt Issuer Amount of Indebtedness
- ----------- ----------------------
<PAGE>
SUBSIDIARY PLEDGE AGREEMENT
This SUBSIDIARY PLEDGE AGREEMENT (this "AGREEMENT") is dated as of
April 21, 1998 and entered into by and between EMPIRE CANDLE, INC., a Kansas
corporation ("PLEDGOR"), and WELLS FARGO BANK, N.A., as administrative agent for
and representative of (in such capacity herein called "SECURED PARTY") the
financial institutions ("LENDERS") party to the Credit Agreement referred to
below and any Interest Rate Exchangers (as hereinafter defined).
PRELIMINARY STATEMENTS
A. Pledgor is the legal and beneficial owner of (i) the shares of
stock or other equity Securities (the "PLEDGED SHARES") described in Part A of
Schedule I annexed hereto and issued by the companies named therein and (ii) the
- ----------
indebtedness (the "PLEDGED DEBT") described in Part B of said Schedule I and
----------
issued by the obligors named therein.
B. Secured Party and Lenders have entered into a Credit Agreement
dated as of April 21, 1998 (said Credit Agreement, as it may hereafter be
amended, supplemented or otherwise modified from time to time, being the "CREDIT
AGREEMENT", the terms defined therein and not otherwise defined herein being
used herein as therein defined) with Diamond Brands Operating Corp., a Delaware
corporation ("COMPANY"), pursuant to which Lenders have made certain
commitments, subject to the terms and conditions set forth in the Credit
Agreement, to extend certain credit facilities to Company.
C. Company may from time to time enter, or may from time to time have
entered, into one or more Interest Rate Agreements (collectively, the "LENDER
INTEREST RATE AGREEMENTS") with one or more Lenders (in such capacity,
collectively, "INTEREST RATE EXCHANGERS").
D. Pledgor has executed and delivered that certain Subsidiary
Guaranty dated as of April 21, 1998 (said Subsidiary Guaranty, as it may
hereafter be amended, supplemented or otherwise modified from time to time,
being the "SUBSIDIARY GUARANTY") in favor of Secured Party for the benefit of
Lenders and any Interest Rate Exchangers, pursuant to which Pledgor has
guarantied the prompt payment and performance when due of all obligations of
Company under the Credit Agreement and all obligations of Company under the
Lender Interest Rate Agreements, including the obligation of Company to make
payments thereunder in the event of early termination thereof.
E. It is a condition precedent to the initial extensions of credit by
Lenders under the Credit Agreement that Pledgor shall have granted the security
interests and undertaken the obligations contemplated by this Agreement.
1
<PAGE>
NOW, THEREFORE, in consideration of the premises and in order to induce
Lenders to make Loans and other extensions of credit under the Credit Agreement
and to induce Interest Rate Exchangers to enter into Lender Interest Rate
Agreements, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Pledgor hereby agrees with Secured
Party as follows:
SECTION 1. PLEDGE OF SECURITY. Pledgor hereby pledges and assigns to
------------------
Secured Party, and hereby grants to Secured Party a security interest in, all of
Pledgor's right, title and interest in and to the following (the "PLEDGED
COLLATERAL"):
(a) the Pledged Shares and the certificates representing the Pledged
Shares and any interest of Pledgor in the entries on the books of any financial
intermediary pertaining to the Pledged Shares, and all dividends, cash,
warrants, rights, instruments and other property or proceeds from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of the Pledged Shares;
(b) the Pledged Debt and the instruments evidencing the Pledged Debt,
and all interest, cash, instruments and other property or proceeds from time to
time received, receivable or otherwise distributed in respect of or in exchange
for any or all of the Pledged Debt;
(c) all additional shares of, and all securities convertible into and
warrants, options and other rights to purchase or otherwise acquire, stock of
any issuer of the Pledged Shares from time to time acquired by Pledgor in any
manner (which shares shall be deemed to be part of the Pledged Shares), the
certificates or other instruments representing such additional shares,
securities, warrants, options or other rights and any interest of Pledgor in the
entries on the books of any financial intermediary pertaining to such additional
shares, and all dividends, cash, warrants, rights, instruments and other
property or proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such additional
shares, securities, warrants, options or other rights; provided, however, that,
-------- -------
Pledgor shall not be required to pledge more than 66.6% of any class of capital
stock of any direct or indirect Subsidiary of Pledgor which is incorporated in a
jurisdiction other than the states of the United States and the District of
Columbia ("Foreign Subsidiary") hereunder;
(d) all additional indebtedness from time to time owed to Pledgor by
any obligor on the Pledged Debt and the instruments evidencing such
indebtedness, and all interest, cash, instruments and other property or proceeds
from time to time received, receivable or otherwise distributed in respect of or
in exchange for any or all of such indebtedness;
(e) all shares of, and all securities convertible into and warrants,
options and other rights to purchase or otherwise acquire, stock of any Person
that, after the date of this Agreement, becomes, as a result of any occurrence,
a direct Subsidiary of Pledgor (which shares shall be deemed to be part of the
Pledged Shares), the certificates or other instruments representing such shares,
securities, warrants, options or other rights and any
2
<PAGE>
interest of Pledgor in the entries on the books of any financial intermediary
pertaining to such shares, and all dividends, cash, warrants, rights,
instruments and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of such shares, securities, warrants, options or other rights; provided,
--------
however, that Pledgor shall not be required to pledge more than 66.6% of any
- -------
class of capital stock of any Foreign Subsidiary hereunder;
(f) all indebtedness from time to time owed to Pledgor by any Person
that, after the date of this Agreement, becomes, as a result of any occurrence,
a direct or indirect Subsidiary of Pledgor, and all interest, cash, instruments
and other property or proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
indebtedness;
(g) to the extent not covered by clauses (a) through (f) above, all
proceeds of any or all of the foregoing Pledged Collateral. For purposes of
this Agreement, the term "PROCEEDS" includes whatever is receivable or received
when Pledged Collateral or proceeds are sold, exchanged, collected or otherwise
disposed of, whether such disposition is voluntary or involuntary, and includes
proceeds of any indemnity or guaranty payable to Pledgor or Secured Party from
time to time with respect to any of the Pledged Collateral.
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures, and the
------------------------
Pledged Collateral is collateral security for, the prompt payment or performance
in full when due, whether at stated maturity, by required prepayment,
declaration, acceleration, demand or otherwise (including the payment of amounts
that would become due but for the operation of the automatic stay under Section
362(a) of the Bankruptcy Code, 11 U.S.C. (S) 362(a)), of all obligations and
liabilities of every nature of Pledgor now or hereafter existing under or
arising out of or in connection with the Subsidiary Guaranty and all extensions
or renewals thereof, whether for principal, interest (including interest that,
but for the filing of a petition in bankruptcy with respect to Company, would
accrue on such obligations, whether or not a claim is allowed against Company
for such interest in the related bankruptcy proceeding), reimbursement of
amounts drawn under Letters of Credit, payments for early termination of Lender
Interest Rate Agreements, fees, expenses, indemnities or otherwise, whether
voluntary or involuntary, direct or indirect, absolute or contingent, liquidated
or unliquidated, whether or not jointly owed with others, and whether or not
from time to time decreased or extinguished and later increased, created or
incurred, and all or any portion of such obligations or liabilities that are
paid, to the extent all or any part of such payment is avoided or recovered
directly or indirectly from Secured Party or any Lender or Interest Rate
Exchanger as a preference, fraudulent transfer or otherwise, and all obligations
of every nature of Pledgor now or hereafter existing under this Agreement (all
such obligations of Pledgor being the "SECURED OBLIGATIONS").
SECTION 3. DELIVERY OF PLEDGED COLLATERAL. All certificates or
------------------------------
instruments representing or evidencing the Pledged Collateral shall be delivered
to and held by or on behalf of Secured Party pursuant hereto and shall be in
suitable form for
3
<PAGE>
transfer by delivery or, as applicable, shall be accompanied by Pledgor's
endorsement, where necessary, or duly executed instruments of transfer or
assignment in blank, all in form and substance satisfactory to Secured Party.
Upon the occurrence and during the continuation of an Event of Default (as
defined in the Credit Agreement) or the occurrence of an Early Termination Date
(as defined in a Master Agreement or an Interest Rate Swap Agreement or Interest
Rate and Currency Exchange Agreement in the form prepared by the International
Swap and Derivatives Association Inc. or a similar event under any similar swap
agreement) under any Lender Interest Rate Agreement (either such occurrence
being an "EVENT OF DEFAULT" for purposes of this Agreement), Secured Party shall
have the right, without notice to Pledgor, to transfer to or to register in the
name of Secured Party or any of its nominees any or all of the Pledged
Collateral, subject only to the revocable rights specified in Section 7(a). In
addition, upon the occurrence and during the continuation of an Event of
Default, Secured Party shall have the right at any time to exchange certificates
or instruments representing or evidencing Pledged Collateral for certificates or
instruments of smaller or larger denominations.
SECTION 4. REPRESENTATIONS AND WARRANTIES. Pledgor represents and
------------------------------
warrants as follows:
(a) Due Authorization, etc. of Pledged Collateral. All of the Pledged
---------------------------------------------
Shares have been duly authorized and validly issued and are fully paid and non-
assessable. All of the Pledged Debt has been duly authorized, authenticated or
issued, and delivered and is the legal, valid and binding obligation of the
issuers thereof and is not in default.
(b) Description of Pledged Collateral. The Pledged Shares constitute
---------------------------------
(i) all of the issued and outstanding shares of stock or other equity Securities
of each of the Subsidiaries of Pledgor which are incorporated in a state of the
United States or in the District of Columbia, and (ii) 66.6% of the issued and
outstanding shares of stock or other equity Securities of each Foreign
Subsidiary of Pledgor, and there are no outstanding warrants, options or other
rights to purchase, or other agreements outstanding with respect to, or property
that is now or hereafter convertible into, or that requires the issuance or sale
of, any Pledged Shares. The Pledged Debt constitutes all of the issued and
outstanding intercompany indebtedness evidenced by a promissory note of the
respective issuers thereof owing to Pledgor.
(c) Ownership of Pledged Collateral. Pledgor is the legal, record and
-------------------------------
beneficial owner of the Pledged Collateral free and clear of any Lien except for
the security interest created by this Agreement.
(d) Governmental Authorizations. No authorization, approval or other
---------------------------
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for either (i) the pledge by Pledgor of the Pledged
Collateral pursuant to this Agreement and the grant by Pledgor of the security
interest granted hereby, or (ii) the execution, delivery or performance of this
Agreement by Pledgor, or (iii) the exercise by Secured Party of the voting or
other rights, or the remedies in respect of the Pledged Collateral, provided for
in this Agreement (except as may be required in connection with
4
<PAGE>
a disposition of Pledged Collateral by laws affecting the offering and sale of
securities generally).
(e) Perfection. The pledge of the Pledged Collateral pursuant to this
----------
Agreement creates a valid and perfected first priority security interest in the
Pledged Collateral, securing the payment of the Secured Obligations; provided
--------
that Secured Party retains physical possession of such Pledged Collateral.
(f) Margin Regulations. The pledge of the Pledged Collateral pursuant
------------------
to this Agreement does not violate Regulation T, U or X of the Board of
Governors of the Federal Reserve System.
(g) Other Information. All information heretofore, herein or hereafter
-----------------
supplied to Secured Party by or on behalf of Pledgor with respect to the Pledged
Collateral is accurate and complete in all material respects.
SECTION 5. TRANSFERS AND OTHER LIENS; ADDITIONAL PLEDGED COLLATERAL;
---------------------------------------------------------
ETC. Pledgor shall:
- ----
(a) not, except as expressly permitted by the Credit Agreement, (i)
sell, assign (by operation of law or otherwise) or otherwise dispose of, or
grant any option with respect to, any of the Pledged Collateral, (ii) create or
suffer to exist any Lien upon or with respect to any of the Pledged Collateral,
except for the security interest under this Agreement and the Permitted
Encumbrances, or (iii) permit any issuer of Pledged Shares to merge or
consolidate unless all the outstanding capital stock or other equity Security of
the surviving or resulting corporation is, upon such merger or consolidation,
pledged hereunder and no cash, securities or other property is distributed in
respect of the outstanding shares of any other constituent corporation; provided
--------
that Pledgor shall not be required to pledge more than 66.6% of any class of
capital stock of any Foreign Subsidiary; provided, further, that in the event
-------- -------
Pledgor makes an Asset Sale permitted by the Credit Agreement and the assets
subject to such Asset Sale are Pledged Shares, Secured Party shall release the
Pledged Shares that are the subject of such Asset Sale to Pledgor free and clear
of the lien and security interest under this Agreement concurrently with the
consummation of such Asset Sale; provided, further that, as a condition
-------- -------
precedent to such release, Secured Party shall have received evidence
satisfactory to it that arrangements satisfactory to it have been made for
delivery to Secured Party of the Net Asset Sale Proceeds of such Asset Sale if
required under the Credit Agreement;
(b) (i) cause each issuer of Pledged Shares not to issue any stock or
other securities in addition to or in substitution for the Pledged Shares issued
by such issuer, except to Pledgor, (ii) pledge hereunder, within 5 days of its
acquisition (directly or indirectly) thereof, any and all additional shares of
stock or other securities of each issuer of Pledged Shares, and (iii) pledge
hereunder, within 5 days of its acquisition (directly or indirectly) thereof,
any and all shares of stock of any Person that, after the date of this
Agreement, becomes, as a result of any occurrence, a direct Subsidiary of
5
<PAGE>
Pledgor; provided that Pledgor shall not be required to pledge more than 66.6%
--------
of any class of capital stock of any Foreign Subsidiary hereunder;
(c) (i) pledge hereunder, within 5 days of their issuance, any and all
instruments or other evidences of additional indebtedness from time to time owed
to Pledgor by any obligor on the Pledged Debt, and (ii) pledge hereunder, within
5 days of their issuance, any and all instruments or other evidences of
indebtedness from time to time owed to Pledgor by any Person that after the date
of this Agreement becomes, as a result of any occurrence, a direct or indirect
Subsidiary of Pledgor;
(d) promptly notify Secured Party of any event of which Pledgor becomes
aware causing material loss or depreciation in the value of the Pledged
Collateral;
(e) promptly deliver to Secured Party all material written notices
received by it with respect to the Pledged Collateral; and
(f) pay promptly when due all taxes, assessments and governmental
charges or levies imposed upon, and all claims against, the Pledged Collateral,
except to the extent permitted by the terms of the Credit Agreement.
SECTION 6. FURTHER ASSURANCES; PLEDGE AMENDMENTS.
-------------------------------------
(a) Pledgor agrees that from time to time, at the expense of Pledgor,
Pledgor will promptly execute and deliver all further instruments and documents,
and take all further action, that may reasonably be necessary or desirable, or
that Secured Party may reasonably request, in order to perfect and protect any
security interest granted or purported to be granted hereby or to enable Secured
Party to exercise and enforce its rights and remedies hereunder with respect to
any Pledged Collateral. Without limiting the generality of the foregoing,
Pledgor will: (i) execute and file such financing or continuation statements,
or amendments thereto, and such other instruments or notices, as may be
necessary or desirable, or as Secured Party may reasonably request, in order to
perfect and preserve the security interests granted or purported to be granted
hereby and (ii) at Secured Party's reasonable request, appear in and defend any
action or proceeding that may affect Pledgor's title to or Secured Party's
security interest in all or any part of the Pledged Collateral.
(b) Pledgor further agrees that it will, upon obtaining any additional
shares of stock or other securities required to be pledged hereunder as provided
in Section 5(b) or (c), promptly (and in any event within five Business Days)
deliver to Secured Party a Pledge Amendment, duly executed by Pledgor, in
substantially the form of Schedule II annexed hereto (a "PLEDGE AMENDMENT"), in
-----------
respect of the additional Pledged Shares or Pledged Debt to be pledged pursuant
to this Agreement. Pledgor hereby authorizes Secured Party to attach each
Pledge Amendment to this Agreement and agrees that all Pledged Shares or Pledged
Debt listed on any Pledge Amendment delivered to Secured Party shall for all
purposes hereunder be considered Pledged Collateral;
6
<PAGE>
provided that the failure of Pledgor to execute a Pledge Amendment with respect
- --------
to any additional Pledged Shares or Pledged Debt pledged pursuant to this
Agreement shall not impair the security interest of Secured Party therein or
otherwise adversely affect the rights and remedies of Secured Party hereunder
with respect thereto.
SECTION 7. VOTING RIGHTS; DIVIDENDS; ETC.
------------------------------
(a) So long as no Event of Default shall have occurred and be
continuing:
(i) Pledgor shall be entitled to exercise any and all voting and other
consensual rights pertaining to the Pledged Collateral or any part thereof
for any purpose not inconsistent with the terms of this Agreement or the
Credit Agreement and as long as such action would not have a material
adverse effect on the value of the Pledged Collateral. It is understood,
however, that neither (A) the voting by Pledgor of any Pledged Shares for or
Pledgor's consent to the election of directors at a regularly scheduled
annual or other meeting of stockholders or members or with respect to
incidental matters at any such meeting nor (B) Pledgor's consent to or
approval of any action otherwise permitted under this Agreement and the
Credit Agreement shall be deemed inconsistent with the terms of this
Agreement or the Credit Agreement within the meaning of this Section
7(a)(i), and no notice of any such voting or consent need be given to
Secured Party;
(ii) Pledgor shall be entitled to receive and retain, and to utilize
free and clear of the lien of this Agreement, any and all dividends and
interest paid in respect of the Pledged Collateral; provided, however, that
-------- -------
any and all
(A) dividends and interest paid or payable other than in cash in
respect of, and instruments and other property received, receivable or
otherwise distributed in respect of, or in exchange for, any Pledged
Collateral,
(B) dividends and other distributions paid or payable in cash in
respect of any Pledged Collateral in connection with a partial or total
liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in-surplus, and
(C) cash paid, payable or otherwise distributed in respect of
principal or in redemption of or in exchange for any Pledged
Collateral,
shall be, and shall forthwith be delivered to Secured Party to hold as,
Pledged Collateral and shall, if received by Pledgor, be received in trust
for the benefit of Secured Party, be segregated from the other property or
funds of Pledgor and be forthwith delivered to Secured Party as Pledged
Collateral in the same form as so received (with all necessary
indorsements); provided, however, that to the extent that property
-------- -------
distributed to Pledgor in respect of the Pledged Collateral continues or
becomes, after such distribution, to be otherwise subject to a Lien in favor
of
7
<PAGE>
Secured Party under the Loan Documents, such property shall not be otherwise
required to be forthwith delivered to Secured Party pursuant to clause (ii);
and
(iii) Secured Party shall promptly execute and deliver (or cause to be
executed and delivered) to Pledgor all such proxies, dividend payment orders
and other instruments as Pledgor may from time to time reasonably request
for the purpose of enabling Pledgor to exercise the voting and other
consensual rights which it is entitled to exercise pursuant to paragraph (i)
above and to receive the dividends, principal or interest payments which it
is authorized to receive and retain pursuant to paragraph (ii) above.
(b) Upon the occurrence and during the continuation of an Event of
Default:
(i) upon written notice from Secured Party to Pledgor, all rights of
Pledgor to exercise the voting and other consensual rights which it would
otherwise be entitled to exercise pursuant to Section 7(a)(i) shall cease,
and all such rights shall thereupon become vested in Secured Party who shall
thereupon have the sole right to exercise such voting and other consensual
rights;
(ii) all rights of Pledgor to receive the dividends and interest
payments which it would otherwise be authorized to receive and retain
pursuant to Section 7(a)(ii) shall cease, and all such rights shall
thereupon become vested in Secured Party who shall thereupon have the sole
right to receive and hold as Pledged Collateral such dividends and interest
payments; and
(iii) all dividends, principal and interest payments which are
received by Pledgor contrary to the provisions of paragraph (ii) of this
Section 7(b) shall be received in trust for the benefit of Secured Party,
shall be segregated from other funds of Pledgor and shall forthwith be paid
over to Secured Party as Pledged Collateral in the same form as so received
(with any necessary indorsements).
(c) In order to permit Secured Party to exercise the voting and other
consensual rights which it may be entitled to exercise pursuant to Section
7(b)(i) and to receive all dividends and other distributions which it may be
entitled to receive under Section 7(a)(ii) or Section 7(b)(ii), (i) Pledgor
shall promptly execute and deliver (or cause to be executed and delivered) to
Secured Party all such proxies, dividend payment orders and other instruments as
Secured Party may from time to time reasonably request, including without
limitation to the extent necessary so that the pledge of any shares of stock of
any Foreign Subsidiary is registered (if not already so registered) on the
appropriate books and records of the issuer of the applicable Pledged Shares if
such registration is required under applicable law in order to permit Secured
Party to exercise such rights or to receive such dividends and other
distributions, and (ii) without limiting the effect of the immediately preceding
clause (i), Pledgor hereby grants to Secured Party an irrevocable proxy to vote
the Pledged Shares and to exercise all other rights, powers, privileges and
remedies to which a holder of the Pledged Shares would be entitled
8
<PAGE>
(including giving or withholding written consents of shareholders, calling
special meetings of shareholders and voting at such meetings), which proxy shall
be effective, automatically and without the necessity of any action (including
any transfer of any Pledged Shares on the record books of the issuer thereof) by
any other Person (including the issuer of the Pledged Shares or any officer or
agent thereof), upon the written notice of an Event of Default from Secured
Party delivered at any time, including at a member or shareholder meeting, and
which proxy shall only terminate upon cure of the circumstances which gave rise
to the Event of Default.
SECTION 8. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Pledgor hereby
----------------------------------------
irrevocably appoints Secured Party as Pledgor's attorney-in-fact, with full
authority in the place and stead of Pledgor and in the name of Pledgor, Secured
Party or otherwise, from time to time during the continuation of an Event of
Default in Secured Party's discretion to take any action and to execute any
instrument that Secured Party may deem necessary or advisable to accomplish the
purposes of this Agreement, including:
(a) to file one or more financing or continuation statements, or
amendments thereto, relative to all or any part of the Pledged Collateral
without the signature of Pledgor;
(b) to ask, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Pledged Collateral;
(c) to receive, endorse and collect any instruments made payable to
Pledgor representing any dividend, principal or interest payment or other
distribution in respect of the Pledged Collateral or any part thereof and to
give full discharge for the same; and
(d) to file any claims or take any action or institute any proceedings
that Secured Party may deem necessary or desirable for the collection of any of
the Pledged Collateral or otherwise to enforce the rights of Secured Party with
respect to any of the Pledged Collateral.
SECTION 9. SECURED PARTY MAY PERFORM. If Pledgor fails to perform any
-------------------------
agreement contained herein, Secured Party may itself perform, or cause
performance of, such agreement, and the expenses of Secured Party incurred in
connection therewith shall be payable by Pledgor under Section 13(b).
SECTION 10. STANDARD OF CARE. The powers conferred on Secured Party
----------------
hereunder are solely to protect its interest in the Pledged Collateral and shall
not impose any duty upon it to exercise any such powers. Except for the
exercise of reasonable care in the custody of any Pledged Collateral in its
possession and the accounting for moneys actually received by it hereunder,
Secured Party shall have no duty as to any Pledged Collateral, it being
understood that Secured Party shall have no responsibility for (a) ascertaining
or taking action with respect to calls, conversions, exchanges,
9
<PAGE>
maturities, tenders or other matters relating to any Pledged Collateral, whether
or not Secured Party has or is deemed to have knowledge of such matters, (b)
taking any necessary steps (other than steps taken in accordance with the
standard of care set forth above to maintain possession of the Pledged
Collateral) to preserve rights against any parties with respect to any Pledged
Collateral, (c) taking any necessary steps to collect or realize upon the
Secured Obligations or any guarantee therefor, or any part thereof, or any of
the Pledged Collateral, or (d) initiating any action to protect the Pledged
Collateral against the possibility of a decline in market value. Secured Party
shall be deemed to have exercised reasonable care in the custody and
preservation of Pledged Collateral in its possession if such Pledged Collateral
is accorded treatment substantially equal to that which Secured Party accords
its own property consisting of negotiable securities.
SECTION 11. REMEDIES.
--------
(a) If any Event of Default shall have occurred and be continuing,
Secured Party may exercise in respect of the Pledged Collateral, in addition to
all other rights and remedies provided for herein or otherwise available to it,
all the rights and remedies of a secured party on default under the Uniform
Commercial Code as in effect in any relevant jurisdiction (the "CODE") (whether
or not the Code applies to the affected Pledged Collateral), or any other
applicable laws whether of the United States or any state thereof or any other
foreign jurisdiction, and Secured Party may also in its sole discretion, without
notice except as specified below, sell the Pledged Collateral or any part
thereof in one or more parcels at public or private sale, at any exchange or
broker's board or at any of Secured Party's offices or elsewhere, for cash, on
credit or for future delivery, at such time or times and at such price or prices
and upon such other terms as Secured Party may deem commercially reasonable,
irrespective of the impact of any such sales on the market price of the Pledged
Collateral. Secured Party or any Lender or Interest Rate Exchanger may be the
purchaser of any or all of the Pledged Collateral at any such sale and Secured
Party, as agent for and representative of Lenders and Interest Rate Exchangers
(but not any Lender or Lenders or Interest Rate Exchanger or Interest Rate
Exchangers in its or their respective individual capacities unless Requisite
Lenders or Requisite Obligees (as defined in Section 15(a)) shall otherwise
agree in writing), shall be entitled, for the purpose of bidding and making
settlement or payment of the purchase price for all or any portion of the
Pledged Collateral sold at any such public sale, to use and apply any of the
Secured Obligations as a credit on account of the purchase price for any Pledged
Collateral payable by Secured Party at such sale. Each purchaser at any such
sale shall hold the property sold absolutely free from any claim or right on the
part of Pledgor, and Pledgor hereby waives (to the extent permitted by
applicable law) all rights of redemption, stay and/or appraisal which it now has
or may at any time in the future have under any rule of law or statute now
existing or hereafter enacted. Pledgor agrees that, to the extent notice of sale
shall be required by law, at least ten days' notice to Pledgor of the time and
place of any public sale or the time after which any private sale is to be made
shall constitute reasonable notification. Secured Party shall not be obligated
to make any sale of Pledged Collateral regardless of notice of sale having been
given. Secured Party may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without
further
10
<PAGE>
notice, be made at the time and place to which it was so adjourned. Pledgor
hereby waives any claims against Secured Party arising by reason of the fact
that the price at which any Pledged Collateral may have been sold at such a
private sale was less than the price which might have been obtained at a public
sale, even if Secured Party accepts the first offer received and does not offer
such Pledged Collateral to more than one offeree. If the proceeds of any sale or
other disposition of the Pledged Collateral are insufficient to pay all the
Secured Obligations, Pledgor shall be liable for the deficiency and the fees of
any attorneys employed by Secured Party to collect such deficiency.
(b) Pledgor recognizes that, by reason of certain prohibitions
contained in the Securities Act and applicable state securities laws, Secured
Party may be compelled, with respect to any sale of all or any part of the
Pledged Collateral conducted without prior registration or qualification of such
Pledged Collateral under the Securities Act and/or such state securities laws,
to limit purchasers to those who will agree, among other things, to acquire the
Pledged Collateral for their own account, for investment and not with a view to
the distribution or resale thereof. Pledgor acknowledges that any such private
sales may be at prices and on terms less favorable than those obtainable through
a public sale without such restrictions (including a public offering made
pursuant to a registration statement under the Securities Act) and,
notwithstanding such circumstances, Pledgor agrees that any such private sale
shall be deemed to have been made in a commercially reasonable manner and that
Secured Party shall have no obligation to engage in public sales and no
obligation to delay the sale of any Pledged Collateral for the period of time
necessary to permit the issuer thereof to register it for a form of public sale
requiring registration under the Securities Act or under applicable state
securities laws, even if such issuer would, or should, agree to so register it.
(c) If Secured Party determines to exercise its right to sell any or
all of the Pledged Collateral, upon written request, Pledgor shall and shall
cause each issuer of any Pledged Shares to be sold hereunder from time to time
to furnish to Secured Party all such information as Secured Party may request in
order to determine the number of shares and other instruments included in the
Pledged Collateral which may be sold by Secured Party in exempt transactions
under the Securities Act and the rules and regulations of the Securities and
Exchange Commission thereunder, as the same are from time to time in effect.
SECTION 12. APPLICATION OF PROCEEDS. All proceeds received by Secured
-----------------------
Party in respect of any sale of, collection from, or other realization upon all
or any part of the Pledged Collateral shall be applied as provided in subsection
2.4D of the Credit Agreement.
SECTION 13. INDEMNITY AND EXPENSES.
----------------------
(a) Pledgor agrees to indemnify Secured Party and each Lender from and
against any and all claims, losses and liabilities in any way relating to,
growing out of or resulting from this Agreement and the transactions
contemplated hereby (including, without limitation, enforcement of this
Agreement), except to the extent such claims,
11
<PAGE>
losses or liabilities result from Secured Party's or such Lender's gross
negligence or willful misconduct as finally determined by a court of competent
jurisdiction.
(b) Pledgor shall pay to Secured Party upon demand the amount of any
and all reasonable out-of-pocket costs and expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents, that Secured
Party 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 Pledged Collateral, (iii) the exercise or
enforcement of any of the rights of Secured Party hereunder, or (iv) the failure
by Pledgor to perform or observe any of the provisions hereof.
SECTION 14. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS. This
-----------------------------------------------
Agreement shall create a continuing security interest in the Pledged Collateral
and shall (a) remain in full force and effect until the payment in full of all
Secured Obligations, the cancellation or termination of the Commitments and the
cancellation or expiration of all outstanding Letters of Credit, (b) be binding
upon Pledgor, its successors and assigns, and (c) inure, together with the
rights and remedies of Secured Party hereunder, to the benefit of Secured Party
and its successors, transferees and assigns. Without limiting the generality of
the foregoing clause (c), but subject to the provisions of subsection 10.1 of
the Credit Agreement, any Lender may assign or otherwise transfer any Loans held
by it to any other Person, and such other Person shall thereupon become vested
with all the benefits in respect thereof granted to Lenders herein or otherwise.
Upon the payment in full of all Secured Obligations, the cancellation or
termination of the Commitments and the cancellation or expiration of all
outstanding Letters of Credit, the security interest granted hereby shall
terminate and all rights to the Pledged Collateral shall revert to Pledgor. Upon
any such termination Secured Party will, at Pledgor's expense, execute and
deliver to Pledgor such documents as Pledgor shall reasonably request to
evidence such termination and Pledgor shall be entitled to the return, upon its
request and at its expense, against receipt and without recourse to Secured
Party, of such of the Pledged Collateral as shall not have been sold or
otherwise applied pursuant to the terms hereof.
SECTION 15. SECURED PARTY AS ADMINISTRATIVE AGENT.
-------------------------------------
(a) Secured Party has been appointed to act as Secured Party
hereunder by Lenders and, by their acceptance of the benefits hereof, Interest
Rate Exchangers. Secured Party shall be obligated, and shall have the right
hereunder, to make demands, to give notices, to exercise or refrain from
exercising any rights, and to take or refrain from taking any action (including
the release or substitution of Pledged Collateral), solely in accordance with
this Agreement and the Credit Agreement; provided that Secured Party shall
--------
exercise, or refrain from exercising, any remedies provided for in Section 11 in
accordance with the instructions of (i) Requisite Lenders or (ii) after payment
in full of all Obligations under the Credit Agreement and the other Loan
Documents, the holders of a majority of the aggregate notional amount (or, with
respect to any Lender Interest Rate Agreement that has been terminated in
accordance with its terms, the amount then due and payable (exclusive of
expenses and similar payments but including any early
12
<PAGE>
termination payments then due) under such Lender Interest Rate Agreement) under
all Lender Interest Rate Agreements (Requisite Lenders or, if applicable, such
holders being referred to herein as "REQUISITE OBLIGEES"). In furtherance of the
foregoing provisions of this Section 15(a), each Interest Rate Exchanger, by its
acceptance of the benefits hereof, agrees that it shall have no right
individually to realize upon any of the Pledged Collateral hereunder, it being
understood and agreed by such Interest Rate Exchanger that all rights and
remedies hereunder may be exercised solely by Secured Party for the benefit of
Lenders and Interest Rate Exchangers in accordance with the terms of this
Section 15(a).
(b) Secured Party shall at all times be the same Person that is
Administrative Agent under the Credit Agreement. Written notice of resignation
by Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall
also constitute notice of resignation as Secured Party under this Agreement;
removal of Administrative Agent pursuant to subsection 9.5 of the Credit
Agreement shall also constitute removal as Secured Party under this Agreement;
and appointment of a successor Administrative Agent pursuant to subsection 9.5
of the Credit Agreement shall also constitute appointment of a successor Secured
Party under this Agreement. Upon the acceptance of any appointment as
Administrative Agent under subsection 9.5 of the Credit Agreement by a successor
Administrative Agent, that successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring or removed Secured Party under this Agreement, and the retiring
or removed Secured Party under this Agreement shall promptly (i) transfer to
such successor Secured Party all sums, securities and other items of Collateral
held hereunder, together with all records and other documents necessary or
appropriate in connection with the performance of the duties of the successor
Secured Party under this Agreement, and (ii) execute and deliver to such
successor Secured Party such amendments to financing statements, and take such
other actions, as may be necessary or appropriate in connection with the
assignment to such successor Secured Party of the security interests created
hereunder, whereupon such retiring or removed Secured Party shall be discharged
from its duties and obligations under this Agreement. After any retiring or
removed Administrative Agent's resignation or removal hereunder as Secured
Party, the provisions of this Agreement shall inure to its benefit as to any
actions taken or omitted to be taken by it under this Agreement while it was
Secured Party hereunder.
SECTION 16. AMENDMENTS; ETC. No amendment, modification, termination
---------------
or waiver of any provision of this Agreement, and no consent to any departure by
Pledgor therefrom, shall in any event be effective unless the same shall be in
writing and signed by Secured Party and, in the case of any such amendment or
modification, by Pledgor. Any such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which it was given.
SECTION 17. NOTICES. Any notice or other communication herein
-------
required or permitted to be given shall be given as provided in the Credit
Agreement. For the purposes hereof, the address of each party hereto shall be
as set forth under such party's name on the signature pages hereof or, as to
either party, such other address as shall be designated by such party in a
written notice delivered to the other party hereto.
13
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SECTION 18. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
-----------------------------------------------------
failure or delay on the part of Secured Party in the exercise of any power,
right or privilege hereunder shall impair such power, right or privilege or be
construed to be a waiver of any default or acquiescence therein, nor shall any
single or partial exercise of any such power, right or privilege preclude any
other or further exercise thereof or of any other power, right or privilege.
All rights and remedies existing under this Agreement are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
SECTION 19. SEVERABILITY. In case any provision in or obligation
------------
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 20. HEADINGS. Section and subsection headings in this
--------
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given any
substantive effect.
SECTION 21. GOVERNING LAW; TERMS; RULES OF CONSTRUCTION. THIS
-------------------------------------------
AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE
GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL
OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES, EXCEPT TO THE EXTENT THAT THE CODE PROVIDES THAT THE PERFECTION OF
THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY
PARTICULAR PLEDGED COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER
THAN THE STATE OF NEW YORK. Unless otherwise defined herein or in the Credit
Agreement, terms used in Articles 8 and 9 of the Uniform Commercial Code in the
State of New York are used herein as therein defined. The rules of construction
set forth in subsection 1.3 of the Credit Agreement shall be applicable to this
Agreement mutatis mutandis.
SECTION 22. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
----------------------------------------------
(A) ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST PLEDGOR ARISING OUT OF
OR RELATING TO THIS AGREEMENT, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN
ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND
CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, PLEDGOR, FOR
ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY
14
<PAGE>
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN
ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO PLEDGOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION
17;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER PLEDGOR IN ANY SUCH
PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT;
(V) AGREES THAT SECURED PARTY RETAINS THE RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST PLEDGOR
IN THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SECTION 22 RELATING TO
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR
OTHERWISE.
(b) Without limiting the generality of the last sentence of Section
22(a), any judicial proceedings brought against Pledgor arising out of or
relating to the pledge of shares of capital stock of any Foreign Subsidiary
hereunder may be brought in any court of competent jurisdiction in the
jurisdiction in which such Foreign Subsidiary is organized, and by execution and
delivery of this Agreement, Pledgor accepts for itself and in connection with
its properties (including without limitation the applicable Pledged Shares),
generally and unconditionally, the nonexclusive jurisdiction of any such court
and waives any defense of forum non conveniens (or any similar defense under the
laws of such jurisdiction) and irrevocably agrees to be bound by any judgement
rendered thereby in connection with such pledge or the enforcement thereof.
SECTION 23. WAIVER OF JURY TRIAL. PLEDGOR AND SECURED PARTY HEREBY
--------------------
AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this waiver is
intended to be all-encompassing of any and all disputes that may be filed in any
court and that relate to the subject matter of this transaction, including
contract claims, tort claims, breach of duty claims, and all other common law
and statutory claims. Pledgor and Secured Party each acknowledge that this
waiver is a material inducement for Pledgor and Secured Party
15
<PAGE>
to enter into a business relationship, that Pledgor and Secured Party have
already relied on this waiver in entering into this Agreement and that each will
continue to rely on this waiver in their related future dealings. Pledgor and
Secured Party further warrant and represent that each has reviewed this waiver
with its legal counsel, and that each knowingly and voluntarily waives its jury
trial rights following consultation with legal counsel. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING
(OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 23
AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
In the event of litigation, this Agreement may be filed as a written consent to
a trial by the court.
SECTION 24. COUNTERPARTS. This Agreement may be executed in one or
------------
more counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
[Remainder of page intentionally left blank]
16
<PAGE>
IN WITNESS WHEREOF, Pledgor and Secured Party have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
EMPIRE CANDLE, INC.
as Pledgor
By: __________________________
Name: __________________________
Title: __________________________
Notice Address:
1800 Cloquet Avenue
Cloquet, MN 55720-2141
Attention: Tom Knuesel
WELLS FARGO BANK, N.A., as
Administrative Agent
By: __________________________
Name: __________________________
Title: __________________________
Notice Address:
555 Montgomery Street
17th Floor
San Francisco, California 94111
Attention: Alan Wray
S-1
<PAGE>
SCHEDULE I
Attached to and forming a part of the Pledge Agreement dated as of
April 21, 1998 between [_______________], as Pledgor, and Wells Fargo Bank,
N.A., as Secured Party.
Part A
Class of Stock Certi- Par Number of
Stock Issuer Stock ficate Nos. Value Shares
- ------------ -------- ------------ ----- ---------
Part B
Debt Issuer Amount of Indebtedness
- ----------- ----------------------
<PAGE>
SCHEDULE II
PLEDGE AMENDMENT
This Pledge Amendment, dated ____________, _____, is delivered
pursuant to Section 6(b) of the Subsidiary Pledge Agreement referred to below.
The undersigned hereby agrees that this Subsidiary Pledge Amendment may be
attached to the Subsidiary Pledge Agreement dated April 21, 1998, between the
undersigned and Wells Fargo Bank, N.A., as Secured Party (the "SUBSIDIARY PLEDGE
AGREEMENT," capitalized terms defined therein being used herein as therein
defined), and that the [Pledged Shares] [Pledged Debt] listed on this Pledge
Amendment shall be deemed to be part of the [Pledged Shares] [Pledged Debt] and
shall become part of the Pledged Collateral and shall secure all Secured
Obligations.
[NAME OF PLEDGOR]
By:_____________________
Title:
Class of Stock Certi- Par Number of
Stock Issuer Stock ficate Nos. Value Shares
- ------------ -------- ------------ ----- ---------
Debt Issuer Amount of Indebtedness
- ----------- ----------------------
<PAGE>
SUBSIDIARY PLEDGE AGREEMENT
This SUBSIDIARY PLEDGE AGREEMENT (this "AGREEMENT") is dated as of
April 21, 1998 and entered into by and between EMPIRE CANDLE, INC., a Kansas
corporation ("PLEDGOR"), and WELLS FARGO BANK, N.A., as administrative agent for
and representative of (in such capacity herein called "SECURED PARTY") the
financial institutions ("LENDERS") party to the Credit Agreement referred to
below and any Interest Rate Exchangers (as hereinafter defined).
PRELIMINARY STATEMENTS
A. Pledgor is the legal and beneficial owner of (i) the shares of
stock or other equity Securities (the "PLEDGED SHARES") described in Part A of
Schedule I annexed hereto and issued by the companies named therein and (ii) the
- ----------
indebtedness (the "PLEDGED DEBT") described in Part B of said Schedule I and
----------
issued by the obligors named therein.
B. Secured Party and Lenders have entered into a Credit Agreement
dated as of April 21, 1998 (said Credit Agreement, as it may hereafter be
amended, supplemented or otherwise modified from time to time, being the "CREDIT
AGREEMENT", the terms defined therein and not otherwise defined herein being
used herein as therein defined) with Diamond Brands Operating Corp., a Delaware
corporation ("COMPANY"), pursuant to which Lenders have made certain
commitments, subject to the terms and conditions set forth in the Credit
Agreement, to extend certain credit facilities to Company.
C. Company may from time to time enter, or may from time to time have
entered, into one or more Interest Rate Agreements (collectively, the "LENDER
INTEREST RATE AGREEMENTS") with one or more Lenders (in such capacity,
collectively, "INTEREST RATE EXCHANGERS").
D. Pledgor has executed and delivered that certain Subsidiary
Guaranty dated as of April 21, 1998 (said Subsidiary Guaranty, as it may
hereafter be amended, supplemented or otherwise modified from time to time,
being the "SUBSIDIARY GUARANTY") in favor of Secured Party for the benefit of
Lenders and any Interest Rate Exchangers, pursuant to which Pledgor has
guarantied the prompt payment and performance when due of all obligations of
Company under the Credit Agreement and all obligations of Company under the
Lender Interest Rate Agreements, including the obligation of Company to make
payments thereunder in the event of early termination thereof.
E. It is a condition precedent to the initial extensions of credit by
Lenders under the Credit Agreement that Pledgor shall have granted the security
interests and undertaken the obligations contemplated by this Agreement.
1
<PAGE>
NOW, THEREFORE, in consideration of the premises and in order to induce
Lenders to make Loans and other extensions of credit under the Credit Agreement
and to induce Interest Rate Exchangers to enter into Lender Interest Rate
Agreements, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Pledgor hereby agrees with Secured
Party as follows:
SECTION 1. PLEDGE OF SECURITY. Pledgor hereby pledges and assigns to
------------------
Secured Party, and hereby grants to Secured Party a security interest in, all of
Pledgor's right, title and interest in and to the following (the "PLEDGED
COLLATERAL"):
(a) the Pledged Shares and the certificates representing the Pledged
Shares and any interest of Pledgor in the entries on the books of any financial
intermediary pertaining to the Pledged Shares, and all dividends, cash,
warrants, rights, instruments and other property or proceeds from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of the Pledged Shares;
(b) the Pledged Debt and the instruments evidencing the Pledged Debt,
and all interest, cash, instruments and other property or proceeds from time to
time received, receivable or otherwise distributed in respect of or in exchange
for any or all of the Pledged Debt;
(c) all additional shares of, and all securities convertible into and
warrants, options and other rights to purchase or otherwise acquire, stock of
any issuer of the Pledged Shares from time to time acquired by Pledgor in any
manner (which shares shall be deemed to be part of the Pledged Shares), the
certificates or other instruments representing such additional shares,
securities, warrants, options or other rights and any interest of Pledgor in the
entries on the books of any financial intermediary pertaining to such additional
shares, and all dividends, cash, warrants, rights, instruments and other
property or proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such additional
shares, securities, warrants, options or other rights; provided, however, that,
-------- -------
Pledgor shall not be required to pledge more than 66.6% of any class of capital
stock of any direct or indirect Subsidiary of Pledgor which is incorporated in a
jurisdiction other than the states of the United States and the District of
Columbia ("Foreign Subsidiary") hereunder;
(d) all additional indebtedness from time to time owed to Pledgor by
any obligor on the Pledged Debt and the instruments evidencing such
indebtedness, and all interest, cash, instruments and other property or proceeds
from time to time received, receivable or otherwise distributed in respect of or
in exchange for any or all of such indebtedness;
(e) all shares of, and all securities convertible into and warrants,
options and other rights to purchase or otherwise acquire, stock of any Person
that, after the date of this Agreement, becomes, as a result of any occurrence,
a direct Subsidiary of Pledgor (which shares shall be deemed to be part of the
Pledged Shares), the certificates or other instruments representing such shares,
securities, warrants, options or other rights and any
2
<PAGE>
interest of Pledgor in the entries on the books of any financial intermediary
pertaining to such shares, and all dividends, cash, warrants, rights,
instruments and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of such shares, securities, warrants, options or other rights; provided,
--------
however, that Pledgor shall not be required to pledge more than 66.6% of any
- -------
class of capital stock of any Foreign Subsidiary hereunder;
(f) all indebtedness from time to time owed to Pledgor by any Person
that, after the date of this Agreement, becomes, as a result of any occurrence,
a direct or indirect Subsidiary of Pledgor, and all interest, cash, instruments
and other property or proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
indebtedness;
(g) to the extent not covered by clauses (a) through (f) above, all
proceeds of any or all of the foregoing Pledged Collateral. For purposes of
this Agreement, the term "PROCEEDS" includes whatever is receivable or received
when Pledged Collateral or proceeds are sold, exchanged, collected or otherwise
disposed of, whether such disposition is voluntary or involuntary, and includes
proceeds of any indemnity or guaranty payable to Pledgor or Secured Party from
time to time with respect to any of the Pledged Collateral.
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures, and the
------------------------
Pledged Collateral is collateral security for, the prompt payment or performance
in full when due, whether at stated maturity, by required prepayment,
declaration, acceleration, demand or otherwise (including the payment of amounts
that would become due but for the operation of the automatic stay under Section
362(a) of the Bankruptcy Code, 11 U.S.C. (S) 362(a)), of all obligations and
liabilities of every nature of Pledgor now or hereafter existing under or
arising out of or in connection with the Subsidiary Guaranty and all extensions
or renewals thereof, whether for principal, interest (including interest that,
but for the filing of a petition in bankruptcy with respect to Company, would
accrue on such obligations, whether or not a claim is allowed against Company
for such interest in the related bankruptcy proceeding), reimbursement of
amounts drawn under Letters of Credit, payments for early termination of Lender
Interest Rate Agreements, fees, expenses, indemnities or otherwise, whether
voluntary or involuntary, direct or indirect, absolute or contingent, liquidated
or unliquidated, whether or not jointly owed with others, and whether or not
from time to time decreased or extinguished and later increased, created or
incurred, and all or any portion of such obligations or liabilities that are
paid, to the extent all or any part of such payment is avoided or recovered
directly or indirectly from Secured Party or any Lender or Interest Rate
Exchanger as a preference, fraudulent transfer or otherwise, and all obligations
of every nature of Pledgor now or hereafter existing under this Agreement (all
such obligations of Pledgor being the "SECURED OBLIGATIONS").
SECTION 3. DELIVERY OF PLEDGED COLLATERAL. All certificates or
------------------------------
instruments representing or evidencing the Pledged Collateral shall be delivered
to and held by or on behalf of Secured Party pursuant hereto and shall be in
suitable form for
3
<PAGE>
transfer by delivery or, as applicable, shall be accompanied by Pledgor's
endorsement, where necessary, or duly executed instruments of transfer or
assignment in blank, all in form and substance satisfactory to Secured Party.
Upon the occurrence and during the continuation of an Event of Default (as
defined in the Credit Agreement) or the occurrence of an Early Termination Date
(as defined in a Master Agreement or an Interest Rate Swap Agreement or Interest
Rate and Currency Exchange Agreement in the form prepared by the International
Swap and Derivatives Association Inc. or a similar event under any similar swap
agreement) under any Lender Interest Rate Agreement (either such occurrence
being an "EVENT OF DEFAULT" for purposes of this Agreement), Secured Party shall
have the right, without notice to Pledgor, to transfer to or to register in the
name of Secured Party or any of its nominees any or all of the Pledged
Collateral, subject only to the revocable rights specified in Section 7(a). In
addition, upon the occurrence and during the continuation of an Event of
Default, Secured Party shall have the right at any time to exchange certificates
or instruments representing or evidencing Pledged Collateral for certificates or
instruments of smaller or larger denominations.
SECTION 4. REPRESENTATIONS AND WARRANTIES. Pledgor represents and
------------------------------
warrants as follows:
(a) Due Authorization, etc. of Pledged Collateral. All of the Pledged
---------------------------------------------
Shares have been duly authorized and validly issued and are fully paid and non-
assessable. All of the Pledged Debt has been duly authorized, authenticated or
issued, and delivered and is the legal, valid and binding obligation of the
issuers thereof and is not in default.
(b) Description of Pledged Collateral. The Pledged Shares constitute
---------------------------------
(i) all of the issued and outstanding shares of stock or other equity Securities
of each of the Subsidiaries of Pledgor which are incorporated in a state of the
United States or in the District of Columbia, and (ii) 66.6% of the issued and
outstanding shares of stock or other equity Securities of each Foreign
Subsidiary of Pledgor, and there are no outstanding warrants, options or other
rights to purchase, or other agreements outstanding with respect to, or property
that is now or hereafter convertible into, or that requires the issuance or sale
of, any Pledged Shares. The Pledged Debt constitutes all of the issued and
outstanding intercompany indebtedness evidenced by a promissory note of the
respective issuers thereof owing to Pledgor.
(c) Ownership of Pledged Collateral. Pledgor is the legal, record and
-------------------------------
beneficial owner of the Pledged Collateral free and clear of any Lien except for
the security interest created by this Agreement.
(d) Governmental Authorizations. No authorization, approval or other
---------------------------
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for either (i) the pledge by Pledgor of the Pledged
Collateral pursuant to this Agreement and the grant by Pledgor of the security
interest granted hereby, or (ii) the execution, delivery or performance of this
Agreement by Pledgor, or (iii) the exercise by Secured Party of the voting or
other rights, or the remedies in respect of the Pledged Collateral, provided for
in this Agreement (except as may be required in connection with
4
<PAGE>
a disposition of Pledged Collateral by laws affecting the offering and sale of
securities generally).
(e) Perfection. The pledge of the Pledged Collateral pursuant to this
----------
Agreement creates a valid and perfected first priority security interest in the
Pledged Collateral, securing the payment of the Secured Obligations; provided
--------
that Secured Party retains physical possession of such Pledged Collateral.
(f) Margin Regulations. The pledge of the Pledged Collateral pursuant
------------------
to this Agreement does not violate Regulation T, U or X of the Board of
Governors of the Federal Reserve System.
(g) Other Information. All information heretofore, herein or hereafter
-----------------
supplied to Secured Party by or on behalf of Pledgor with respect to the Pledged
Collateral is accurate and complete in all material respects.
SECTION 5. TRANSFERS AND OTHER LIENS; ADDITIONAL PLEDGED COLLATERAL;
---------------------------------------------------------
ETC. Pledgor shall:
- ----
(a) not, except as expressly permitted by the Credit Agreement, (i)
sell, assign (by operation of law or otherwise) or otherwise dispose of, or
grant any option with respect to, any of the Pledged Collateral, (ii) create or
suffer to exist any Lien upon or with respect to any of the Pledged Collateral,
except for the security interest under this Agreement and the Permitted
Encumbrances, or (iii) permit any issuer of Pledged Shares to merge or
consolidate unless all the outstanding capital stock or other equity Security of
the surviving or resulting corporation is, upon such merger or consolidation,
pledged hereunder and no cash, securities or other property is distributed in
respect of the outstanding shares of any other constituent corporation; provided
--------
that Pledgor shall not be required to pledge more than 66.6% of any class of
capital stock of any Foreign Subsidiary; provided, further, that in the event
-------- -------
Pledgor makes an Asset Sale permitted by the Credit Agreement and the assets
subject to such Asset Sale are Pledged Shares, Secured Party shall release the
Pledged Shares that are the subject of such Asset Sale to Pledgor free and clear
of the lien and security interest under this Agreement concurrently with the
consummation of such Asset Sale; provided, further that, as a condition
-------- -------
precedent to such release, Secured Party shall have received evidence
satisfactory to it that arrangements satisfactory to it have been made for
delivery to Secured Party of the Net Asset Sale Proceeds of such Asset Sale if
required under the Credit Agreement;
(b) (i) cause each issuer of Pledged Shares not to issue any stock or
other securities in addition to or in substitution for the Pledged Shares issued
by such issuer, except to Pledgor, (ii) pledge hereunder, within 5 days of its
acquisition (directly or indirectly) thereof, any and all additional shares of
stock or other securities of each issuer of Pledged Shares, and (iii) pledge
hereunder, within 5 days of its acquisition (directly or indirectly) thereof,
any and all shares of stock of any Person that, after the date of this
Agreement, becomes, as a result of any occurrence, a direct Subsidiary of
5
<PAGE>
Pledgor; provided that Pledgor shall not be required to pledge more than 66.6%
--------
of any class of capital stock of any Foreign Subsidiary hereunder;
(c) (i) pledge hereunder, within 5 days of their issuance, any and all
instruments or other evidences of additional indebtedness from time to time owed
to Pledgor by any obligor on the Pledged Debt, and (ii) pledge hereunder, within
5 days of their issuance, any and all instruments or other evidences of
indebtedness from time to time owed to Pledgor by any Person that after the date
of this Agreement becomes, as a result of any occurrence, a direct or indirect
Subsidiary of Pledgor;
(d) promptly notify Secured Party of any event of which Pledgor becomes
aware causing material loss or depreciation in the value of the Pledged
Collateral;
(e) promptly deliver to Secured Party all material written notices
received by it with respect to the Pledged Collateral; and
(f) pay promptly when due all taxes, assessments and governmental
charges or levies imposed upon, and all claims against, the Pledged Collateral,
except to the extent permitted by the terms of the Credit Agreement.
SECTION 6. FURTHER ASSURANCES; PLEDGE AMENDMENTS.
-------------------------------------
(a) Pledgor agrees that from time to time, at the expense of Pledgor,
Pledgor will promptly execute and deliver all further instruments and documents,
and take all further action, that may reasonably be necessary or desirable, or
that Secured Party may reasonably request, in order to perfect and protect any
security interest granted or purported to be granted hereby or to enable Secured
Party to exercise and enforce its rights and remedies hereunder with respect to
any Pledged Collateral. Without limiting the generality of the foregoing,
Pledgor will: (i) execute and file such financing or continuation statements,
or amendments thereto, and such other instruments or notices, as may be
necessary or desirable, or as Secured Party may reasonably request, in order to
perfect and preserve the security interests granted or purported to be granted
hereby and (ii) at Secured Party's reasonable request, appear in and defend any
action or proceeding that may affect Pledgor's title to or Secured Party's
security interest in all or any part of the Pledged Collateral.
(b) Pledgor further agrees that it will, upon obtaining any additional
shares of stock or other securities required to be pledged hereunder as provided
in Section 5(b) or (c), promptly (and in any event within five Business Days)
deliver to Secured Party a Pledge Amendment, duly executed by Pledgor, in
substantially the form of Schedule II annexed hereto (a "PLEDGE AMENDMENT"), in
-----------
respect of the additional Pledged Shares or Pledged Debt to be pledged pursuant
to this Agreement. Pledgor hereby authorizes Secured Party to attach each Pledge
Amendment to this Agreement and agrees that all Pledged Shares or Pledged Debt
listed on any Pledge Amendment delivered to Secured Party shall for all
purposes hereunder be considered Pledged Collateral;
6
<PAGE>
provided that the failure of Pledgor to execute a Pledge Amendment with respect
- --------
to any additional Pledged Shares or Pledged Debt pledged pursuant to this
Agreement shall not impair the security interest of Secured Party therein or
otherwise adversely affect the rights and remedies of Secured Party hereunder
with respect thereto.
SECTION 7. VOTING RIGHTS; DIVIDENDS; ETC.
------------------------------
(a) So long as no Event of Default shall have occurred and be
continuing:
(i) Pledgor shall be entitled to exercise any and all voting and other
consensual rights pertaining to the Pledged Collateral or any part thereof
for any purpose not inconsistent with the terms of this Agreement or the
Credit Agreement and as long as such action would not have a material
adverse effect on the value of the Pledged Collateral. It is understood,
however, that neither (A) the voting by Pledgor of any Pledged Shares for or
Pledgor's consent to the election of directors at a regularly scheduled
annual or other meeting of stockholders or members or with respect to
incidental matters at any such meeting nor (B) Pledgor's consent to or
approval of any action otherwise permitted under this Agreement and the
Credit Agreement shall be deemed inconsistent with the terms of this
Agreement or the Credit Agreement within the meaning of this Section
7(a)(i), and no notice of any such voting or consent need be given to
Secured Party;
(ii) Pledgor shall be entitled to receive and retain, and to utilize
free and clear of the lien of this Agreement, any and all dividends and
interest paid in respect of the Pledged Collateral; provided, however, that
-------- -------
any and all
(A) dividends and interest paid or payable other than in cash in
respect of, and instruments and other property received, receivable or
otherwise distributed in respect of, or in exchange for, any Pledged
Collateral,
(B) dividends and other distributions paid or payable in cash in
respect of any Pledged Collateral in connection with a partial or total
liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in-surplus, and
(C) cash paid, payable or otherwise distributed in respect of
principal or in redemption of or in exchange for any Pledged
Collateral,
shall be, and shall forthwith be delivered to Secured Party to hold as,
Pledged Collateral and shall, if received by Pledgor, be received in trust
for the benefit of Secured Party, be segregated from the other property or
funds of Pledgor and be forthwith delivered to Secured Party as Pledged
Collateral in the same form as so received (with all necessary
indorsements); provided, however, that to the extent that property
-------- -------
distributed to Pledgor in respect of the Pledged Collateral continues or
becomes, after such distribution, to be otherwise subject to a Lien in favor
of
7
<PAGE>
Secured Party under the Loan Documents, such property shall not be otherwise
required to be forthwith delivered to Secured Party pursuant to clause (ii);
and
(iii) Secured Party shall promptly execute and deliver (or cause to be
executed and delivered) to Pledgor all such proxies, dividend payment orders
and other instruments as Pledgor may from time to time reasonably request
for the purpose of enabling Pledgor to exercise the voting and other
consensual rights which it is entitled to exercise pursuant to paragraph (i)
above and to receive the dividends, principal or interest payments which it
is authorized to receive and retain pursuant to paragraph (ii) above.
(b) Upon the occurrence and during the continuation of an Event of
Default:
(i) upon written notice from Secured Party to Pledgor, all rights of
Pledgor to exercise the voting and other consensual rights which it would
otherwise be entitled to exercise pursuant to Section 7(a)(i) shall cease,
and all such rights shall thereupon become vested in Secured Party who shall
thereupon have the sole right to exercise such voting and other consensual
rights;
(ii) all rights of Pledgor to receive the dividends and interest
payments which it would otherwise be authorized to receive and retain
pursuant to Section 7(a)(ii) shall cease, and all such rights shall
thereupon become vested in Secured Party who shall thereupon have the sole
right to receive and hold as Pledged Collateral such dividends and interest
payments; and
(iii) all dividends, principal and interest payments which are
received by Pledgor contrary to the provisions of paragraph (ii) of this
Section 7(b) shall be received in trust for the benefit of Secured Party,
shall be segregated from other funds of Pledgor and shall forthwith be paid
over to Secured Party as Pledged Collateral in the same form as so received
(with any necessary indorsements).
(c) In order to permit Secured Party to exercise the voting and other
consensual rights which it may be entitled to exercise pursuant to Section
7(b)(i) and to receive all dividends and other distributions which it may be
entitled to receive under Section 7(a)(ii) or Section 7(b)(ii), (i) Pledgor
shall promptly execute and deliver (or cause to be executed and delivered) to
Secured Party all such proxies, dividend payment orders and other instruments as
Secured Party may from time to time reasonably request, including without
limitation to the extent necessary so that the pledge of any shares of stock of
any Foreign Subsidiary is registered (if not already so registered) on the
appropriate books and records of the issuer of the applicable Pledged Shares if
such registration is required under applicable law in order to permit Secured
Party to exercise such rights or to receive such dividends and other
distributions, and (ii) without limiting the effect of the immediately preceding
clause (i), Pledgor hereby grants to Secured Party an irrevocable proxy to vote
the Pledged Shares and to exercise all other rights, powers, privileges and
remedies to which a holder of the Pledged Shares would be entitled
8
<PAGE>
(including giving or withholding written consents of shareholders, calling
special meetings of shareholders and voting at such meetings), which proxy shall
be effective, automatically and without the necessity of any action (including
any transfer of any Pledged Shares on the record books of the issuer thereof) by
any other Person (including the issuer of the Pledged Shares or any officer or
agent thereof), upon the written notice of an Event of Default from Secured
Party delivered at any time, including at a member or shareholder meeting, and
which proxy shall only terminate upon cure of the circumstances which gave rise
to the Event of Default.
SECTION 8. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Pledgor hereby
----------------------------------------
irrevocably appoints Secured Party as Pledgor's attorney-in-fact, with full
authority in the place and stead of Pledgor and in the name of Pledgor, Secured
Party or otherwise, from time to time during the continuation of an Event of
Default in Secured Party's discretion to take any action and to execute any
instrument that Secured Party may deem necessary or advisable to accomplish the
purposes of this Agreement, including:
(a) to file one or more financing or continuation statements, or
amendments thereto, relative to all or any part of the Pledged Collateral
without the signature of Pledgor;
(b) to ask, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Pledged Collateral;
(c) to receive, endorse and collect any instruments made payable to
Pledgor representing any dividend, principal or interest payment or other
distribution in respect of the Pledged Collateral or any part thereof and to
give full discharge for the same; and
(d) to file any claims or take any action or institute any proceedings
that Secured Party may deem necessary or desirable for the collection of any of
the Pledged Collateral or otherwise to enforce the rights of Secured Party with
respect to any of the Pledged Collateral.
SECTION 9. SECURED PARTY MAY PERFORM. If Pledgor fails to perform any
-------------------------
agreement contained herein, Secured Party may itself perform, or cause
performance of, such agreement, and the expenses of Secured Party incurred in
connection therewith shall be payable by Pledgor under Section 13(b).
SECTION 10. STANDARD OF CARE. The powers conferred on Secured Party
----------------
hereunder are solely to protect its interest in the Pledged Collateral and shall
not impose any duty upon it to exercise any such powers. Except for the
exercise of reasonable care in the custody of any Pledged Collateral in its
possession and the accounting for moneys actually received by it hereunder,
Secured Party shall have no duty as to any Pledged Collateral, it being
understood that Secured Party shall have no responsibility for (a) ascertaining
or taking action with respect to calls, conversions, exchanges,
9
<PAGE>
maturities, tenders or other matters relating to any Pledged Collateral, whether
or not Secured Party has or is deemed to have knowledge of such matters, (b)
taking any necessary steps (other than steps taken in accordance with the
standard of care set forth above to maintain possession of the Pledged
Collateral) to preserve rights against any parties with respect to any Pledged
Collateral, (c) taking any necessary steps to collect or realize upon the
Secured Obligations or any guarantee therefor, or any part thereof, or any of
the Pledged Collateral, or (d) initiating any action to protect the Pledged
Collateral against the possibility of a decline in market value. Secured Party
shall be deemed to have exercised reasonable care in the custody and
preservation of Pledged Collateral in its possession if such Pledged Collateral
is accorded treatment substantially equal to that which Secured Party accords
its own property consisting of negotiable securities.
SECTION 11. REMEDIES.
--------
(a) If any Event of Default shall have occurred and be continuing,
Secured Party may exercise in respect of the Pledged Collateral, in addition to
all other rights and remedies provided for herein or otherwise available to it,
all the rights and remedies of a secured party on default under the Uniform
Commercial Code as in effect in any relevant jurisdiction (the "CODE") (whether
or not the Code applies to the affected Pledged Collateral), or any other
applicable laws whether of the United States or any state thereof or any other
foreign jurisdiction, and Secured Party may also in its sole discretion, without
notice except as specified below, sell the Pledged Collateral or any part
thereof in one or more parcels at public or private sale, at any exchange or
broker's board or at any of Secured Party's offices or elsewhere, for cash, on
credit or for future delivery, at such time or times and at such price or prices
and upon such other terms as Secured Party may deem commercially reasonable,
irrespective of the impact of any such sales on the market price of the Pledged
Collateral. Secured Party or any Lender or Interest Rate Exchanger may be
the purchaser of any or all of the Pledged Collateral at any such sale and
Secured Party, as agent for and representative of Lenders and Interest Rate
Exchangers (but not any Lender or Lenders or Interest Rate Exchanger or Interest
Rate Exchangers in its or their respective individual capacities unless
Requisite Lenders or Requisite Obligees (as defined in Section 15(a)) shall
otherwise agree in writing), shall be entitled, for the purpose of bidding and
making settlement or payment of the purchase price for all or any portion of the
Pledged Collateral sold at any such public sale, to use and apply any of the
Secured Obligations as a credit on account of the purchase price for any Pledged
Collateral payable by Secured Party at such sale. Each purchaser at any such
sale shall hold the property sold absolutely free from any claim or right on the
part of Pledgor, and Pledgor hereby waives (to the extent permitted by
applicable law) all rights of redemption, stay and/or appraisal which it now has
or may at any time in the future have under any rule of law or statute now
existing or hereafter enacted. Pledgor agrees that, to the extent notice of
sale shall be required by law, at least ten days' notice to Pledgor of the time
and place of any public sale or the time after which any private sale is to be
made shall constitute reasonable notification. Secured Party shall not be
obligated to make any sale of Pledged Collateral regardless of notice of sale
having been given. Secured Party may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such sale
may, without further
10
<PAGE>
notice, be made at the time and place to which it was so adjourned. Pledgor
hereby waives any claims against Secured Party arising by reason of the fact
that the price at which any Pledged Collateral may have been sold at such a
private sale was less than the price which might have been obtained at a public
sale, even if Secured Party accepts the first offer received and does not offer
such Pledged Collateral to more than one offeree. If the proceeds of any sale or
other disposition of the Pledged Collateral are insufficient to pay all the
Secured Obligations, Pledgor shall be liable for the deficiency and the fees of
any attorneys employed by Secured Party to collect such deficiency.
(b) Pledgor recognizes that, by reason of certain prohibitions
contained in the Securities Act and applicable state securities laws, Secured
Party may be compelled, with respect to any sale of all or any part of the
Pledged Collateral conducted without prior registration or qualification of such
Pledged Collateral under the Securities Act and/or such state securities laws,
to limit purchasers to those who will agree, among other things, to acquire the
Pledged Collateral for their own account, for investment and not with a view to
the distribution or resale thereof. Pledgor acknowledges that any such private
sales may be at prices and on terms less favorable than those obtainable through
a public sale without such restrictions (including a public offering made
pursuant to a registration statement under the Securities Act) and,
notwithstanding such circumstances, Pledgor agrees that any such private sale
shall be deemed to have been made in a commercially reasonable manner and that
Secured Party shall have no obligation to engage in public sales and no
obligation to delay the sale of any Pledged Collateral for the period of time
necessary to permit the issuer thereof to register it for a form of public sale
requiring registration under the Securities Act or under applicable state
securities laws, even if such issuer would, or should, agree to so register it.
(c) If Secured Party determines to exercise its right to sell any or
all of the Pledged Collateral, upon written request, Pledgor shall and shall
cause each issuer of any Pledged Shares to be sold hereunder from time to time
to furnish to Secured Party all such information as Secured Party may request in
order to determine the number of shares and other instruments included in the
Pledged Collateral which may be sold by Secured Party in exempt transactions
under the Securities Act and the rules and regulations of the Securities and
Exchange Commission thereunder, as the same are from time to time in effect.
SECTION 12. APPLICATION OF PROCEEDS. All proceeds received by Secured
-----------------------
Party in respect of any sale of, collection from, or other realization upon all
or any part of the Pledged Collateral shall be applied as provided in subsection
2.4D of the Credit Agreement.
SECTION 13. INDEMNITY AND EXPENSES.
----------------------
(a) Pledgor agrees to indemnify Secured Party and each Lender from and
against any and all claims, losses and liabilities in any way relating to,
growing out of or resulting from this Agreement and the transactions
contemplated hereby (including, without limitation, enforcement of this
Agreement), except to the extent such claims,
11
<PAGE>
losses or liabilities result from Secured Party's or such Lender's gross
negligence or willful misconduct as finally determined by a court of competent
jurisdiction.
(b) Pledgor shall pay to Secured Party upon demand the amount of any
and all reasonable out-of-pocket costs and expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents, that Secured
Party 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 Pledged Collateral, (iii) the exercise or
enforcement of any of the rights of Secured Party hereunder, or (iv) the failure
by Pledgor to perform or observe any of the provisions hereof.
SECTION 14. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS. This
-----------------------------------------------
Agreement shall create a continuing security interest in the Pledged Collateral
and shall (a) remain in full force and effect until the payment in full of all
Secured Obligations, the cancellation or termination of the Commitments and the
cancellation or expiration of all outstanding Letters of Credit, (b) be binding
upon Pledgor, its successors and assigns, and (c) inure, together with the
rights and remedies of Secured Party hereunder, to the benefit of Secured Party
and its successors, transferees and assigns. Without limiting the generality of
the foregoing clause (c), but subject to the provisions of subsection 10.1 of
the Credit Agreement, any Lender may assign or otherwise transfer any Loans held
by it to any other Person, and such other Person shall thereupon become vested
with all the benefits in respect thereof granted to Lenders herein or otherwise.
Upon the payment in full of all Secured Obligations, the cancellation or
termination of the Commitments and the cancellation or expiration of all
outstanding Letters of Credit, the security interest granted hereby shall
terminate and all rights to the Pledged Collateral shall revert to Pledgor. Upon
any such termination Secured Party will, at Pledgor's expense, execute and
deliver to Pledgor such documents as Pledgor shall reasonably request to
evidence such termination and Pledgor shall be entitled to the return, upon its
request and at its expense, against receipt and without recourse to Secured
Party, of such of the Pledged Collateral as shall not have been sold or
otherwise applied pursuant to the terms hereof.
SECTION 15. SECURED PARTY AS ADMINISTRATIVE AGENT.
-------------------------------------
(a) Secured Party has been appointed to act as Secured Party hereunder
by Lenders and, by their acceptance of the benefits hereof, Interest Rate
Exchangers. Secured Party shall be obligated, and shall have the right
hereunder, to make demands, to give notices, to exercise or refrain from
exercising any rights, and to take or refrain from taking any action (including
the release or substitution of Pledged Collateral), solely in accordance with
this Agreement and the Credit Agreement; provided that Secured Party shall
--------
exercise, or refrain from exercising, any remedies provided for in Section 11 in
accordance with the instructions of (i) Requisite Lenders or (ii) after payment
in full of all Obligations under the Credit Agreement and the other Loan
Documents, the holders of a majority of the aggregate notional amount (or, with
respect to any Lender Interest Rate Agreement that has been terminated in
accordance with its terms, the amount then due and payable (exclusive of
expenses and similar payments but including any early
12
<PAGE>
termination payments then due) under such Lender Interest Rate Agreement) under
all Lender Interest Rate Agreements (Requisite Lenders or, if applicable, such
holders being referred to herein as "REQUISITE OBLIGEES"). In furtherance of the
foregoing provisions of this Section 15(a), each Interest Rate Exchanger, by its
acceptance of the benefits hereof, agrees that it shall have no right
individually to realize upon any of the Pledged Collateral hereunder, it being
understood and agreed by such Interest Rate Exchanger that all rights and
remedies hereunder may be exercised solely by Secured Party for the benefit of
Lenders and Interest Rate Exchangers in accordance with the terms of this
Section 15(a).
(b) Secured Party shall at all times be the same Person that is
Administrative Agent under the Credit Agreement. Written notice of resignation
by Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall
also constitute notice of resignation as Secured Party under this Agreement;
removal of Administrative Agent pursuant to subsection 9.5 of the Credit
Agreement shall also constitute removal as Secured Party under this Agreement;
and appointment of a successor Administrative Agent pursuant to subsection 9.5
of the Credit Agreement shall also constitute appointment of a successor Secured
Party under this Agreement. Upon the acceptance of any appointment as
Administrative Agent under subsection 9.5 of the Credit Agreement by a successor
Administrative Agent, that successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring or removed Secured Party under this Agreement, and the retiring
or removed Secured Party under this Agreement shall promptly (i) transfer to
such successor Secured Party all sums, securities and other items of Collateral
held hereunder, together with all records and other documents necessary or
appropriate in connection with the performance of the duties of the successor
Secured Party under this Agreement, and (ii) execute and deliver to such
successor Secured Party such amendments to financing statements, and take such
other actions, as may be necessary or appropriate in connection with the
assignment to such successor Secured Party of the security interests created
hereunder, whereupon such retiring or removed Secured Party shall be discharged
from its duties and obligations under this Agreement. After any retiring or
removed Administrative Agent's resignation or removal hereunder as Secured
Party, the provisions of this Agreement shall inure to its benefit as to any
actions taken or omitted to be taken by it under this Agreement while it was
Secured Party hereunder.
SECTION 16. AMENDMENTS; ETC. No amendment, modification, termination
---------------
or waiver of any provision of this Agreement, and no consent to any departure by
Pledgor therefrom, shall in any event be effective unless the same shall be in
writing and signed by Secured Party and, in the case of any such amendment or
modification, by Pledgor. Any such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which it was given.
SECTION 17. NOTICES. Any notice or other communication herein
-------
required or permitted to be given shall be given as provided in the Credit
Agreement. For the purposes hereof, the address of each party hereto shall be
as set forth under such party's name on the signature pages hereof or, as to
either party, such other address as shall be designated by such party in a
written notice delivered to the other party hereto.
13
<PAGE>
SECTION 18. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
-----------------------------------------------------
failure or delay on the part of Secured Party in the exercise of any power,
right or privilege hereunder shall impair such power, right or privilege or be
construed to be a waiver of any default or acquiescence therein, nor shall any
single or partial exercise of any such power, right or privilege preclude any
other or further exercise thereof or of any other power, right or privilege.
All rights and remedies existing under this Agreement are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
SECTION 19. SEVERABILITY. In case any provision in or obligation
------------
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 20. HEADINGS. Section and subsection headings in this
--------
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given any
substantive effect.
SECTION 21. GOVERNING LAW; TERMS; RULES OF CONSTRUCTION. THIS
-------------------------------------------
AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE
GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL
OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES, EXCEPT TO THE EXTENT THAT THE CODE PROVIDES THAT THE PERFECTION OF
THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY
PARTICULAR PLEDGED COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER
THAN THE STATE OF NEW YORK. Unless otherwise defined herein or in the Credit
Agreement, terms used in Articles 8 and 9 of the Uniform Commercial Code in the
State of New York are used herein as therein defined. The rules of construction
set forth in subsection 1.3 of the Credit Agreement shall be applicable to this
Agreement mutatis mutandis.
SECTION 22. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
----------------------------------------------
(A) ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST PLEDGOR ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY
STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY
OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, PLEDGOR, FOR ITSELF
AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY
14
<PAGE>
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY
SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO PLEDGOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 17;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER PLEDGOR IN ANY SUCH
PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT;
(V) AGREES THAT SECURED PARTY RETAINS THE RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST PLEDGOR IN
THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SECTION 22 RELATING TO
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR
OTHERWISE.
(b) Without limiting the generality of the last sentence of Section
22(a), any judicial proceedings brought against Pledgor arising out of or
relating to the pledge of shares of capital stock of any Foreign Subsidiary
hereunder may be brought in any court of competent jurisdiction in the
jurisdiction in which such Foreign Subsidiary is organized, and by execution and
delivery of this Agreement, Pledgor accepts for itself and in connection with
its properties (including without limitation the applicable Pledged Shares),
generally and unconditionally, the nonexclusive jurisdiction of any such court
and waives any defense of forum non conveniens (or any similar defense under the
laws of such jurisdiction) and irrevocably agrees to be bound by any judgement
rendered thereby in connection with such pledge or the enforcement thereof.
SECTION 23. WAIVER OF JURY TRIAL. PLEDGOR AND SECURED PARTY HEREBY
--------------------
AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this waiver is
intended to be all-encompassing of any and all disputes that may be filed in any
court and that relate to the subject matter of this transaction, including
contract claims, tort claims, breach of duty claims, and all other common law
and statutory claims. Pledgor and Secured Party each acknowledge that this
waiver is a material inducement for Pledgor and Secured Party
15
<PAGE>
to enter into a business relationship, that Pledgor and Secured Party have
already relied on this waiver in entering into this Agreement and that each will
continue to rely on this waiver in their related future dealings. Pledgor and
Secured Party further warrant and represent that each has reviewed this waiver
with its legal counsel, and that each knowingly and voluntarily waives its jury
trial rights following consultation with legal counsel. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING
(OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 23
AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
In the event of litigation, this Agreement may be filed as a written consent to
a trial by the court.
SECTION 24. COUNTERPARTS. This Agreement may be executed in one or
------------
more counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
[Remainder of page intentionally left blank]
16
<PAGE>
IN WITNESS WHEREOF, Pledgor and Secured Party have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
FORSTER INC.,
as Pledgor
By: __________________________
Name: __________________________
Title: __________________________
Notice Address:
1800 Cloquet Avenue
Cloquet, MN 55720-2141
Attention: Tom Knuesel
WELLS FARGO BANK, N.A., as
Administrative Agent
By: __________________________
Name: __________________________
Title: __________________________
Notice Address:
555 Montgomery Street
17th Floor
San Francisco, California 94111
Attention: Alan Wray
S-1
<PAGE>
SCHEDULE I
Attached to and forming a part of the Pledge Agreement dated as of
April 21, 1998 between [_______________], as Pledgor, and Wells Fargo Bank,
N.A., as Secured Party.
Part A
Class of Stock Certi- Par Number of
Stock Issuer Stock ficate Nos. Value Shares
- ------------ -------- ------------ ----- ---------
Part B
Debt Issuer Amount of Indebtedness
- ----------- ----------------------
<PAGE>
SCHEDULE II
PLEDGE AMENDMENT
This Pledge Amendment, dated ____________, _____, is delivered
pursuant to Section 6(b) of the Subsidiary Pledge Agreement referred to below.
The undersigned hereby agrees that this Subsidiary Pledge Amendment may be
attached to the Subsidiary Pledge Agreement dated April 21, 1998, between the
undersigned and Wells Fargo Bank, N.A., as Secured Party (the "SUBSIDIARY PLEDGE
AGREEMENT," capitalized terms defined therein being used herein as therein
defined), and that the [Pledged Shares] [Pledged Debt] listed on this Pledge
Amendment shall be deemed to be part of the [Pledged Shares] [Pledged Debt] and
shall become part of the Pledged Collateral and shall secure all Secured
Obligations.
[NAME OF PLEDGOR]
By:___________________________
Title:
Class of Stock Certi- Par Number of
Stock Issuer Stock ficate Nos. Value Shares
- ------------ -------- ------------ ----- ---------
Debt Issuer Amount of Indebtedness
- ----------- ----------------------
<PAGE>
EXHIBIT XX
[FORM OF SUBSIDIARY SECURITY AGREEMENT]
SUBSIDIARY SECURITY AGREEMENT
This SUBSIDIARY SECURITY AGREEMENT (this "AGREEMENT") is dated as of
April 21, 1998, and entered into by and between [NAME OF SUBSIDIARY], a
[_____________] corporation ("GRANTOR"), and WELLS FARGO BANK, N.A., as
administrative agent for and representative of (in such capacity herein called
"SECURED PARTY") the financial institutions ("LENDERS") party to the Credit
Agreement referred to below and any Interest Rate Exchangers (as hereinafter
defined).
PRELIMINARY STATEMENTS
A. Secured Party and Lenders have entered into a Credit Agreement
dated as of April 21, 1998 (said Credit Agreement, as it may hereafter be
amended, supplemented or otherwise modified from time to time, being the "CREDIT
AGREEMENT", the terms defined therein and not otherwise defined herein being
used herein as therein defined) with Diamond Brands Operating Corp., a Delaware
corporation ("COMPANY" or "BORROWER"), pursuant to which Lenders have made
certain commitments, subject to the terms and conditions set forth in the Credit
Agreement, to extend certain credit facilities to Borrower.
B. Grantor has executed and delivered the Subsidiary Guaranty dated
as of April, 21, 1998 (said Subsidiary Guaranty, as it may hereafter be amended,
supplemented or otherwise modified from time to time, being the "SUBSIDIARY
GUARANTY") in favor of Secured Party for the benefit of Lenders, pursuant to
which Grantor has guarantied the prompt payment and performance when due of all
Obligations of the Borrower under the Credit Agreement.
C. It is a condition precedent to the initial extensions of credit
by Lenders under the Credit Agreement that Grantor shall have granted the
security interests and undertaken the obligations contemplated by this
Agreement.
NOW, THEREFORE, in consideration of the premises and in order to
induce Lenders to make Loans and other extensions of credit under the Credit
Agreement and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Grantor hereby agrees with Secured
Party as follows:
SECTION 1. GRANT OF SECURITY. Grantor hereby assigns for security
-----------------
purposes to Secured Party, and hereby grants to Secured Party a security
interest in, all of Grantor's right, title and interest in and to the following,
in each case whether now or
XX-1
<PAGE>
hereafter existing or in which Grantor now has or hereafter acquires an interest
and wherever the same may be located (the "COLLATERAL"):
(a) all equipment in all of its forms, all parts thereof and all
accessions thereto (any and all such equipment, parts and accessions being the
"EQUIPMENT");
(b) all inventory in all of its forms (including (i) all goods held
by Grantor for sale or lease or to be furnished under contracts of service or so
leased or furnished, (ii) all raw materials, work in process, finished goods,
and materials used or consumed in the manufacture, packing, shipping,
advertising, selling, leasing, furnishing or production of such inventory or
otherwise used or consumed in Grantor's business, (iii) all goods in which
Grantor has an interest in mass or a joint or other interest or right of any
kind, and (iv) all goods which are returned to or repossessed by Grantor) and
all accessions thereto and products thereof (all such inventory, accessions and
products being the "INVENTORY") and all negotiable documents of title (including
warehouse receipts, dock receipts and bills of lading) issued by any Person
covering any Inventory (any such negotiable document of title being a
"NEGOTIABLE DOCUMENT OF TITLE");
(c) all accounts, contract rights, chattel paper, documents,
instruments, general intangibles and other rights and obligations of any kind
and all rights in, to and under all security agreements, leases and other
contracts securing or otherwise relating to any such accounts, contract rights,
chattel paper, documents, instruments, general intangibles or other obligations
(any and all such accounts, contract rights, chattel paper, documents,
instruments, general intangibles and other obligations being the "ACCOUNTS", and
any and all such security agreements, leases and other contracts being the
"RELATED CONTRACTS");
(d) the agreements listed in Schedule I annexed hereto, and any other
----------
agreement between Grantor, or a Subsidiary of Grantor, with a franchisee or
developer, now or hereafter existing, as each such agreement may be amended,
supplemented or otherwise modified from time to time (said agreements, as so
amended, supplemented or otherwise modified, being referred to herein
individually as an "ASSIGNED AGREEMENT" and collectively as the "ASSIGNED
AGREEMENTS"), including (i) all rights of Grantor to receive moneys due or to
become due under or pursuant to the Assigned Agreements, (ii) all rights of
Grantor to receive proceeds of any insurance, indemnity, warranty or guaranty
with respect to the Assigned Agreements, (iii) all claims of Grantor for damages
arising out of any breach of or default under the Assigned Agreements, and (iv)
all rights of Grantor to terminate, amend, supplement, modify or exercise rights
or options under the Assigned Agreements, to perform thereunder and to compel
performance and otherwise exercise all remedies thereunder;
(e) all deposit accounts, including the deposit accounts listed on
Schedule II annexed hereto and all other deposit accounts maintained with
- -----------
Secured Party;
XX-2
<PAGE>
(f) all trademarks, tradenames, tradesecrets, business names,
patents, patent applications, licenses, copyrights, registrations and franchise
rights, and all goodwill associated with any of the foregoing;
(g) all licenses to conduct the Business and other special licenses,
including but not limited to the licenses listed on Schedule III, and to the
------------
extent not included in any other paragraph of this Section 1, all other general
intangibles (including tax refunds, rights to payment or performance, choses in
action and judgments taken on any rights or claims included in the Collateral);
(h) all plant fixtures, business fixtures and other fixtures and
storage and office facilities, and all accessions thereto and products thereof;
(i) all books, records, ledger cards, files, correspondence, computer
programs, tapes, disks and related data processing software that at any time
evidence or contain information relating to any of the Collateral or are
otherwise necessary or helpful in the collection thereof or realization
thereupon;
(j) the shares of stock owned by Grantor as described in Schedule I
to the Subsidiary Pledge Agreement to which Grantor is a party (as such Schedule
I may be amended from time to time in accordance with the terms thereof) (the
"PLEDGED SHARES") and the certificates representing the Pledged Shares and any
interest of Grantor in the entries on the books of any financial intermediary
pertaining to the Pledged Shares, and all dividends, cash, warrants, rights,
instruments and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of the Pledged Shares;
(k) the indebtedness owed to the Grantor as described in Schedule I
to the Subsidiary Pledge Agreement to which Grantor is a party (as such Schedule
I may be amended from time to time in accordance with the terms thereof) (the
"PLEDGED DEBT") and the instruments evidencing the Pledged Debt, and all
interest, cash, instruments and other property or proceeds from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of the Pledged Debt;
(l) all of Grantor's right, title and interest as a member of any
Person that is organized as a limited liability company and that may hereafter
become a Subsidiary of Grantor, including, without limitation, (A) all rights of
Grantor to receive distributions of any kind, in cash or otherwise, due or to
become due under or pursuant to any limited liability company agreement or
otherwise in respect of any such Person, (B) all rights of Grantor to receive
proceeds of any insurance, indemnity, warranty or guaranty with respect to any
such Person, (C) all claims of Grantor for damages arising out of, or for the
breach of, or for a default under, any limited liability company agreement of
any such Person, (D) any certificated or uncertificated security evidencing any
of the foregoing issued by any such Person to Grantor and (E) to the extent not
included in the foregoing, all proceeds of any and all of the foregoing (all of
the foregoing being referred to herein collectively as the "LLC INTERESTS");
XX-3
<PAGE>
(m) all additional shares of, and all securities convertible into and
warrants, options and other rights to purchase or otherwise acquire, stock of
any issuer of the Pledged Shares from time to time acquired by Grantor in any
manner (which shares shall be deemed to be part of the Pledged Shares), the
certificates or other instruments representing such additional shares,
securities, warrants, options or other rights and any interest of Grantor in the
entries on the books of any financial intermediary pertaining to such additional
shares, and all dividends, cash, warrants, rights, instruments and other
property or proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such additional
shares, securities, warrants, options or other rights; provided, however, that
-------- -------
Grantor shall not be required to pledge more than 66.6% of any class of capital
stock of any direct or indirect Subsidiary of Grantor which is incorporated in a
jurisdiction other than the states of the United States and the District of
Columbia ("FOREIGN SUBSIDIARY");
(n) all additional indebtedness from time to time owed to Grantor by
any obligor on the Pledged Debt and the instruments evidencing such
indebtedness, and all interest, cash, instruments and other property or proceeds
from time to time received, receivable or otherwise distributed in respect of or
in exchange for any or all of such indebtedness;
(o) all shares of, and all securities convertible into and warrants,
options and other rights to purchase or otherwise acquire, stock of any Person
that, after the Closing Date, becomes, as a result of any occurrence, a direct
Subsidiary of Grantor (which shares shall be deemed to be part of the Pledged
Shares), the certificates or other instruments representing such shares,
securities, warrants, options or other rights and any interest of Grantor in the
entries on the books of any financial intermediary pertaining to such shares,
and all dividends, cash, warrants, rights, instruments and other property or
proceeds from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such shares, securities, warrants,
options or other rights; provided, however, that Grantor shall not be required
-------- -------
to pledge more than 66.6% of any class of capital stock of any Foreign
Subsidiary;
(p) all indebtedness from time to time owed to Grantor by any Person
that, after the Closing Date becomes, as a result of any occurrence, a direct or
indirect Subsidiary of Grantor, and all interest, cash, instruments and other
property or proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such indebtedness;
(q) all of Grantor's right, title and interest as a general partner
in partnerships only to the extent of the right to receive distributions on its
partnership interest, a limited partner in partnerships and each partnership in
which Grantor acquires an interest after the Closing Date (collectively, the
"PARTNERSHIPS"), whether now owned or hereafter acquired, including without
limitation all of Grantor's right, title and interest in, to and under the
agreements pursuant to which the Partnerships are established (collectively, the
"PARTNERSHIP AGREEMENTS"), and any "certificate of interest" or "certificates of
interest" (or other certificates or instruments however designated or titled)
XX-4
<PAGE>
issued by any Partnership and evidencing Grantor's interest as a limited partner
or general partner in such Partnership and any interest of Grantor in the
entries on the books of any financial intermediary pertaining to Grantor's
interest as a limited partner or general partner in any Partnership together
with all other rights, interests, claims and other property of Grantor in any
manner arising out of or relating to a limited partnership interest or general
partnership interest in any Partnership, whatever their respective kind or
character, whether they are tangible or intangible property, and wheresoever
they may exist or be located, and further including, without limitation, all of
the rights of Grantor as a limited or general partner: (i) to (x) receive money
due and to become due (including without limitation dividends, distributions,
interest, income from partnership properties and operations, proceeds of sale of
partnership assets and returns of capital) under or pursuant to any Partnership
Agreement, (y) receive payments upon termination of any Partnership Agreement,
and (z) receive any other payments or distributions, whether cash or noncash, in
respect of any limited partnership interest or general partnership interest of
Grantor evidenced by any Partnership Agreement; (ii) in and with respect to
claims and causes of action arising out of or relating to the Partnerships; and
(iii) to have access to the Partnerships' books and records and to other
information concerning or affecting the Partnerships; and
(r) all proceeds, products, rents and profits of or from any and all of
the foregoing Collateral and, to the extent not otherwise included, all payments
under insurance (whether or not Secured Party is the loss payee thereof), or any
indemnity, warranty or guaranty, payable by reason of loss or damage to or
otherwise with respect to any of the foregoing Collateral. For purposes of this
Agreement, the term "PROCEEDS" includes whatever is receivable or received when
Collateral or proceeds are sold, exchanged, collected or otherwise disposed of,
whether such disposition is voluntary or involuntary.
Notwithstanding the foregoing, Collateral shall exclude any
intellectual property right contracts and agreements or equipment leases to the
extent, and only to the extent, that such Intellectual Property, contract or
agreement or equipment lease contains a provision enforceable at law and in
equity that would be breached by (or would result in the termination of such
intellectual property, contract, or agreement or equipment lease upon) the grant
of the security interest created herein pursuant to the terms of this Agreement;
provided, however, that if and when any prohibition on the assignment, pledge or
- -------- -------
grant of a security interest in such intellectual property right, contract or
agreement or equipment lease is removed, the Secured Party will be deemed to
have been granted a security interest in such intellectual property right,
contract or agreement or equipment lease as of the date hereof, and the
Collateral will be deemed to include such intellectual property right, contract
or agreement or equipment lease.
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures, and the
------------------------
Collateral is collateral security for, the prompt payment or performance in full
when due, whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise (including the payment of amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code, 11 U.S.C. Section 362(a)),
XX-5
<PAGE>
of all obligations and liabilities of every nature of Grantor now or hereafter
existing under or arising out of or in connection with the Credit Agreement, the
Subsidiary Guaranty and, the other Loan Documents and the Lender Interest Rate
Agreements and all extensions or renewals thereof, whether for principal,
interest (including without limitation interest that, but for the filing of a
petition in bankruptcy with respect to Grantor, would accrue on such
obligations), reimbursement of amounts drawn under Letters of Credit, fees,
expenses, indemnities or otherwise, whether voluntary or involuntary, direct or
indirect, absolute or contingent, liquidated or unliquidated, whether or not
jointly owed with others, and whether or not from time to time decreased or
extinguished and later increased, created or incurred, and all or any portion of
such obligations or liabilities that are paid, to the extent all or any part of
such payment is avoided or recovered directly or indirectly from Secured Party
or any Lender as a preference, fraudulent transfer or otherwise (all such
obligations and liabilities being the "UNDERLYING DEBT"), and all obligations of
every nature of Grantor now or hereafter existing under this Agreement (all such
obligations of Grantor, together with the Underlying Debt, being the "SECURED
OBLIGATIONS").
SECTION 3. GRANTOR REMAINS LIABLE. Anything contained herein to the
----------------------
contrary notwithstanding, (a) Grantor shall remain liable under any contracts
and agreements included in the Collateral, to the extent set forth therein, to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed, (b) the exercise by Secured Party of any
of its rights hereunder shall not release Grantor from any of its duties or
obligations under the contracts and agreements included in the Collateral, and
(c) Secured Party shall not have any obligation or liability under any contracts
and agreements included in the Collateral by reason of this Agreement, nor shall
Secured Party be obligated to perform any of the obligations or duties of
Grantor thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder.
SECTION 4. REPRESENTATIONS AND WARRANTIES. Grantor represents and
------------------------------
warrants as follows:
(a) Ownership of Collateral. Except for the security interest created
-----------------------
by this Agreement and Permitted Encumbrances, Grantor owns the Collateral free
and clear of any Lien.
(b) Location of Equipment and Inventory. All of the Equipment and
-----------------------------------
Inventory is, as of the date hereof, located at the places specified in Schedule
--------
IV annexed hereto.
- --
(c) Negotiable Documents of Title. No Negotiable Documents of Title
-----------------------------
are outstanding with respect to any of the Inventory.
(d) Office Locations; Other Names. The chief place of business, the
-----------------------------
chief executive office and the office where Grantor keeps its records regarding
the
XX-6
<PAGE>
Accounts and all originals of all chattel paper that evidence Accounts is, and
has been for the four month period preceding the date hereof, located at
[___________________________________]. Grantor has not in the past done, and
does not now do, business under any other name (including any trade-name or
fictitious business name) except the names listed in Schedule V annexed hereto.
----------
(e) Delivery of Certain Collateral. All notes and other instruments
------------------------------
(excluding checks) comprising any and all items of Collateral have been
delivered to Secured Party duly endorsed and accompanied by duly executed
instruments of transfer or assignment in blank.
(f) Governmental Authorizations. No authorization, approval or other
---------------------------
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for either (i) the grant by Grantor of the security
interest granted hereby, (ii) the execution, delivery or performance of this
Agreement by Grantor, or (iii) the perfection of or the exercise by Secured
Party of its rights and remedies hereunder (except as may have been taken by or
at the direction of Grantor or Secured Party).
(g) Perfection. This Agreement, together with the filing of UCC-1
----------
financing statements, which have been made, creates a valid, perfected and first
priority security interest in the Collateral, securing the payment of the
Secured Obligations, and all filings and other actions necessary or desirable to
perfect and protect such security interest have been duly made or taken;
provided that Secured Party retains physical possession of any Collateral, the
- --------
possession of which is required for perfection.
(h) Other Information. All information heretofore, herein or
-----------------
hereafter supplied to Secured Party by or on behalf of Grantor with respect to
the Collateral is accurate and complete in all material respects.
SECTION 5. FURTHER ASSURANCES.
------------------
(a) Grantor agrees that from time to time, at the expense of Grantor,
Grantor will promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or desirable, or that Secured
Party may reasonably request, in order to perfect and protect any security
interest granted or purported to be granted hereby or to enable Secured Party to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral. Without limiting the generality of the foregoing, Grantor will: (i)
mark conspicuously each item of chattel paper included in the Accounts, each
Related Contract and, at the request of Secured Party, each of its records
pertaining to the Collateral, with a legend, in form and substance satisfactory
to Secured Party, indicating that such Collateral is subject to the security
interest granted hereby, (ii) if any Account shall be evidenced by a promissory
note or other instrument (excluding checks), at the request of Secured Party,
deliver and pledge to Secured Party hereunder such note or instrument, duly
endorsed and accompanied by duly executed instruments of transfer or assignment,
all in form and substance satisfactory to Secured Party, and at the request of
Secured Party, deliver and
XX-7
<PAGE>
pledge to Secured Party hereunder all original counterparts of chattel paper
constituting Collateral, duly endorsed and accompanied by duly executed
instruments of transfer or assignment, all in form and substance satisfactory to
Secured Party, (iii) execute and file such financing or continuation statements,
or amendments thereto, and such other instruments or notices, as may be
necessary or desirable, or as Secured Party may request, in order to perfect and
preserve the security interests granted or purported to be granted hereby, (iv)
promptly after the acquisition by Grantor of any item of material Equipment
which is covered by a certificate of title under a statute of any jurisdiction
under the law of which indication of a security interest on such certificate is
required as a condition of perfection thereof, at the request of Secured Party,
execute and file with the registrar of motor vehicles or other appropriate
authority in such jurisdiction an application or other document requesting the
notation or other indication of the security interest created hereunder on such
certificate of title, (v) at the request of Secured Party, deliver to Secured
Party copies of all such applications or other documents filed during such
calendar quarter and copies of all such certificates of title issued during such
calendar quarter indicating the security interest created hereunder in the items
of Equipment covered thereby, (vi) at any reasonable time, upon request by
Secured Party, exhibit the Collateral to and allow inspection of the Collateral
by Secured Party, or persons designated by Secured Party, and (vii) at Secured
Party's request, appear in and defend any action or proceeding that may affect
Grantor's title to or Secured Party's security interest in all or any part of
the Collateral.
(b) Grantor hereby authorizes Secured Party to file (to the extent
permitted by law) one or more financing or continuation statements, and
amendments thereto, relative to all or any part of the Collateral without the
signature of Grantor. Grantor agrees that a carbon, photographic or other
reproduction of this Agreement or of a financing statement signed by Grantor
shall be sufficient as a financing statement and may be filed as a financing
statement in any and all jurisdictions.
(c) Grantor will furnish to Secured Party from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as Secured Party may
reasonably request, all in reasonable detail.
SECTION 6. CERTAIN COVENANTS OF GRANTOR. Grantor shall:
----------------------------
(a) not use or permit any Collateral to be used unlawfully or in
violation of any provision of this Agreement or any applicable statute,
regulation or ordinance or any policy of insurance covering the Collateral;
(b) notify Secured Party of any change in Grantor's name, identity or
corporate structure within 15 days after such change;
(c) give Secured Party at least 30 days prior written notice of any
change in Grantor's chief place of business, chief executive office or residence
or the
XX-8
<PAGE>
office where Grantor keeps its records regarding the Accounts and all originals
of all chattel paper that evidence Accounts;
(d) if Secured Party gives value to enable Grantor to acquire rights
in or the use of any Collateral, use such value for such purposes; and
(e) pay promptly when due all property and other taxes, assessments
and governmental charges or levies imposed upon, and all claims (including
claims for labor, materials and supplies) against, the Collateral, except to the
extent permitted under the Credit Agreement.
SECTION 7. SPECIAL COVENANTS WITH RESPECT TO EQUIPMENT AND INVENTORY.
---------------------------------------------------------
Grantor shall:
(a) keep the Equipment and Inventory at the places therefor specified
on Schedule IV annexed hereto or, upon at least 30 days prior written notice to
-----------
Secured Party, at such other places in jurisdictions where all action that may
be necessary or desirable, or that Secured Party may request, in order to
perfect and protect any security interest granted or purported to be granted
hereby, or to enable Secured Party to exercise and enforce its rights and
remedies hereunder, with respect to such Equipment and Inventory shall have been
taken;
(b) cause the Equipment to be maintained and preserved in the same
condition, repair and working order as when new, ordinary wear and tear
excepted, and in accordance with Grantor's past practices, and shall forthwith
make or cause to be made all repairs, replacements and other improvements in
connection therewith that are necessary or desirable to such end. Grantor shall
promptly furnish to Secured Party a statement respecting any material loss or
damage to any of the equipment which involves loss or damage exceeding
$1,000,000 in the aggregate during any Fiscal Year;
(c) keep correct and accurate records of the Inventory, itemizing and
describing the kind, type and quantity thereof, Grantor's cost therefor and
(where applicable) the current list prices for the Inventory; provided that
--------
nothing in this Section 7 with respect to Inventory being sold in the ordinary
course shall require Grantor to maintain records in any manner deferent from
those being maintained by Grantor as of the date hereof (as such manner may be
revised in the good faith of Grantor);
(d) promptly upon the issuance and delivery to Grantor of any
Negotiable Document of Title deliver such Negotiable Document of Title to
Secured Party; and
(e) promptly upon the issuance and delivery to Grantor of any
Negotiable Document of Title, deliver such Negotiable Document of Title to
Secured Party.
XX-9
<PAGE>
SECTION 8. INSURANCE.
---------
(a) Grantor shall, at its own expense, maintain insurance with
respect to the Equipment and Inventory in accordance with the terms of the
Credit Agreement. Such insurance shall include, without limitation, property
damage insurance and liability insurance. Each policy for property damage
insurance shall provide for all losses (except for losses of less than
$1,000,000 per occurrence) to be paid directly to Secured Party. Subject to
Section 2.4(B) of the Credit Agreement, each policy shall in addition name
Grantor and Secured Party as insured parties thereunder (without any
representation or warranty by or obligation upon Secured Party) as their
interests may appear and have attached thereto a loss payable clause acceptable
to Secured Party that shall (i) contain an agreement by the insurer that any
loss thereunder shall be payable to Secured Party notwithstanding any action,
inaction or breach of representation or warranty by Grantor, (ii) provide that
there shall be no recourse against Secured Party for payment of premiums or
other amounts with respect thereto, and (iii) provide that at least 30 days'
prior written notice of cancellation, material amendment, reduction in scope or
limits of coverage or of lapse shall be given to Secured Party by the insurer.
Grantor shall, if so requested by Secured Party, deliver to Secured Party
original or duplicate policies of such insurance and, as often as Secured Party
may reasonably request, a report of a reputable insurance broker with respect to
such insurance. Further, Grantor shall, at the request of Secured Party, duly
execute and deliver instruments of assignment of such insurance policies to
comply with the requirements of Section 5(a) and cause the respective insurers
to acknowledge notice of such assignment.
(b) Reimbursement under any liability insurance maintained by Grantor
pursuant to this Section 8 may be paid directly to the Person who shall have
incurred liability covered by such insurance. In case of any loss involving
damage to Equipment or Inventory when subsection (c) of this Section 8 is not
applicable and subject to the provisions of subsection 2.4B(iii)(b) of the
Credit Agreement, Grantor shall make or cause to be made the necessary repairs
to or replacements of such Equipment or Inventory, and any proceeds of insurance
maintained by Grantor pursuant to this Section 8 shall be paid to Grantor as
reimbursement for the costs of such repairs or replacements.
(c) Subject to the provisions of subsection 2.4B(iii)(b) of the
Credit Agreement, upon (i) the occurrence and during the continuation of any
Event of Default or (ii) the actual or constructive loss (in excess of
$1,000,000 per occurrence) of any Equipment or Inventory, all insurance payments
in respect of such Equipment or Inventory shall be paid to and applied by
Secured Party as specified in Section 18.
SECTION 9. SPECIAL COVENANTS WITH RESPECT TO ACCOUNTS AND RELATED
------------------------------------------------------
CONTRACTS.
- ---------
(a) Grantor shall keep its chief place of business and chief
executive office and the office where it keeps its records concerning the
Accounts and Related Contracts, and all originals of all chattel paper that
evidence Accounts, at the location therefor specified in Section 4 or, upon at
least 30 days prior written notice to Secured
XX-10
<PAGE>
Party, at such other location in a jurisdiction where all action that may be
necessary or desirable, or that Secured Party may reasonably request, in order
to perfect and protect any security interest granted or purported to be granted
hereby, or to enable Secured Party to exercise and enforce its rights and
remedies hereunder, with respect to such Accounts and Related Contracts shall
have been taken. Subject to the terms of the Credit Agreement, Grantor will hold
and preserve such records and chattel paper and will permit representatives of
Secured Party at any time during normal business hours to inspect and make
abstracts from such records and chattel paper, and Grantor agrees to render to
Secured Party, at Grantor's cost and expense, such clerical and other assistance
as may be reasonably requested with regard thereto. Promptly upon the request of
Secured Party, Grantor shall deliver to Secured Party complete and correct
copies of each Related Contract.
(b) Except as otherwise provided in this subsection (c), Grantor
shall continue to collect, at its own expense, all amounts due or to become due
to Grantor under the Accounts and Related Contracts. In connection with such
collections, Grantor may take (and, after the occurrence and during the
continuation of an Event of Default, at Secured Party's direction, shall take)
such action as Grantor or Secured Party may deem necessary or advisable to
enforce collection of amounts due or to become due under the Accounts; provided,
--------
however, that Secured Party shall have the right at any time, upon the
- -------
occurrence and during the continuation of an Event of Default or a Potential
Event of Default and upon written notice to Grantor of its intention to do so,
to notify the account debtors or obligors under any Accounts of the assignment
of such Accounts to Secured Party and to direct such account debtors or obligors
to make payment of all amounts due or to become due to Grantor thereunder
directly to Secured Party, to notify each Person maintaining a lockbox or
similar arrangement to which account debtors or obligors under any Accounts have
been directed to make payment to remit all amounts representing collections on
checks and other payment items from time to time sent to or deposited in such
lockbox or other arrangement directly to Secured Party and, upon such
notification and at the expense of Grantor, to enforce collection of any such
Accounts and to adjust, settle or compromise the amount or payment thereof, in
the same manner and to the same extent as Grantor might have done. After receipt
by Grantor of the notice from Secured Party referred to in the proviso to the
-------
preceding sentence, (i) all amounts and proceeds (including checks and other
instruments) received by Grantor in respect of the Accounts and the Related
Contracts shall be received in trust for the benefit of Secured Party hereunder,
shall be segregated from other funds of Grantor and shall be forthwith paid over
or delivered to Secured Party in the same form as so received (with any
necessary endorsement) to be held as cash Collateral and either (A) be released
to Grantor so long as no Event of Default shall have occurred and be continuing
or (B) if any Event of Default shall have occurred and be continuing, be applied
as provided by Section 18, and (ii) Grantor shall not adjust, settle or
compromise the amount or payment of any Account, or release wholly or partly any
account debtor or obligor thereof, or allow any credit or discount thereon.
XX-11
<PAGE>
SECTION 10. SPECIAL PROVISIONS WITH RESPECT TO THE ASSIGNED
-----------------------------------------------
AGREEMENTS. Grantor shall at its expense:
- ----------
(a) perform and observe all terms and provisions of the Assigned
Agreements to be performed or observed by it in all material respects, maintain
the Assigned Agreements in full force and effect, enforce the Assigned
Agreements in accordance with their terms, and take all such action to such end
as may be from time to time requested by Secured Party; and
(b) from time to time (A) furnish to Secured Party such information and
reports regarding the Assigned Agreements as Secured Party may reasonably
request and (B) upon request of Secured Party make to any party to the Assigned
Agreements listed in Schedule I annexed hereto such demands and requests for
----------
information and reports or for action as Grantor is entitled to make under the
Assigned Agreements.
SECTION 11. DEPOSIT ACCOUNTS. Upon the occurrence and during the
----------------
continuation of an Event of Default, Secured Party may exercise dominion and
control over, and refuse to permit further withdrawals (whether of money,
securities, instruments or other property) from any deposit accounts maintained
with Secured Party constituting part of the Collateral.
SECTION 12. LICENSE OF PATENTS, TRADEMARKS, COPYRIGHTS, ETC. Grantor
------------------------------------------------
hereby grants to Secured Party, effective upon the occurrence and during the
continuation of any Event of Default, the nonexclusive right and license to use
all trademarks, tradenames, copyrights, patents or technical processes owned or
used by Grantor that relate to the Collateral and any other collateral granted
by Grantor as security for the Secured Obligations, together with any goodwill
associated therewith, all to the extent necessary to enable Secured Party to
use, possess and realize on the Collateral and to enable any successor or assign
to enjoy the benefits of the Collateral. This right and license shall inure to
the benefit of all successors, assigns and transferees of Secured Party and its
successors, assigns and transferees, whether by voluntary conveyance, operation
of law, assignment, transfer, foreclosure, deed in lieu of foreclosure or
otherwise. Such right and license is granted free of charge, without requirement
that any monetary payment whatsoever be made to Grantor.
SECTION 13. TRANSFERS AND OTHER LIENS. Grantor shall not:
-------------------------
(a) sell, assign (by operation of law or otherwise) or otherwise
dispose of any of the Collateral, except as permitted by the Credit Agreement;
or
(b) except for the security interest created by this Agreement and
the Permitted Encumbrances, create or suffer to exist any Lien upon or with
respect to any of the Collateral to secure the indebtedness or other obligations
of any Person.
SECTION 14. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Grantor hereby
----------------------------------------
irrevocably appoints Secured Party as Grantor's attorney-in-fact, with full
XX-12
<PAGE>
authority in the place and stead of Grantor and in the name of Grantor, Secured
Party or otherwise, from time to time in Secured Party's discretion to take any
action and to execute any instrument that Secured Party may deem necessary or
advisable, consistent with the provisions of the Agreement, to accomplish the
purposes of this Agreement, including without limitation:
(a) during the continuation of an Event of Default, to obtain and
adjust insurance required to be maintained by Grantor or paid to Secured Party
pursuant to Section 8;
(b) during the continuation of any Event of Default, to ask for,
demand, collect, sue for, recover, compound, receive and give acquittance and
receipts for moneys due and to become due under or in respect of any of the
Collateral;
(c) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection with clauses (a) and (b) above;
(d) during the continuation of any Event of Default, to file any
claims or take any action or institute any proceedings that Secured Party may
deem necessary or desirable for the collection of any of the Collateral or
otherwise to enforce the rights of Secured Party with respect to any of the
Collateral;
(e) during the continuation of an Event of Default, to pay or
discharge taxes or Liens (other than Liens permitted under this Agreement or the
Credit Agreement) levied or placed upon or threatened against the Collateral,
the legality or validity thereof and the amounts necessary to discharge the same
to be determined by Secured Party in its sole discretion, any such payments made
by Secured Party to become obligations of Grantor to Secured Party, due and
payable immediately without demand;
(f) during the continuation of an Event of Default, to sign and
endorse any invoices, freight or express bills, bills of lading, storage or
warehouse receipts, drafts against debtors, assignments, verifications and
notices in connection with Accounts and other documents relating to the
Collateral; and
(g) upon the occurrence and during the continuation of an Event of
Default, generally to sell, transfer, pledge, make any agreement with respect to
or otherwise deal with any of the Collateral as fully and completely as though
Secured Party were the absolute owner thereof for all purposes, and to do, at
Secured Party's option and Grantor's expense, at any time or from time to time,
all acts and things that Secured Party reasonably deems necessary to protect,
preserve or realize upon the Collateral and Secured Party's security interest
therein in order to effect the intent of this Agreement, all as fully and
effectively as Grantor might do.
SECTION 15. SECURED PARTY MAY PERFORM. If Grantor fails to perform
-------------------------
any agreement contained herein, Secured Party may itself perform, or cause
performance
XX-13
<PAGE>
of, such agreement, and the expenses of Secured Party incurred in connection
therewith shall be payable by Grantor under Section 19.
SECTION 16. STANDARD OF CARE. The powers conferred on Secured Party
----------------
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the exercise of
reasonable care in the custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, Secured Party shall
have no duty as to any Collateral or as to the taking of any necessary steps to
preserve rights against prior parties or any other rights pertaining to any
Collateral. Secured Party shall be deemed to have exercised reasonable care in
the custody and preservation of Collateral in its possession if such Collateral
is accorded treatment substantially equal to that which Secured Party accords
its own property.
SECTION 17. REMEDIES. If any Event of Default shall have occurred and
--------
be continuing, Secured Party may exercise in respect of the Collateral, in
addition to all other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on default under
the Uniform Commercial Code as in effect in any relevant jurisdiction (the
"CODE") (whether or not the Code applies to the affected Collateral), and also
may (a) require Grantor to, and Grantor hereby agrees that it will at its
expense and upon request of Secured Party forthwith, assemble all or part of the
Collateral as directed by Secured Party and make it available to Secured Party
at a place to be designated by Secured Party that is reasonably convenient to
both parties, (b) enter onto the property where any Collateral is located and
take possession thereof with or without judicial process, (c) prior to the
disposition of the Collateral, store, process, repair or recondition the
Collateral or otherwise prepare the Collateral for disposition in any manner to
the extent Secured Party deems appropriate, (d) take possession of Grantor's
premises or place custodians in exclusive control thereof, remain on such
premises and use the same and any of Grantor's equipment for the purpose of
completing any work in process, taking any actions described in the preceding
clause (c) and collecting any Secured Obligation, and (e) without notice except
as specified below, sell the Collateral or any part thereof in one or more
parcels at public or private sale, at any of Secured Party's offices or
elsewhere, for cash, on credit or for future delivery, at such time or times and
at such price or prices and upon such other terms as Secured Party may deem
commercially reasonable. Secured Party or any Lender may be the purchaser of any
or all of the Collateral at any such sale and Secured Party, as agent for and
representative of Lenders (but not any Lender or Lenders in its or their
respective individual capacities unless Requisite Lenders shall otherwise agree
in writing), shall be entitled, for the purpose of bidding and making settlement
or payment of the purchase price for all or any portion of the Collateral sold
at any such public sale, to use and apply any of the Secured Obligations as a
credit on account of the purchase price for any Collateral payable by Secured
Party at such sale. Each purchaser at any such sale shall hold the property sold
absolutely free from any claim or right on the part of Grantor, and Grantor
hereby waives (to the extent permitted by applicable law) all rights of
redemption, stay and/or appraisal which it now has or may at any time in the
future have under any rule of law or statute now existing or hereafter enacted.
Grantor agrees that,
XX-14
<PAGE>
to the extent notice of sale shall be required by law, at least ten days' notice
to Grantor of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification. Secured
Party shall not be obligated to make any sale of Collateral regardless of notice
of sale having been given. Secured Party may adjourn any public or private sale
from time to time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to which it was
so adjourned. Grantor hereby waives any claims against Secured Party arising by
reason of the fact that the price at which any Collateral may have been sold at
such a private sale was less than the price which might have been obtained at a
public sale, even if Secured Party accepts the first offer received and does not
offer such Collateral to more than one offeree. If the proceeds of any sale or
other disposition of the Collateral are insufficient to pay all the Secured
Obligations, Grantor shall be liable for the deficiency and the fees of any
attorneys employed by Secured Party to collect such deficiency.
SECTION 18. APPLICATION OF PROCEEDS. Except as expressly provided
-----------------------
elsewhere in this Agreement, all proceeds received by Secured Party in respect
of any sale of, collection from, or other realization upon all or any part of
the Collateral may, in the discretion of Secured Party, be held by Secured Party
as Collateral for, and/or then, or at any other time thereafter, applied in full
or in part by Secured Party against, the Secured Obligations in the following
order of priority:
FIRST: To the payment of all reasonable out-of-pocket costs and
expenses of such sale, collection or other realization, including reasonable
compensation to Secured Party and its agents and counsel, and all other
reasonable out-of-pocket expenses, liabilities and advances made or incurred
by Secured Party in connection therewith, and all amounts for which Secured
Party is entitled to indemnification hereunder and all advances made by
Secured Party hereunder for the account of Grantor, and to the payment of
all costs and expenses paid or incurred by Secured Party in connection with
the exercise of any right or remedy hereunder, all in accordance with
Section 19;
SECOND: To the payment of all other Secured Obligations in such order
as Secured Party shall elect; and
THIRD: To the payment to or upon the order of Grantor, or to
whosoever may be lawfully entitled to receive the same or as a court of
competent jurisdiction may direct, of any surplus then remaining from such
proceeds.
SECTION 19. INDEMNITY AND EXPENSES.
----------------------
(a) Grantor agrees to indemnify Secured Party and each Lender from
and against any and all claims, losses and liabilities in any way relating to,
growing out of or resulting from this Agreement and the transactions
contemplated hereby (including, without limitation, enforcement of this
Agreement), except to the extent such claims,
XX-15
<PAGE>
losses or liabilities result from Secured Party's or such Lender's gross
negligence or willful misconduct as finally determined by a court of competent
jurisdiction.
(b) Grantor shall pay to Secured Party upon demand the amount of any
and all reasonable out-of-pocket costs and expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents, that Secured
Party may incur in connection with (i) the administration of this Agreement,
(ii) the custody, preservation, use or operation of, or the sale of, collection
from, or other realization upon, any of the Collateral, (iii) the exercise or
enforcement of any of the rights of Secured Party hereunder, or (iv) the failure
by Grantor to perform or observe any of the provisions hereof.
SECTION 20. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS. This
-----------------------------------------------
Agreement shall create a continuing security interest in the Collateral and
shall (a) remain in full force and effect until the payment in full of the
Secured Obligations, the cancellation or termination of the Commitments and the
cancellation or expiration of all outstanding Letters of Credit, (b) be binding
upon Grantor, its successors and assigns, and (c) inure, together with the
rights and remedies of Secured Party hereunder, to the benefit of Secured Party
and its permitted successors, transferees and assigns. Without limiting the
generality of the foregoing clause (c), but subject to the provisions of
subsection 10.1 of the Credit Agreement, any Lender may assign or otherwise
transfer any Loans held by it to any other Person, and such other Person shall
thereupon become vested with all the benefits in respect thereof granted to
Lenders herein or otherwise. Upon the payment in full of all Secured
Obligations, the cancellation or termination of the Commitments and the
cancellation or expiration of all outstanding Letters of Credit, the security
interest granted hereby shall terminate and all rights to the Collateral shall
revert to Grantor. Upon any such termination Secured Party will, at Grantor's
expense, execute and deliver to Grantor such documents as Grantor shall
reasonably request to evidence such termination.
SECTION 21. SECURED PARTY AS ADMINISTRATIVE AGENT.
-------------------------------------
(a) Secured Party has been appointed to act as Secured Party
hereunder by Lenders and, by their acceptance of the benefits hereof, Interest
Rate Exchangers. Secured Party shall be obligated, and shall have the right
hereunder, to make demands, to give notices, to exercise or refrain from
exercising any rights, and to take or refrain from taking any action (including
the release or substitution of Collateral), solely in accordance with this
Agreement and the Credit Agreement; provided that Secured Party shall exercise,
--------
or refrain from exercising, any remedies provided for in Section 17 in
accordance with the instructions of (i) Requisite Lenders or (ii) after payment
in full of all Obligations under the Credit Agreement and the other Loan
Documents, the holders of a majority of the aggregate notional amount (or, with
respect to any Lender Interest Rate Agreement that has been terminated in
accordance with its terms, the amount then due and payable (exclusive of
expenses and similar payments but including any early termination payments then
due) under such Lender Interest Rate Agreement) under all Lender Interest Rate
Agreements (Requisite Lenders or, if applicable, such holders being
XX-16
<PAGE>
referred to herein as "REQUISITE OBLIGEES"). In furtherance of the foregoing
provisions of this Section 21(a), each Interest Rate Exchanger, by its
acceptance of the benefits hereof, agrees that it shall have no right
individually to realize upon any of the Collateral hereunder, it being
understood and agreed by such Interest Rate Exchanger that all rights and
remedies hereunder may be exercised solely by Secured Party for the benefit of
Lenders and Interest Rate Exchangers in accordance with the terms of this
Section 21(a).
(b) Secured Party shall at all times be the same Person that is
Administrative Agent under the Credit Agreement. Written notice of resignation
by Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall
also constitute notice of resignation as Secured Party under this Agreement;
removal of Administrative Agent pursuant to subsection 9.5 of the Credit
Agreement shall also constitute removal as Secured Party under this Agreement;
and appointment of a successor Administrative Agent pursuant to subsection 9.5
of the Credit Agreement shall also constitute appointment of a successor Secured
Party under this Agreement. Upon the acceptance of any appointment as
Administrative Agent under subsection 9.5 of the Credit Agreement by a successor
Administrative Agent, that successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring or removed Secured Party under this Agreement, and the retiring
or removed Secured Party under this Agreement shall promptly (i) transfer to
such successor Secured Party all sums, securities and other items of Collateral
held hereunder, together with all records and other documents necessary or
appropriate in connection with the performance of the duties of the successor
Secured Party under this Agreement, and (ii) execute and deliver to such
successor Secured Party such amendments to financing statements, and take such
other actions, as may be necessary or appropriate in connection with the
assignment to such successor Secured Party of the security interests created
hereunder, whereupon such retiring or removed Secured Party shall be discharged
from its duties and obligations under this Agreement. After any retiring or
removed Administrative Agent's resignation or removal hereunder as Secured
Party, the provisions of this Agreement shall inure to its benefit as to any
actions taken or omitted to be taken by it under this Agreement while it was
Secured Party hereunder.
SECTION 22. AMENDMENTS; ETC. No amendment, modification, termination
----------------
or waiver of any provision of this Agreement, and no consent to any departure by
Grantor therefrom, shall in any event be effective unless the same shall be in
writing and signed by Secured Party and, in the case of any such amendment or
modification, by Grantor. Any such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which it was given.
SECTION 23. NOTICES. Any notice or other communication herein
-------
required or permitted to be given shall be given as provided in the Credit
Agreement. For the purposes hereof, the address of each party hereto shall be
as set forth under such party's name on the signature pages hereof or, as to
either party, such other address as shall be designated by such party in a
written notice delivered to the other party hereto.
XX-17
<PAGE>
SECTION 24. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
-----------------------------------------------------
failure or delay on the part of Secured Party in the exercise of any power,
right or privilege hereunder shall impair such power, right or privilege or be
construed to be a waiver of any default or acquiescence therein, nor shall any
single or partial exercise of any such power, right or privilege preclude any
other or further exercise thereof or of any other power, right or privilege.
All rights and remedies existing under this Agreement are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
SECTION 25. SEVERABILITY. In case any provision in or obligation
------------
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 26. HEADINGS. Section and subsection headings in this
--------
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given any
substantive effect.
SECTION 27. GOVERNING LAW; TERMS. THIS AGREEMENT AND THE RIGHTS AND
--------------------
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW
OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES,
EXCEPT TO THE EXTENT THAT THE CODE PROVIDES THAT THE PERFECTION OF THE SECURITY
INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR
COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF
NEW YORK. Unless otherwise defined herein or in the Credit Agreement, terms used
in Articles 8 and 9 of the Uniform Commercial Code in the State of New York are
used herein as therein defined.
SECTION 28. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL
----------------------------------------------
JUDICIAL PROCEEDINGS BROUGHT AGAINST GRANTOR ARISING OUT OF OR RELATING TO THIS
AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION
IN THE STATE OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT
GRANTOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY
ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. Grantor hereby
agrees that service of all process in any such proceeding in any such court may
be made by registered or certified mail, return receipt requested, to Grantor at
its address provided in Section 23, such service being hereby acknowledged by
XX-18
<PAGE>
Grantor to be sufficient for personal jurisdiction in any action against Grantor
in any such court and to be otherwise effective and binding service in every
respect. Nothing herein shall affect the right to serve process in any other
manner permitted by law or shall limit the right of Secured Party to bring
proceedings against Grantor in the courts of any other jurisdiction.
SECTION 29. WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY LAW,
--------------------
GRANTOR AND SECURED PARTY HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT. The scope of this waiver is intended to be all-encompassing of any
and all disputes that may be filed in any court and that relate to the subject
matter of this transaction, including without limitation contract claims, tort
claims, breach of duty claims, and all other common law and statutory claims.
Grantor and Secured Party each acknowledge that this waiver is a material
inducement for Grantor and Secured Party to enter into a business relationship,
that Grantor and Secured Party have already relied on this waiver in entering
into this Agreement and that each will continue to rely on this waiver in their
related future dealings. Grantor and Secured Party further warrant and
represent that each has reviewed this waiver with its legal counsel, and that
each knowingly and voluntarily waives its jury trial rights following
consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
In the event of litigation, this Agreement may be filed as a written consent to
a trial by the court.
SECTION 30. COUNTERPARTS. This Agreement may be executed in one or
------------
more counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
(Remainder of page intentionally left blank)
XX-19
<PAGE>
IN WITNESS WHEREOF, Grantor and Secured Party have caused this Agreement to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
[NAME OF SUBSIDIARY]
By: ________________________________
Name: ______________________________
Title: _____________________________
Notice Address:
1800 Cloquet Avenue
Cloquet, MN 55720-2141
Attention: Tom Knuesel
WELLS FARGO BANK, N.A., as
Administrative Agent
By: ________________________________
Name: ______________________________
Title: _____________________________
Notice Address:
Attention:
S-1
<PAGE>
SCHEDULE I
TO SECURITY AGREEMENT
Assigned Agreements
-------------------
<PAGE>
SCHEDULE II
TO SECURITY AGREEMENT
Deposit Accounts
----------------
<TABLE>
<CAPTION>
================================================================================
Bank Name Location Account Number
--------- -------- --------------
<S> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
</TABLE>
<PAGE>
SCHEDULE III
TO SECURITY AGREEMENT
Licenses
--------
[Please list all of Grantor's licenses]
<PAGE>
SCHEDULE IV
TO SECURITY AGREEMENT
Equipment and Inventory Location
--------------------------------
[Please list all locations where Grantor maintains equipment or inventory]
<PAGE>
SCHEDULE V
TO SECURITY AGREEMENT
Tradenames
----------
[Please list all tradenames of Grantor]
<PAGE>
SUBSIDIARY SECURITY AGREEMENT
This SUBSIDIARY SECURITY AGREEMENT (this "AGREEMENT") is dated as of
April 21, 1998, and entered into by and between EMPIRE CANDLE, INC., a Kansas
corporation ("GRANTOR"), and WELLS FARGO BANK, N.A., as administrative agent for
and representative of (in such capacity herein called "SECURED PARTY") the
financial institutions ("LENDERS") party to the Credit Agreement referred to
below and any Interest Rate Exchangers (as hereinafter defined).
PRELIMINARY STATEMENTS
A. Secured Party and Lenders have entered into a Credit Agreement
dated as of April 21, 1998 (said Credit Agreement, as it may hereafter be
amended, supplemented or otherwise modified from time to time, being the "CREDIT
AGREEMENT", the terms defined therein and not otherwise defined herein being
used herein as therein defined) with Diamond Brands Operating Corp., a Delaware
corporation ("COMPANY" or "BORROWER"), pursuant to which Lenders have made
certain commitments, subject to the terms and conditions set forth in the Credit
Agreement, to extend certain credit facilities to Borrower.
B. Grantor has executed and delivered the Subsidiary Guaranty dated
as of April, 21, 1998 (said Subsidiary Guaranty, as it may hereafter be amended,
supplemented or otherwise modified from time to time, being the "SUBSIDIARY
GUARANTY") in favor of Secured Party for the benefit of Lenders, pursuant to
which Grantor has guarantied the prompt payment and performance when due of all
Obligations of the Borrower under the Credit Agreement.
C. It is a condition precedent to the initial extensions of credit by
Lenders under the Credit Agreement that Grantor shall have granted the security
interests and undertaken the obligations contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce
Lenders to make Loans and other extensions of credit under the Credit Agreement
and for other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, Grantor hereby agrees with Secured Party as follows:
SECTION 1. GRANT OF SECURITY. Grantor hereby assigns for security
-----------------
purposes to Secured Party, and hereby grants to Secured Party a security
interest in, all of Grantor's right, title and interest in and to the following,
in each case whether now or hereafter existing or in which Grantor now has or
hereafter acquires an interest and wherever the same may be located (the
"COLLATERAL"):
1
<PAGE>
(a) all equipment in all of its forms, all parts thereof and all
accessions thereto (any and all such equipment, parts and accessions being the
"EQUIPMENT");
(b) all inventory in all of its forms (including (i) all goods held by
Grantor for sale or lease or to be furnished under contracts of service or so
leased or furnished, (ii) all raw materials, work in process, finished goods,
and materials used or consumed in the manufacture, packing, shipping,
advertising, selling, leasing, furnishing or production of such inventory or
otherwise used or consumed in Grantor's business, (iii) all goods in which
Grantor has an interest in mass or a joint or other interest or right of any
kind, and (iv) all goods which are returned to or repossessed by Grantor) and
all accessions thereto and products thereof (all such inventory, accessions and
products being the "INVENTORY") and all negotiable documents of title (including
warehouse receipts, dock receipts and bills of lading) issued by any Person
covering any Inventory (any such negotiable document of title being a
"NEGOTIABLE DOCUMENT OF TITLE");
(c) all accounts, contract rights, chattel paper, documents,
instruments, general intangibles and other rights and obligations of any kind
and all rights in, to and under all security agreements, leases and other
contracts securing or otherwise relating to any such accounts, contract rights,
chattel paper, documents, instruments, general intangibles or other obligations
(any and all such accounts, contract rights, chattel paper, documents,
instruments, general intangibles and other obligations being the "ACCOUNTS", and
any and all such security agreements, leases and other contracts being the
"RELATED CONTRACTS");
(d) the agreements listed in Schedule I annexed hereto, and any other
----------
agreement between Grantor, or a Subsidiary of Grantor, with a franchisee or
developer, now or hereafter existing, as each such agreement may be amended,
supplemented or otherwise modified from time to time (said agreements, as so
amended, supplemented or otherwise modified, being referred to herein
individually as an "ASSIGNED AGREEMENT" and collectively as the "ASSIGNED
AGREEMENTS"), including (i) all rights of Grantor to receive moneys due or to
become due under or pursuant to the Assigned Agreements, (ii) all rights of
Grantor to receive proceeds of any insurance, indemnity, warranty or guaranty
with respect to the Assigned Agreements, (iii) all claims of Grantor for damages
arising out of any breach of or default under the Assigned Agreements, and (iv)
all rights of Grantor to terminate, amend, supplement, modify or exercise rights
or options under the Assigned Agreements, to perform thereunder and to compel
performance and otherwise exercise all remedies thereunder;
(e) all deposit accounts, including the deposit accounts listed on
Schedule II annexed hereto and all other deposit accounts maintained with
- -----------
Secured Party;
(f) all trademarks, tradenames, tradesecrets, business names, patents,
patent applications, licenses, copyrights, registrations and franchise rights,
and all goodwill associated with any of the foregoing;
2
<PAGE>
(g) all licenses to conduct the Business and other special licenses,
including but not limited to the licenses listed on Schedule III, and to the
------------
extent not included in any other paragraph of this Section 1, all other general
intangibles (including tax refunds, rights to payment or performance, choses in
action and judgments taken on any rights or claims included in the Collateral);
(h) all plant fixtures, business fixtures and other fixtures and
storage and office facilities, and all accessions thereto and products thereof;
(i) all books, records, ledger cards, files, correspondence, computer
programs, tapes, disks and related data processing software that at any time
evidence or contain information relating to any of the Collateral or are
otherwise necessary or helpful in the collection thereof or realization
thereupon;
(j) the shares of stock owned by Grantor as described in Schedule I to
the Subsidiary Pledge Agreement to which Grantor is a party (as such Schedule I
may be amended from time to time in accordance with the terms thereof) (the
"PLEDGED SHARES") and the certificates representing the Pledged Shares and any
interest of Grantor in the entries on the books of any financial intermediary
pertaining to the Pledged Shares, and all dividends, cash, warrants, rights,
instruments and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of the Pledged Shares;
(k) the indebtedness owed to the Grantor as described in Schedule I to
the Subsidiary Pledge Agreement to which Grantor is a party (as such Schedule I
may be amended from time to time in accordance with the terms thereof) (the
"PLEDGED DEBT") and the instruments evidencing the Pledged Debt, and all
interest, cash, instruments and other property or proceeds from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of the Pledged Debt;
(l) all of Grantor's right, title and interest as a member of any
Person that is organized as a limited liability company and that may hereafter
become a Subsidiary of Grantor, including, without limitation, (A) all rights of
Grantor to receive distributions of any kind, in cash or otherwise, due or to
become due under or pursuant to any limited liability company agreement or
otherwise in respect of any such Person, (B) all rights of Grantor to receive
proceeds of any insurance, indemnity, warranty or guaranty with respect to any
such Person, (C) all claims of Grantor for damages arising out of, or for the
breach of, or for a default under, any limited liability company agreement of
any such Person, (D) any certificated or uncertificated security evidencing any
of the foregoing issued by any such Person to Grantor and (E) to the extent not
included in the foregoing, all proceeds of any and all of the foregoing (all of
the foregoing being referred to herein collectively as the "LLC INTERESTS");
(m) all additional shares of, and all securities convertible into and
warrants, options and other rights to purchase or otherwise acquire, stock of
any issuer of the Pledged Shares from time to time acquired by Grantor in any
manner (which shares
3
<PAGE>
shall be deemed to be part of the Pledged Shares), the certificates or other
instruments representing such additional shares, securities, warrants, options
or other rights and any interest of Grantor in the entries on the books of any
financial intermediary pertaining to such additional shares, and all dividends,
cash, warrants, rights, instruments and other property or proceeds from time to
time received, receivable or otherwise distributed in respect of or in exchange
for any or all of such additional shares, securities, warrants, options or other
rights; provided, however, that Grantor shall not be required to pledge more
-------- -------
than 66.6% of any class of capital stock of any direct or indirect Subsidiary of
Grantor which is incorporated in a jurisdiction other than the states of the
United States and the District of Columbia ("FOREIGN SUBSIDIARY");
(n) all additional indebtedness from time to time owed to Grantor by
any obligor on the Pledged Debt and the instruments evidencing such
indebtedness, and all interest, cash, instruments and other property or proceeds
from time to time received, receivable or otherwise distributed in respect of or
in exchange for any or all of such indebtedness;
(o) all shares of, and all securities convertible into and warrants,
options and other rights to purchase or otherwise acquire, stock of any Person
that, after the Closing Date, becomes, as a result of any occurrence, a direct
Subsidiary of Grantor (which shares shall be deemed to be part of the Pledged
Shares), the certificates or other instruments representing such shares,
securities, warrants, options or other rights and any interest of Grantor in the
entries on the books of any financial intermediary pertaining to such shares,
and all dividends, cash, warrants, rights, instruments and other property or
proceeds from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such shares, securities, warrants,
options or other rights; provided, however, that Grantor shall not be required
-------- -------
to pledge more than 66.6% of any class of capital stock of any Foreign
Subsidiary;
(p) all indebtedness from time to time owed to Grantor by any Person
that, after the Closing Date becomes, as a result of any occurrence, a direct or
indirect Subsidiary of Grantor, and all interest, cash, instruments and other
property or proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such indebtedness;
(q) all of Grantor's right, title and interest as a general partner in
partnerships only to the extent of the right to receive distributions on its
partnership interest, a limited partner in partnerships and each partnership in
which Grantor acquires an interest after the Closing Date (collectively, the
"PARTNERSHIPS"), whether now owned or hereafter acquired, including without
limitation all of Grantor's right, title and interest in, to and under the
agreements pursuant to which the Partnerships are established (collectively, the
"PARTNERSHIP AGREEMENTS"), and any "certificate of interest" or "certificates of
interest" (or other certificates or instruments however designated or titled)
issued by any Partnership and evidencing Grantor's interest as a limited partner
or general partner in such Partnership and any interest of Grantor in the
entries on the books of any financial intermediary pertaining to Grantor's
interest as a limited partner or general
4
<PAGE>
partner in any Partnership together with all other rights, interests, claims and
other property of Grantor in any manner arising out of or relating to a limited
partnership interest or general partnership interest in any Partnership,
whatever their respective kind or character, whether they are tangible or
intangible property, and wheresoever they may exist or be located, and further
including, without limitation, all of the rights of Grantor as a limited or
general partner: (i) to (x) receive money due and to become due (including
without limitation dividends, distributions, interest, income from partnership
properties and operations, proceeds of sale of partnership assets and returns of
capital) under or pursuant to any Partnership Agreement, (y) receive payments
upon termination of any Partnership Agreement, and (z) receive any other
payments or distributions, whether cash or noncash, in respect of any limited
partnership interest or general partnership interest of Grantor evidenced by any
Partnership Agreement; (ii) in and with respect to claims and causes of action
arising out of or relating to the Partnerships; and (iii) to have access to the
Partnerships' books and records and to other information concerning or affecting
the Partnerships; and
(r) all proceeds, products, rents and profits of or from any and all
of the foregoing Collateral and, to the extent not otherwise included, all
payments under insurance (whether or not Secured Party is the loss payee
thereof), or any indemnity, warranty or guaranty, payable by reason of loss or
damage to or otherwise with respect to any of the foregoing Collateral. For
purposes of this Agreement, the term "PROCEEDS" includes whatever is receivable
or received when Collateral or proceeds are sold, exchanged, collected or
otherwise disposed of, whether such disposition is voluntary or involuntary.
Notwithstanding the foregoing, Collateral shall exclude any
intellectual property right contracts and agreements or equipment leases to the
extent, and only to the extent, that such Intellectual Property, contract or
agreement or equipment lease contains a provision enforceable at law and in
equity that would be breached by (or would result in the termination of such
intellectual property, contract, or agreement or equipment lease upon) the grant
of the security interest created herein pursuant to the terms of this Agreement;
provided, however, that if and when any prohibition on the assignment, pledge or
- -------- -------
grant of a security interest in such intellectual property right, contract or
agreement or equipment lease is removed, the Secured Party will be deemed to
have been granted a security interest in such intellectual property right,
contract or agreement or equipment lease as of the date hereof, and the
Collateral will be deemed to include such intellectual property right, contract
or agreement or equipment lease.
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures, and the
------------------------
Collateral is collateral security for, the prompt payment or performance in full
when due, whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise (including the payment of amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code, 11 U.S.C. Section 362(a)), of all obligations and
liabilities of every nature of Grantor now or hereafter existing under or
arising out of or in connection with the Credit Agreement, the Subsidiary
Guaranty and, the other Loan Documents and the Lender Interest Rate Agreements
and all
5
<PAGE>
extensions or renewals thereof, whether for principal, interest (including
without limitation interest that, but for the filing of a petition in bankruptcy
with respect to Grantor, would accrue on such obligations), reimbursement of
amounts drawn under Letters of Credit, fees, expenses, indemnities or otherwise,
whether voluntary or involuntary, direct or indirect, absolute or contingent,
liquidated or unliquidated, whether or not jointly owed with others, and whether
or not from time to time decreased or extinguished and later increased, created
or incurred, and all or any portion of such obligations or liabilities that are
paid, to the extent all or any part of such payment is avoided or recovered
directly or indirectly from Secured Party or any Lender as a preference,
fraudulent transfer or otherwise (all such obligations and liabilities being the
"UNDERLYING DEBT"), and all obligations of every nature of Grantor now or
hereafter existing under this Agreement (all such obligations of Grantor,
together with the Underlying Debt, being the "SECURED OBLIGATIONS").
SECTION 3. GRANTOR REMAINS LIABLE. Anything contained herein to the
----------------------
contrary notwithstanding, (a) Grantor shall remain liable under any contracts
and agreements included in the Collateral, to the extent set forth therein, to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed, (b) the exercise by Secured Party of any
of its rights hereunder shall not release Grantor from any of its duties or
obligations under the contracts and agreements included in the Collateral, and
(c) Secured Party shall not have any obligation or liability under any contracts
and agreements included in the Collateral by reason of this Agreement, nor shall
Secured Party be obligated to perform any of the obligations or duties of
Grantor thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder.
SECTION 4. REPRESENTATIONS AND WARRANTIES. Grantor represents and
------------------------------
warrants as follows:
(a) Ownership of Collateral. Except for the security interest created
-----------------------
by this Agreement and Permitted Encumbrances, Grantor owns the Collateral free
and clear of any Lien.
(b) Location of Equipment and Inventory. All of the Equipment and
-----------------------------------
Inventory is, as of the date hereof, located at the places specified in Schedule
--------
IV annexed hereto.
- --
(c) Negotiable Documents of Title. No Negotiable Documents of Title
-----------------------------
are outstanding with respect to any of the Inventory.
(d) Office Locations; Other Names. The chief place of business, the
-----------------------------
chief executive office and the office where Grantor keeps its records regarding
the Accounts and all originals of all chattel paper that evidence Accounts is,
and has been for the four month period preceding the date hereof, located at
2925 Fairfax Trafficway, Kansas City, Kansas 66115. Grantor has not in the past
done, and does not now do,
6
<PAGE>
business under any other name (including any trade-name or fictitious business
name) except the names listed in Schedule V annexed hereto.
----------
(e) Delivery of Certain Collateral. All notes and other instruments
------------------------------
(excluding checks) comprising any and all items of Collateral have been
delivered to Secured Party duly endorsed and accompanied by duly executed
instruments of transfer or assignment in blank.
(f) Governmental Authorizations. No authorization, approval or other
---------------------------
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for either (i) the grant by Grantor of the security
interest granted hereby, (ii) the execution, delivery or performance of this
Agreement by Grantor, or (iii) the perfection of or the exercise by Secured
Party of its rights and remedies hereunder (except as may have been taken by or
at the direction of Grantor or Secured Party).
(g) Perfection. This Agreement, together with the filing of UCC-1
----------
financing statements, which have been made, creates a valid, perfected and first
priority security interest in the Collateral, securing the payment of the
Secured Obligations, and all filings and other actions necessary or desirable to
perfect and protect such security interest have been duly made or taken;
provided that Secured Party retains physical possession of any Collateral, the
- --------
possession of which is required for perfection.
(h) Other Information. All information heretofore, herein or
-----------------
hereafter supplied to Secured Party by or on behalf of Grantor with respect to
the Collateral is accurate and complete in all material respects.
SECTION 5. FURTHER ASSURANCES.
------------------
(a) Grantor agrees that from time to time, at the expense of Grantor,
Grantor will promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or desirable, or that Secured
Party may reasonably request, in order to perfect and protect any security
interest granted or purported to be granted hereby or to enable Secured Party to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral. Without limiting the generality of the foregoing, Grantor will: (i)
mark conspicuously each item of chattel paper included in the Accounts, each
Related Contract and, at the request of Secured Party, each of its records
pertaining to the Collateral, with a legend, in form and substance satisfactory
to Secured Party, indicating that such Collateral is subject to the security
interest granted hereby, (ii) if any Account shall be evidenced by a promissory
note or other instrument (excluding checks), at the request of Secured Party,
deliver and pledge to Secured Party hereunder such note or instrument, duly
endorsed and accompanied by duly executed instruments of transfer or assignment,
all in form and substance satisfactory to Secured Party, and at the request of
Secured Party, deliver and pledge to Secured Party hereunder all original
counterparts of chattel paper constituting Collateral, duly endorsed and
accompanied by duly executed instruments of transfer or assignment, all in form
and substance satisfactory to Secured Party, (iii) execute and file
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<PAGE>
such financing or continuation statements, or amendments thereto, and such other
instruments or notices, as may be necessary or desirable, or as Secured Party
may request, in order to perfect and preserve the security interests granted or
purported to be granted hereby, (iv) promptly after the acquisition by Grantor
of any item of material Equipment which is covered by a certificate of title
under a statute of any jurisdiction under the law of which indication of a
security interest on such certificate is required as a condition of perfection
thereof, at the request of Secured Party, execute and file with the registrar of
motor vehicles or other appropriate authority in such jurisdiction an
application or other document requesting the notation or other indication of the
security interest created hereunder on such certificate of title, (v) at the
request of Secured Party, deliver to Secured Party copies of all such
applications or other documents filed during such calendar quarter and copies of
all such certificates of title issued during such calendar quarter indicating
the security interest created hereunder in the items of Equipment covered
thereby, (vi) at any reasonable time, upon request by Secured Party, exhibit the
Collateral to and allow inspection of the Collateral by Secured Party, or
persons designated by Secured Party, and (vii) at Secured Party's request,
appear in and defend any action or proceeding that may affect Grantor's title to
or Secured Party's security interest in all or any part of the Collateral.
(b) Grantor hereby authorizes Secured Party to file (to the extent
permitted by law) one or more financing or continuation statements, and
amendments thereto, relative to all or any part of the Collateral without the
signature of Grantor. Grantor agrees that a carbon, photographic or other
reproduction of this Agreement or of a financing statement signed by Grantor
shall be sufficient as a financing statement and may be filed as a financing
statement in any and all jurisdictions.
(c) Grantor will furnish to Secured Party from time to time statements
and schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as Secured Party may reasonably
request, all in reasonable detail.
SECTION 6. CERTAIN COVENANTS OF GRANTOR. Grantor shall:
----------------------------
(a) not use or permit any Collateral to be used unlawfully or in
violation of any provision of this Agreement or any applicable statute,
regulation or ordinance or any policy of insurance covering the Collateral;
(b) notify Secured Party of any change in Grantor's name, identity or
corporate structure within 15 days after such change;
(c) give Secured Party at least 30 days prior written notice of any
change in Grantor's chief place of business, chief executive office or residence
or the office where Grantor keeps its records regarding the Accounts and all
originals of all chattel paper that evidence Accounts;
8
<PAGE>
(d) if Secured Party gives value to enable Grantor to acquire rights in
or the use of any Collateral, use such value for such purposes; and
(e) pay promptly when due all property and other taxes, assessments and
governmental charges or levies imposed upon, and all claims (including claims
for labor, materials and supplies) against, the Collateral, except to the extent
permitted under the Credit Agreement.
SECTION 7. SPECIAL COVENANTS WITH RESPECT TO EQUIPMENT AND INVENTORY.
---------------------------------------------------------
Grantor shall:
(a) keep the Equipment and Inventory at the places therefor specified
on Schedule IV annexed hereto or, upon at least 30 days prior written notice to
-----------
Secured Party, at such other places in jurisdictions where all action that may
be necessary or desirable, or that Secured Party may request, in order to
perfect and protect any security interest granted or purported to be granted
hereby, or to enable Secured Party to exercise and enforce its rights and
remedies hereunder, with respect to such Equipment and Inventory shall have been
taken;
(b) cause the Equipment to be maintained and preserved in the same
condition, repair and working order as when new, ordinary wear and tear
excepted, and in accordance with Grantor's past practices, and shall forthwith
make or cause to be made all repairs, replacements and other improvements in
connection therewith that are necessary or desirable to such end. Grantor shall
promptly furnish to Secured Party a statement respecting any material loss or
damage to any of the equipment which involves loss or damage exceeding
$1,000,000 in the aggregate during any Fiscal Year;
(c) keep correct and accurate records of the Inventory, itemizing and
describing the kind, type and quantity thereof, Grantor's cost therefor and
(where applicable) the current list prices for the Inventory; provided that
--------
nothing in this Section 7 with respect to Inventory being sold in the ordinary
course shall require Grantor to maintain records in any manner deferent from
those being maintained by Grantor as of the date hereof (as such manner may be
revised in the good faith of Grantor);
(d) promptly upon the issuance and delivery to Grantor of any
Negotiable Document of Title deliver such Negotiable Document of Title to
Secured Party; and
(e) promptly upon the issuance and delivery to Grantor of any
Negotiable Document of Title, deliver such Negotiable Document of Title to
Secured Party.
9
<PAGE>
SECTION 8. INSURANCE.
---------
(a) Grantor shall, at its own expense, maintain insurance with respect
to the Equipment and Inventory in accordance with the terms of the Credit
Agreement. Such insurance shall include, without limitation, property damage
insurance and liability insurance. Subject to Section 2.4(B) of the Credit
Agreement, each policy for property damage insurance shall provide for all
losses (except for losses of less than $1,000,000 per occurrence) to be paid
directly to Secured Party. Each policy shall in addition name Grantor and
Secured Party as insured parties thereunder (without any representation or
warranty by or obligation upon Secured Party) as their interests may appear and
have attached thereto a loss payable clause acceptable to Secured Party that
shall (i) contain an agreement by the insurer that any loss thereunder shall be
payable to Secured Party notwithstanding any action, inaction or breach of
representation or warranty by Grantor, (ii) provide that there shall be no
recourse against Secured Party for payment of premiums or other amounts with
respect thereto, and (iii) provide that at least 30 days' prior written notice
of cancellation, material amendment, reduction in scope or limits of coverage or
of lapse shall be given to Secured Party by the insurer. Grantor shall, if so
requested by Secured Party, deliver to Secured Party original or duplicate
policies of such insurance and, as often as Secured Party may reasonably
request, a report of a reputable insurance broker with respect to such
insurance. Further, Grantor shall, at the request of Secured Party, duly execute
and deliver instruments of assignment of such insurance policies to comply with
the requirements of Section 5(a) and cause the respective insurers to
acknowledge notice of such assignment.
(b) Reimbursement under any liability insurance maintained by Grantor
pursuant to this Section 8 may be paid directly to the Person who shall have
incurred liability covered by such insurance. In case of any loss involving
damage to Equipment or Inventory when subsection (c) of this Section 8 is not
applicable and subject to the provisions of subsection 2.4B(iii)(b) of the
Credit Agreement, Grantor shall make or cause to be made the necessary repairs
to or replacements of such Equipment or Inventory, and any proceeds of insurance
maintained by Grantor pursuant to this Section 8 shall be paid to Grantor as
reimbursement for the costs of such repairs or replacements.
(c) Subject to the provisions of subsection 2.4B(iii)(b) of the Credit
Agreement, upon (i) the occurrence and during the continuation of any Event of
Default or (ii) the actual or constructive loss (in excess of $1,000,000 per
occurrence) of any Equipment or Inventory, all insurance payments in respect of
such Equipment or Inventory shall be paid to and applied by Secured Party as
specified in Section 18.
SECTION 9. SPECIAL COVENANTS WITH RESPECT TO ACCOUNTS AND RELATED
------------------------------------------------------
CONTRACTS.
- ---------
(a) Grantor shall keep its chief place of business and chief executive
office and the office where it keeps its records concerning the Accounts and
Related Contracts, and all originals of all chattel paper that evidence
Accounts, at the location therefor specified in Section 4 or, upon at least 30
days prior written notice to Secured
10
<PAGE>
Party, at such other location in a jurisdiction where all action that may be
necessary or desirable, or that Secured Party may reasonably request, in order
to perfect and protect any security interest granted or purported to be granted
hereby, or to enable Secured Party to exercise and enforce its rights and
remedies hereunder, with respect to such Accounts and Related Contracts shall
have been taken. Subject to the terms of the Credit Agreement, Grantor will hold
and preserve such records and chattel paper and will permit representatives of
Secured Party at any time during normal business hours to inspect and make
abstracts from such records and chattel paper, and Grantor agrees to render to
Secured Party, at Grantor's cost and expense, such clerical and other assistance
as may be reasonably requested with regard thereto. Promptly upon the request of
Secured Party, Grantor shall deliver to Secured Party complete and correct
copies of each Related Contract.
(b) Except as otherwise provided in this subsection (c), Grantor shall
continue to collect, at its own expense, all amounts due or to become due to
Grantor under the Accounts and Related Contracts. In connection with such
collections, Grantor may take (and, after the occurrence and during the
continuation of an Event of Default, at Secured Party's direction, shall take)
such action as Grantor or Secured Party may deem necessary or advisable to
enforce collection of amounts due or to become due under the Accounts; provided,
--------
however, that Secured Party shall have the right at any time, upon the
- -------
occurrence and during the continuation of an Event of Default or a Potential
Event of Default and upon written notice to Grantor of its intention to do so,
to notify the account debtors or obligors under any Accounts of the assignment
of such Accounts to Secured Party and to direct such account debtors or obligors
to make payment of all amounts due or to become due to Grantor thereunder
directly to Secured Party, to notify each Person maintaining a lockbox or
similar arrangement to which account debtors or obligors under any Accounts have
been directed to make payment to remit all amounts representing collections on
checks and other payment items from time to time sent to or deposited in such
lockbox or other arrangement directly to Secured Party and, upon such
notification and at the expense of Grantor, to enforce collection of any such
Accounts and to adjust, settle or compromise the amount or payment thereof, in
the same manner and to the same extent as Grantor might have done. After receipt
by Grantor of the notice from Secured Party referred to in the proviso to the
-------
preceding sentence, (i) all amounts and proceeds (including checks and other
instruments) received by Grantor in respect of the Accounts and the Related
Contracts shall be received in trust for the benefit of Secured Party hereunder,
shall be segregated from other funds of Grantor and shall be forthwith paid over
or delivered to Secured Party in the same form as so received (with any
necessary endorsement) to be held as cash Collateral and either (A) be released
to Grantor so long as no Event of Default shall have occurred and be continuing
or (B) if any Event of Default shall have occurred and be continuing, be applied
as provided by Section 18, and (ii) Grantor shall not adjust, settle or
compromise the amount or payment of any Account, or release wholly or partly any
account debtor or obligor thereof, or allow any credit or discount thereon.
11
<PAGE>
SECTION 10. SPECIAL PROVISIONS WITH RESPECT TO THE ASSIGNED
-----------------------------------------------
AGREEMENTS. Grantor shall at its expense:
(a) perform and observe all terms and provisions of the Assigned Agreements
to be performed or observed by it in all material respects, maintain the
Assigned Agreements in full force and effect, enforce the Assigned Agreements in
accordance with their terms, and take all such action to such end as may be from
time to time requested by Secured Party; and
(b) from time to time (A) furnish to Secured Party such information and
reports regarding the Assigned Agreements as Secured Party may reasonably
request and (B) upon request of Secured Party make to any party to the Assigned
Agreements listed in Schedule I annexed hereto such demands and requests for
----------
information and reports or for action as Grantor is entitled to make under the
Assigned Agreements.
SECTION 11. DEPOSIT ACCOUNTS. Upon the occurrence and during the
----------------
continuation of an Event of Default, Secured Party may exercise dominion and
control over, and refuse to permit further withdrawals (whether of money,
securities, instruments or other property) from any deposit accounts maintained
with Secured Party constituting part of the Collateral.
SECTION 12. LICENSE OF PATENTS, TRADEMARKS, COPYRIGHTS, ETC. Grantor
------------------------------------------------
hereby grants to Secured Party, effective upon the occurrence and during the
continuation of any Event of Default, the nonexclusive right and license to use
all trademarks, tradenames, copyrights, patents or technical processes owned or
used by Grantor that relate to the Collateral and any other collateral granted
by Grantor as security for the Secured Obligations, together with any goodwill
associated therewith, all to the extent necessary to enable Secured Party to
use, possess and realize on the Collateral and to enable any successor or assign
to enjoy the benefits of the Collateral. This right and license shall inure to
the benefit of all successors, assigns and transferees of Secured Party and its
successors, assigns and transferees, whether by voluntary conveyance, operation
of law, assignment, transfer, foreclosure, deed in lieu of foreclosure or
otherwise. Such right and license is granted free of charge, without requirement
that any monetary payment whatsoever be made to Grantor.
SECTION 13. TRANSFERS AND OTHER LIENS. Grantor shall not:
-------------------------
(a) sell, assign (by operation of law or otherwise) or otherwise
dispose of any of the Collateral, except as permitted by the Credit Agreement;
or
(b) except for the security interest created by this Agreement and the
Permitted Encumbrances, create or suffer to exist any Lien upon or with respect
to any of the Collateral to secure the indebtedness or other obligations of any
Person.
SECTION 14. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Grantor hereby
----------------------------------------
irrevocably appoints Secured Party as Grantor's attorney-in-fact, with full
12
<PAGE>
authority in the place and stead of Grantor and in the name of Grantor, Secured
Party or otherwise, from time to time in Secured Party's discretion to take any
action and to execute any instrument that Secured Party may deem necessary or
advisable, consistent with the provisions of the Agreement, to accomplish the
purposes of this Agreement, including without limitation:
(a) during the continuation of an Event of Default, to obtain and
adjust insurance required to be maintained by Grantor or paid to Secured Party
pursuant to Section 8;
(b) during the continuation of any Event of Default, to ask for,
demand, collect, sue for, recover, compound, receive and give acquittance and
receipts for moneys due and to become due under or in respect of any of the
Collateral;
(c) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection with clauses (a) and (b) above;
(d) during the continuation of any Event of Default, to file any claims
or take any action or institute any proceedings that Secured Party may deem
necessary or desirable for the collection of any of the Collateral or otherwise
to enforce the rights of Secured Party with respect to any of the Collateral;
(e) during the continuation of an Event of Default, to pay or discharge
taxes or Liens (other than Liens permitted under this Agreement or the Credit
Agreement) levied or placed upon or threatened against the Collateral, the
legality or validity thereof and the amounts necessary to discharge the same to
be determined by Secured Party in its sole discretion, any such payments made by
Secured Party to become obligations of Grantor to Secured Party, due and payable
immediately without demand;
(f) during the continuation of an Event of Default, to sign and endorse
any invoices, freight or express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments, verifications and notices in
connection with Accounts and other documents relating to the Collateral; and
(g) upon the occurrence and during the continuation of an Event of
Default, generally to sell, transfer, pledge, make any agreement with respect to
or otherwise deal with any of the Collateral as fully and completely as though
Secured Party were the absolute owner thereof for all purposes, and to do, at
Secured Party's option and Grantor's expense, at any time or from time to time,
all acts and things that Secured Party reasonably deems necessary to protect,
preserve or realize upon the Collateral and Secured Party's security interest
therein in order to effect the intent of this Agreement, all as fully and
effectively as Grantor might do.
SECTION 15. SECURED PARTY MAY PERFORM. If Grantor fails to perform
-------------------------
any agreement contained herein, Secured Party may itself perform, or cause
performance
13
<PAGE>
of, such agreement, and the expenses of Secured Party incurred in connection
therewith shall be payable by Grantor under Section 19.
SECTION 16. STANDARD OF CARE. The powers conferred on Secured Party
----------------
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the exercise of
reasonable care in the custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, Secured Party shall
have no duty as to any Collateral or as to the taking of any necessary steps to
preserve rights against prior parties or any other rights pertaining to any
Collateral. Secured Party shall be deemed to have exercised reasonable care in
the custody and preservation of Collateral in its possession if such Collateral
is accorded treatment substantially equal to that which Secured Party accords
its own property.
SECTION 17. REMEDIES. If any Event of Default shall have occurred and
--------
be continuing, Secured Party may exercise in respect of the Collateral, in
addition to all other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on default under
the Uniform Commercial Code as in effect in any relevant jurisdiction (the
"CODE") (whether or not the Code applies to the affected Collateral), and also
may (a) require Grantor to, and Grantor hereby agrees that it will at its
expense and upon request of Secured Party forthwith, assemble all or part of the
Collateral as directed by Secured Party and make it available to Secured Party
at a place to be designated by Secured Party that is reasonably convenient to
both parties, (b) enter onto the property where any Collateral is located and
take possession thereof with or without judicial process, (c) prior to the
disposition of the Collateral, store, process, repair or recondition the
Collateral or otherwise prepare the Collateral for disposition in any manner to
the extent Secured Party deems appropriate, (d) take possession of Grantor's
premises or place custodians in exclusive control thereof, remain on such
premises and use the same and any of Grantor's equipment for the purpose of
completing any work in process, taking any actions described in the preceding
clause (c) and collecting any Secured Obligation, and (e) without notice except
as specified below, sell the Collateral or any part thereof in one or more
parcels at public or private sale, at any of Secured Party's offices or
elsewhere, for cash, on credit or for future delivery, at such time or times and
at such price or prices and upon such other terms as Secured Party may deem
commercially reasonable. Secured Party or any Lender may be the purchaser of any
or all of the Collateral at any such sale and Secured Party, as agent for and
representative of Lenders (but not any Lender or Lenders in its or their
respective individual capacities unless Requisite Lenders shall otherwise agree
in writing), shall be entitled, for the purpose of bidding and making settlement
or payment of the purchase price for all or any portion of the Collateral sold
at any such public sale, to use and apply any of the Secured Obligations as a
credit on account of the purchase price for any Collateral payable by Secured
Party at such sale. Each purchaser at any such sale shall hold the property sold
absolutely free from any claim or right on the part of Grantor, and Grantor
hereby waives (to the extent permitted by applicable law) all rights of
redemption, stay and/or appraisal which it now has or may at any time in the
future have under any rule of law or statute now existing or hereafter enacted.
Grantor agrees that,
14
<PAGE>
to the extent notice of sale shall be required by law, at least ten days' notice
to Grantor of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification. Secured
Party shall not be obligated to make any sale of Collateral regardless of notice
of sale having been given. Secured Party may adjourn any public or private sale
from time to time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to which it was
so adjourned. Grantor hereby waives any claims against Secured Party arising by
reason of the fact that the price at which any Collateral may have been sold at
such a private sale was less than the price which might have been obtained at a
public sale, even if Secured Party accepts the first offer received and does not
offer such Collateral to more than one offeree. If the proceeds of any sale or
other disposition of the Collateral are insufficient to pay all the Secured
Obligations, Grantor shall be liable for the deficiency and the fees of any
attorneys employed by Secured Party to collect such deficiency.
SECTION 18. APPLICATION OF PROCEEDS. Except as expressly provided
-----------------------
elsewhere in this Agreement, all proceeds received by Secured Party in respect
of any sale of, collection from, or other realization upon all or any part of
the Collateral may, in the discretion of Secured Party, be held by Secured Party
as Collateral for, and/or then, or at any other time thereafter, applied in full
or in part by Secured Party against, the Secured Obligations in the following
order of priority:
FIRST: To the payment of all reasonable out-of-pocket costs and
expenses of such sale, collection or other realization, including reasonable
compensation to Secured Party and its agents and counsel, and all other
reasonable out-of-pocket expenses, liabilities and advances made or incurred
by Secured Party in connection therewith, and all amounts for which Secured
Party is entitled to indemnification hereunder and all advances made by
Secured Party hereunder for the account of Grantor, and to the payment of
all costs and expenses paid or incurred by Secured Party in connection with
the exercise of any right or remedy hereunder, all in accordance with
Section 19;
SECOND: To the payment of all other Secured Obligations in such order
as Secured Party shall elect; and
THIRD: To the payment to or upon the order of Grantor, or to whosoever
may be lawfully entitled to receive the same or as a court of competent
jurisdiction may direct, of any surplus then remaining from such proceeds.
SECTION 19. INDEMNITY AND EXPENSES.
----------------------
(a) Grantor agrees to indemnify Secured Party and each Lender from and
against any and all claims, losses and liabilities in any way relating to,
growing out of or resulting from this Agreement and the transactions
contemplated hereby (including, without limitation, enforcement of this
Agreement), except to the extent such claims,
15
<PAGE>
losses or liabilities result from Secured Party's or such Lender's gross
negligence or willful misconduct as finally determined by a court of competent
jurisdiction.
(b) Grantor shall pay to Secured Party upon demand the amount of any
and all reasonable out-of-pocket costs and expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents, that Secured
Party may incur in connection with (i) the administration of this Agreement,
(ii) the custody, preservation, use or operation of, or the sale of, collection
from, or other realization upon, any of the Collateral, (iii) the exercise or
enforcement of any of the rights of Secured Party hereunder, or (iv) the failure
by Grantor to perform or observe any of the provisions hereof.
SECTION 20. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS. This
-----------------------------------------------
Agreement shall create a continuing security interest in the Collateral and
shall (a) remain in full force and effect until the payment in full of the
Secured Obligations, the cancellation or termination of the Commitments and the
cancellation or expiration of all outstanding Letters of Credit, (b) be binding
upon Grantor, its successors and assigns, and (c) inure, together with the
rights and remedies of Secured Party hereunder, to the benefit of Secured Party
and its permitted successors, transferees and assigns. Without limiting the
generality of the foregoing clause (c), but subject to the provisions of
subsection 10.1 of the Credit Agreement, any Lender may assign or otherwise
transfer any Loans held by it to any other Person, and such other Person shall
thereupon become vested with all the benefits in respect thereof granted to
Lenders herein or otherwise. Upon the payment in full of all Secured
Obligations, the cancellation or termination of the Commitments and the
cancellation or expiration of all outstanding Letters of Credit, the security
interest granted hereby shall terminate and all rights to the Collateral shall
revert to Grantor. Upon any such termination Secured Party will, at Grantor's
expense, execute and deliver to Grantor such documents as Grantor shall
reasonably request to evidence such termination.
SECTION 21. SECURED PARTY AS ADMINISTRATIVE AGENT.
-------------------------------------
(a) Secured Party has been appointed to act as Secured Party hereunder
by Lenders and, by their acceptance of the benefits hereof, Interest Rate
Exchangers. Secured Party shall be obligated, and shall have the right
hereunder, to make demands, to give notices, to exercise or refrain from
exercising any rights, and to take or refrain from taking any action (including
the release or substitution of Collateral), solely in accordance with this
Agreement and the Credit Agreement; provided that Secured Party shall exercise,
--------
or refrain from exercising, any remedies provided for in Section 17 in
accordance with the instructions of (i) Requisite Lenders or (ii) after payment
in full of all Obligations under the Credit Agreement and the other Loan
Documents, the holders of a majority of the aggregate notional amount (or, with
respect to any Lender Interest Rate Agreement that has been terminated in
accordance with its terms, the amount then due and payable (exclusive of
expenses and similar payments but including any early termination payments then
due) under such Lender Interest Rate Agreement) under all Lender Interest Rate
Agreements (Requisite Lenders or, if applicable, such holders being
16
<PAGE>
referred to herein as "REQUISITE OBLIGEES"). In furtherance of the foregoing
provisions of this Section 21(a), each Interest Rate Exchanger, by its
acceptance of the benefits hereof, agrees that it shall have no right
individually to realize upon any of the Collateral hereunder, it being
understood and agreed by such Interest Rate Exchanger that all rights and
remedies hereunder may be exercised solely by Secured Party for the benefit of
Lenders and Interest Rate Exchangers in accordance with the terms of this
Section 21(a).
(b) Secured Party shall at all times be the same Person that is
Administrative Agent under the Credit Agreement. Written notice of resignation
by Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall
also constitute notice of resignation as Secured Party under this Agreement;
removal of Administrative Agent pursuant to subsection 9.5 of the Credit
Agreement shall also constitute removal as Secured Party under this Agreement;
and appointment of a successor Administrative Agent pursuant to subsection 9.5
of the Credit Agreement shall also constitute appointment of a successor Secured
Party under this Agreement. Upon the acceptance of any appointment as
Administrative Agent under subsection 9.5 of the Credit Agreement by a successor
Administrative Agent, that successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring or removed Secured Party under this Agreement, and the retiring
or removed Secured Party under this Agreement shall promptly (i) transfer to
such successor Secured Party all sums, securities and other items of Collateral
held hereunder, together with all records and other documents necessary or
appropriate in connection with the performance of the duties of the successor
Secured Party under this Agreement, and (ii) execute and deliver to such
successor Secured Party such amendments to financing statements, and take such
other actions, as may be necessary or appropriate in connection with the
assignment to such successor Secured Party of the security interests created
hereunder, whereupon such retiring or removed Secured Party shall be discharged
from its duties and obligations under this Agreement. After any retiring or
removed Administrative Agent's resignation or removal hereunder as Secured
Party, the provisions of this Agreement shall inure to its benefit as to any
actions taken or omitted to be taken by it under this Agreement while it was
Secured Party hereunder.
SECTION 22. AMENDMENTS; ETC. No amendment, modification, termination
----------------
or waiver of any provision of this Agreement, and no consent to any departure by
Grantor therefrom, shall in any event be effective unless the same shall be in
writing and signed by Secured Party and, in the case of any such amendment or
modification, by Grantor. Any such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which it was given.
SECTION 23. NOTICES. Any notice or other communication herein
-------
required or permitted to be given shall be given as provided in the Credit
Agreement. For the purposes hereof, the address of each party hereto shall be
as set forth under such party's name on the signature pages hereof or, as to
either party, such other address as shall be designated by such party in a
written notice delivered to the other party hereto.
17
<PAGE>
SECTION 24. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
-----------------------------------------------------
failure or delay on the part of Secured Party in the exercise of any power,
right or privilege hereunder shall impair such power, right or privilege or be
construed to be a waiver of any default or acquiescence therein, nor shall any
single or partial exercise of any such power, right or privilege preclude any
other or further exercise thereof or of any other power, right or privilege.
All rights and remedies existing under this Agreement are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
SECTION 25. SEVERABILITY. In case any provision in or obligation
------------
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 26. HEADINGS. Section and subsection headings in this
--------
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given any
substantive effect.
SECTION 27. GOVERNING LAW; TERMS. THIS AGREEMENT AND THE RIGHTS AND
--------------------
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW
OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES,
EXCEPT TO THE EXTENT THAT THE CODE PROVIDES THAT THE PERFECTION OF THE SECURITY
INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR
COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF
NEW YORK. Unless otherwise defined herein or in the Credit Agreement, terms used
in Articles 8 and 9 of the Uniform Commercial Code in the State of New York are
used herein as therein defined.
SECTION 28. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL
----------------------------------------------
JUDICIAL PROCEEDINGS BROUGHT AGAINST GRANTOR ARISING OUT OF OR RELATING TO THIS
AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION
IN THE STATE OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT
GRANTOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY
ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. Grantor hereby
agrees that service of all process in any such proceeding in any such court may
be made by registered or certified mail, return receipt requested, to Grantor at
its address provided in Section 23, such service being hereby acknowledged by
18
<PAGE>
Grantor to be sufficient for personal jurisdiction in any action against Grantor
in any such court and to be otherwise effective and binding service in every
respect. Nothing herein shall affect the right to serve process in any other
manner permitted by law or shall limit the right of Secured Party to bring
proceedings against Grantor in the courts of any other jurisdiction.
SECTION 29. WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY LAW,
--------------------
GRANTOR AND SECURED PARTY HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT. The scope of this waiver is intended to be all-encompassing of any
and all disputes that may be filed in any court and that relate to the subject
matter of this transaction, including without limitation contract claims, tort
claims, breach of duty claims, and all other common law and statutory claims.
Grantor and Secured Party each acknowledge that this waiver is a material
inducement for Grantor and Secured Party to enter into a business relationship,
that Grantor and Secured Party have already relied on this waiver in entering
into this Agreement and that each will continue to rely on this waiver in their
related future dealings. Grantor and Secured Party further warrant and represent
that each has reviewed this waiver with its legal counsel, and that each
knowingly and voluntarily waives its jury trial rights following consultation
with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
In the event of litigation, this Agreement may be filed as a written consent to
a trial by the court.
SECTION 30. COUNTERPARTS. This Agreement may be executed in one or
------------
more counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
(Remainder of page intentionally left blank)
19
<PAGE>
IN WITNESS WHEREOF, Grantor and Secured Party have caused this Agreement to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
EMPIRE CANDLE, INC.
By: ________________________________
Name: ______________________________
Title: ______________________________
Notice Address:
1800 Cloquet Avenue
Cloquet, MN 55720-2141
Attention: Tom Knuesel
WELLS FARGO BANK, N.A., as
Administrative Agent
By: _________________________________
Name: _______________________________
Title: _______________________________
Notice Address:
555 Montgomery Street, 17th Floor
San Francisco, CA 9411
Attention: Alan Wray
S-1
<PAGE>
SCHEDULE I
TO SECURITY AGREEMENT
Assigned Agreements
-------------------
<PAGE>
SCHEDULE II
TO SECURITY AGREEMENT
Deposit Accounts
----------------
<TABLE>
<CAPTION>
================================================================================
Bank Name Location Account Number
--------- -------- --------------
<S> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
</TABLE>
<PAGE>
SCHEDULE III
TO SECURITY AGREEMENT
Licenses
--------
[Please list all of Grantor's licenses]
<PAGE>
SCHEDULE IV
TO SECURITY AGREEMENT
Equipment and Inventory Location
--------------------------------
[Please list all locations where Grantor maintains equipment or inventory]
<PAGE>
SCHEDULE V
TO SECURITY AGREEMENT
Tradenames
----------
[Please list all tradenames of Grantor]
<PAGE>
SUBSIDIARY SECURITY AGREEMENT
This SUBSIDIARY SECURITY AGREEMENT (this "AGREEMENT") is dated as of
April 21, 1998, and entered into by and between FORSTER INC., a Maine
corporation ("GRANTOR"), and WELLS FARGO BANK, N.A., as administrative agent for
and representative of (in such capacity herein called "SECURED PARTY") the
financial institutions ("LENDERS") party to the Credit Agreement referred to
below and any Interest Rate Exchangers (as hereinafter defined).
PRELIMINARY STATEMENTS
A. Secured Party and Lenders have entered into a Credit Agreement
dated as of April 21, 1998 (said Credit Agreement, as it may hereafter be
amended, supplemented or otherwise modified from time to time, being the "CREDIT
AGREEMENT", the terms defined therein and not otherwise defined herein being
used herein as therein defined) with Diamond Brands Operating Corp., a Delaware
corporation ("COMPANY" or "BORROWER"), pursuant to which Lenders have made
certain commitments, subject to the terms and conditions set forth in the Credit
Agreement, to extend certain credit facilities to Borrower.
B. Grantor has executed and delivered the Subsidiary Guaranty dated
as of April, 21, 1998 (said Subsidiary Guaranty, as it may hereafter be amended,
supplemented or otherwise modified from time to time, being the "SUBSIDIARY
GUARANTY") in favor of Secured Party for the benefit of Lenders, pursuant to
which Grantor has guarantied the prompt payment and performance when due of all
Obligations of the Borrower under the Credit Agreement.
C. It is a condition precedent to the initial extensions of credit by
Lenders under the Credit Agreement that Grantor shall have granted the security
interests and undertaken the obligations contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce
Lenders to make Loans and other extensions of credit under the Credit Agreement
and for other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, Grantor hereby agrees with Secured Party as follows:
SECTION 1. GRANT OF SECURITY. Grantor hereby assigns for security
-----------------
purposes to Secured Party, and hereby grants to Secured Party a security
interest in, all of Grantor's right, title and interest in and to the following,
in each case whether now or hereafter existing or in which Grantor now has or
hereafter acquires an interest and wherever the same may be located (the
"COLLATERAL"):
1
<PAGE>
(a) all equipment in all of its forms, all parts thereof and all
accessions thereto (any and all such equipment, parts and accessions being the
"EQUIPMENT");
(b) all inventory in all of its forms (including (i) all goods held by
Grantor for sale or lease or to be furnished under contracts of service or so
leased or furnished, (ii) all raw materials, work in process, finished goods,
and materials used or consumed in the manufacture, packing, shipping,
advertising, selling, leasing, furnishing or production of such inventory or
otherwise used or consumed in Grantor's business, (iii) all goods in which
Grantor has an interest in mass or a joint or other interest or right of any
kind, and (iv) all goods which are returned to or repossessed by Grantor) and
all accessions thereto and products thereof (all such inventory, accessions and
products being the "INVENTORY") and all negotiable documents of title (including
warehouse receipts, dock receipts and bills of lading) issued by any Person
covering any Inventory (any such negotiable document of title being a
"NEGOTIABLE DOCUMENT OF TITLE");
(c) all accounts, contract rights, chattel paper, documents,
instruments, general intangibles and other rights and obligations of any kind
and all rights in, to and under all security agreements, leases and other
contracts securing or otherwise relating to any such accounts, contract rights,
chattel paper, documents, instruments, general intangibles or other obligations
(any and all such accounts, contract rights, chattel paper, documents,
instruments, general intangibles and other obligations being the "ACCOUNTS", and
any and all such security agreements, leases and other contracts being the
"RELATED CONTRACTS");
(d) the agreements listed in Schedule I annexed hereto, and any other
----------
agreement between Grantor, or a Subsidiary of Grantor, with a franchisee or
developer, now or hereafter existing, as each such agreement may be amended,
supplemented or otherwise modified from time to time (said agreements, as so
amended, supplemented or otherwise modified, being referred to herein
individually as an "ASSIGNED AGREEMENT" and collectively as the "ASSIGNED
AGREEMENTS"), including (i) all rights of Grantor to receive moneys due or to
become due under or pursuant to the Assigned Agreements, (ii) all rights of
Grantor to receive proceeds of any insurance, indemnity, warranty or guaranty
with respect to the Assigned Agreements, (iii) all claims of Grantor for damages
arising out of any breach of or default under the Assigned Agreements, and (iv)
all rights of Grantor to terminate, amend, supplement, modify or exercise rights
or options under the Assigned Agreements, to perform thereunder and to compel
performance and otherwise exercise all remedies thereunder;
(e) all deposit accounts, including the deposit accounts listed on
Schedule II annexed hereto and all other deposit accounts maintained with
- -----------
Secured Party;
(f) all trademarks, tradenames, tradesecrets, business names, patents,
patent applications, licenses, copyrights, registrations and franchise rights,
and all goodwill associated with any of the foregoing;
2
<PAGE>
(g) all licenses to conduct the Business and other special licenses,
including but not limited to the licenses listed on Schedule III, and to the
------------
extent not included in any other paragraph of this Section 1, all other general
intangibles (including tax refunds, rights to payment or performance, choses in
action and judgments taken on any rights or claims included in the Collateral);
(h) all plant fixtures, business fixtures and other fixtures and
storage and office facilities, and all accessions thereto and products thereof;
(i) all books, records, ledger cards, files, correspondence, computer
programs, tapes, disks and related data processing software that at any time
evidence or contain information relating to any of the Collateral or are
otherwise necessary or helpful in the collection thereof or realization
thereupon;
(j) the shares of stock owned by Grantor as described in Schedule I to
the Subsidiary Pledge Agreement to which Grantor is a party (as such Schedule I
may be amended from time to time in accordance with the terms thereof) (the
"PLEDGED SHARES") and the certificates representing the Pledged Shares and any
interest of Grantor in the entries on the books of any financial intermediary
pertaining to the Pledged Shares, and all dividends, cash, warrants, rights,
instruments and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of the Pledged Shares;
(k) the indebtedness owed to the Grantor as described in Schedule I to
the Subsidiary Pledge Agreement to which Grantor is a party (as such Schedule I
may be amended from time to time in accordance with the terms thereof) (the
"PLEDGED DEBT") and the instruments evidencing the Pledged Debt, and all
interest, cash, instruments and other property or proceeds from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of the Pledged Debt;
(l) all of Grantor's right, title and interest as a member of any
Person that is organized as a limited liability company and that may hereafter
become a Subsidiary of Grantor, including, without limitation, (A) all rights of
Grantor to receive distributions of any kind, in cash or otherwise, due or to
become due under or pursuant to any limited liability company agreement or
otherwise in respect of any such Person, (B) all rights of Grantor to receive
proceeds of any insurance, indemnity, warranty or guaranty with respect to any
such Person, (C) all claims of Grantor for damages arising out of, or for the
breach of, or for a default under, any limited liability company agreement of
any such Person, (D) any certificated or uncertificated security evidencing any
of the foregoing issued by any such Person to Grantor and (E) to the extent not
included in the foregoing, all proceeds of any and all of the foregoing (all of
the foregoing being referred to herein collectively as the "LLC INTERESTS");
(m) all additional shares of, and all securities convertible into and
warrants, options and other rights to purchase or otherwise acquire, stock of
any issuer of the Pledged Shares from time to time acquired by Grantor in any
manner (which shares
3
<PAGE>
shall be deemed to be part of the Pledged Shares), the certificates or other
instruments representing such additional shares, securities, warrants, options
or other rights and any interest of Grantor in the entries on the books of any
financial intermediary pertaining to such additional shares, and all dividends,
cash, warrants, rights, instruments and other property or proceeds from time to
time received, receivable or otherwise distributed in respect of or in exchange
for any or all of such additional shares, securities, warrants, options or other
rights; provided, however, that Grantor shall not be required to pledge more
-------- -------
than 66.6% of any class of capital stock of any direct or indirect Subsidiary of
Grantor which is incorporated in a jurisdiction other than the states of the
United States and the District of Columbia ("FOREIGN SUBSIDIARY");
(n) all additional indebtedness from time to time owed to Grantor by
any obligor on the Pledged Debt and the instruments evidencing such
indebtedness, and all interest, cash, instruments and other property or proceeds
from time to time received, receivable or otherwise distributed in respect of or
in exchange for any or all of such indebtedness;
(o) all shares of, and all securities convertible into and warrants,
options and other rights to purchase or otherwise acquire, stock of any Person
that, after the Closing Date, becomes, as a result of any occurrence, a direct
Subsidiary of Grantor (which shares shall be deemed to be part of the Pledged
Shares), the certificates or other instruments representing such shares,
securities, warrants, options or other rights and any interest of Grantor in the
entries on the books of any financial intermediary pertaining to such shares,
and all dividends, cash, warrants, rights, instruments and other property or
proceeds from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such shares, securities, warrants,
options or other rights; provided, however, that Grantor shall not be required
-------- -------
to pledge more than 66.6% of any class of capital stock of any Foreign
Subsidiary;
(p) all indebtedness from time to time owed to Grantor by any Person
that, after the Closing Date becomes, as a result of any occurrence, a direct or
indirect Subsidiary of Grantor, and all interest, cash, instruments and other
property or proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such indebtedness;
(q) all of Grantor's right, title and interest as a general partner in
partnerships only to the extent of the right to receive distributions on its
partnership interest, a limited partner in partnerships and each partnership in
which Grantor acquires an interest after the Closing Date (collectively, the
"PARTNERSHIPS"), whether now owned or hereafter acquired, including without
limitation all of Grantor's right, title and interest in, to and under the
agreements pursuant to which the Partnerships are established (collectively, the
"PARTNERSHIP AGREEMENTS"), and any "certificate of interest" or "certificates of
interest" (or other certificates or instruments however designated or titled)
issued by any Partnership and evidencing Grantor's interest as a limited partner
or general partner in such Partnership and any interest of Grantor in the
entries on the books of any financial intermediary pertaining to Grantor's
interest as a limited partner or general
4
<PAGE>
partner in any Partnership together with all other rights, interests, claims and
other property of Grantor in any manner arising out of or relating to a limited
partnership interest or general partnership interest in any Partnership,
whatever their respective kind or character, whether they are tangible or
intangible property, and wheresoever they may exist or be located, and further
including, without limitation, all of the rights of Grantor as a limited or
general partner: (i) to (x) receive money due and to become due (including
without limitation dividends, distributions, interest, income from partnership
properties and operations, proceeds of sale of partnership assets and returns of
capital) under or pursuant to any Partnership Agreement, (y) receive payments
upon termination of any Partnership Agreement, and (z) receive any other
payments or distributions, whether cash or noncash, in respect of any limited
partnership interest or general partnership interest of Grantor evidenced by any
Partnership Agreement; (ii) in and with respect to claims and causes of action
arising out of or relating to the Partnerships; and (iii) to have access to the
Partnerships' books and records and to other information concerning or affecting
the Partnerships; and
(r) all proceeds, products, rents and profits of or from any and all
of the foregoing Collateral and, to the extent not otherwise included, all
payments under insurance (whether or not Secured Party is the loss payee
thereof), or any indemnity, warranty or guaranty, payable by reason of loss or
damage to or otherwise with respect to any of the foregoing Collateral. For
purposes of this Agreement, the term "PROCEEDS" includes whatever is receivable
or received when Collateral or proceeds are sold, exchanged, collected or
otherwise disposed of, whether such disposition is voluntary or involuntary.
Notwithstanding the foregoing, Collateral shall exclude any
intellectual property right contracts and agreements or equipment leases to the
extent, and only to the extent, that such Intellectual Property, contract or
agreement or equipment lease contains a provision enforceable at law and in
equity that would be breached by (or would result in the termination of such
intellectual property, contract, or agreement or equipment lease upon) the grant
of the security interest created herein pursuant to the terms of this Agreement;
provided, however, that if and when any prohibition on the assignment, pledge or
- -------- -------
grant of a security interest in such intellectual property right, contract or
agreement or equipment lease is removed, the Secured Party will be deemed to
have been granted a security interest in such intellectual property right,
contract or agreement or equipment lease as of the date hereof, and the
Collateral will be deemed to include such intellectual property right, contract
or agreement or equipment lease.
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures, and the
------------------------
Collateral is collateral security for, the prompt payment or performance in full
when due, whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise (including the payment of amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code, 11 U.S.C. Section 362(a)), of all obligations and
liabilities of every nature of Grantor now or hereafter existing under or
arising out of or in connection with the Credit Agreement, the Subsidiary
Guaranty and, the other Loan Documents and the Lender Interest Rate Agreements
and all
5
<PAGE>
extensions or renewals thereof, whether for principal, interest (including
without limitation interest that, but for the filing of a petition in bankruptcy
with respect to Grantor, would accrue on such obligations), reimbursement of
amounts drawn under Letters of Credit, fees, expenses, indemnities or otherwise,
whether voluntary or involuntary, direct or indirect, absolute or contingent,
liquidated or unliquidated, whether or not jointly owed with others, and whether
or not from time to time decreased or extinguished and later increased, created
or incurred, and all or any portion of such obligations or liabilities that are
paid, to the extent all or any part of such payment is avoided or recovered
directly or indirectly from Secured Party or any Lender as a preference,
fraudulent transfer or otherwise (all such obligations and liabilities being the
"UNDERLYING DEBT"), and all obligations of every nature of Grantor now or
hereafter existing under this Agreement (all such obligations of Grantor,
together with the Underlying Debt, being the "SECURED OBLIGATIONS").
SECTION 3. GRANTOR REMAINS LIABLE. Anything contained herein to the
----------------------
contrary notwithstanding, (a) Grantor shall remain liable under any contracts
and agreements included in the Collateral, to the extent set forth therein, to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed, (b) the exercise by Secured Party of any
of its rights hereunder shall not release Grantor from any of its duties or
obligations under the contracts and agreements included in the Collateral, and
(c) Secured Party shall not have any obligation or liability under any contracts
and agreements included in the Collateral by reason of this Agreement, nor shall
Secured Party be obligated to perform any of the obligations or duties of
Grantor thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder.
SECTION 4. REPRESENTATIONS AND WARRANTIES. Grantor represents and
------------------------------
warrants as follows:
(a) Ownership of Collateral. Except for the security interest created
-----------------------
by this Agreement and Permitted Encumbrances, Grantor owns the Collateral free
and clear of any Lien.
(b) Location of Equipment and Inventory. All of the Equipment and
-----------------------------------
Inventory is, as of the date hereof, located at the places specified in Schedule
--------
IV annexed hereto.
- --
(c) Negotiable Documents of Title. No Negotiable Documents of Title
-----------------------------
are outstanding with respect to any of the Inventory.
(d) Office Locations; Other Names. The chief place of business, the
-----------------------------
chief executive office and the office where Grantor keeps its records regarding
the Accounts and all originals of all chattel paper that evidence Accounts is,
and has been for the four month period preceding the date hereof, located at
Mill Street, East Wilton, Maine 04234. Grantor has not in the past done, and
does not now do, business under any
6
<PAGE>
other name (including any trade-name or fictitious business name) except the
names listed in Schedule V annexed hereto. ----------
(e) Delivery of Certain Collateral. All notes and other instruments
------------------------------
(excluding checks) comprising any and all items of Collateral have been
delivered to Secured Party duly endorsed and accompanied by duly executed
instruments of transfer or assignment in blank.
(f) Governmental Authorizations. No authorization, approval or other
---------------------------
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for either (i) the grant by Grantor of the security
interest granted hereby, (ii) the execution, delivery or performance of this
Agreement by Grantor, or (iii) the perfection of or the exercise by Secured
Party of its rights and remedies hereunder (except as may have been taken by or
at the direction of Grantor or Secured Party).
(g) Perfection. This Agreement, together with the filing of UCC-1
----------
financing statements, which have been made, creates a valid, perfected and first
priority security interest in the Collateral, securing the payment of the
Secured Obligations, and all filings and other actions necessary or desirable to
perfect and protect such security interest have been duly made or taken;
provided that Secured Party retains physical possession of any Collateral, the
- --------
possession of which is required for perfection.
(h) Other Information. All information heretofore, herein or
-----------------
hereafter supplied to Secured Party by or on behalf of Grantor with respect to
the Collateral is accurate and complete in all material respects.
SECTION 5. FURTHER ASSURANCES.
------------------
(a) Grantor agrees that from time to time, at the expense of Grantor,
Grantor will promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or desirable, or that Secured
Party may reasonably request, in order to perfect and protect any security
interest granted or purported to be granted hereby or to enable Secured Party to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral. Without limiting the generality of the foregoing, Grantor will: (i)
mark conspicuously each item of chattel paper included in the Accounts, each
Related Contract and, at the request of Secured Party, each of its records
pertaining to the Collateral, with a legend, in form and substance satisfactory
to Secured Party, indicating that such Collateral is subject to the security
interest granted hereby, (ii) if any Account shall be evidenced by a promissory
note or other instrument (excluding checks), at the request of Secured Party,
deliver and pledge to Secured Party hereunder such note or instrument, duly
endorsed and accompanied by duly executed instruments of transfer or assignment,
all in form and substance satisfactory to Secured Party, and at the request of
Secured Party, deliver and pledge to Secured Party hereunder all original
counterparts of chattel paper constituting Collateral, duly endorsed and
accompanied by duly executed instruments of transfer or assignment, all in form
and substance satisfactory to Secured Party, (iii) execute and file
7
<PAGE>
such financing or continuation statements, or amendments thereto, and such other
instruments or notices, as may be necessary or desirable, or as Secured Party
may request, in order to perfect and preserve the security interests granted or
purported to be granted hereby, (iv) promptly after the acquisition by Grantor
of any item of material Equipment which is covered by a certificate of title
under a statute of any jurisdiction under the law of which indication of a
security interest on such certificate is required as a condition of perfection
thereof, at the request of Secured Party, execute and file with the registrar of
motor vehicles or other appropriate authority in such jurisdiction an
application or other document requesting the notation or other indication of the
security interest created hereunder on such certificate of title, (v) at the
request of Secured Party, deliver to Secured Party copies of all such
applications or other documents filed during such calendar quarter and copies of
all such certificates of title issued during such calendar quarter indicating
the security interest created hereunder in the items of Equipment covered
thereby, (vi) at any reasonable time, upon request by Secured Party, exhibit the
Collateral to and allow inspection of the Collateral by Secured Party, or
persons designated by Secured Party, and (vii) at Secured Party's request,
appear in and defend any action or proceeding that may affect Grantor's title to
or Secured Party's security interest in all or any part of the Collateral.
(b) Grantor hereby authorizes Secured Party to file (to the extent
permitted by law) one or more financing or continuation statements, and
amendments thereto, relative to all or any part of the Collateral without the
signature of Grantor. Grantor agrees that a carbon, photographic or other
reproduction of this Agreement or of a financing statement signed by Grantor
shall be sufficient as a financing statement and may be filed as a financing
statement in any and all jurisdictions.
(c) Grantor will furnish to Secured Party from time to time statements
and schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as Secured Party may reasonably
request, all in reasonable detail.
SECTION 6. CERTAIN COVENANTS OF GRANTOR. Grantor shall:
----------------------------
(a) not use or permit any Collateral to be used unlawfully or in
violation of any provision of this Agreement or any applicable statute,
regulation or ordinance or any policy of insurance covering the Collateral;
(b) notify Secured Party of any change in Grantor's name, identity or
corporate structure within 15 days after such change;
(c) give Secured Party at least 30 days prior written notice of any
change in Grantor's chief place of business, chief executive office or residence
or the office where Grantor keeps its records regarding the Accounts and all
originals of all chattel paper that evidence Accounts;
8
<PAGE>
(d) if Secured Party gives value to enable Grantor to acquire rights
in or the use of any Collateral, use such value for such purposes; and
(e) pay promptly when due all property and other taxes, assessments
and governmental charges or levies imposed upon, and all claims (including
claims for labor, materials and supplies) against, the Collateral, except to the
extent permitted under the Credit Agreement.
SECTION 7. SPECIAL COVENANTS WITH RESPECT TO EQUIPMENT AND INVENTORY.
---------------------------------------------------------
Grantor shall:
(a) keep the Equipment and Inventory at the places therefor specified
on Schedule IV annexed hereto or, upon at least 30 days prior written notice to
-----------
Secured Party, at such other places in jurisdictions where all action that may
be necessary or desirable, or that Secured Party may request, in order to
perfect and protect any security interest granted or purported to be granted
hereby, or to enable Secured Party to exercise and enforce its rights and
remedies hereunder, with respect to such Equipment and Inventory shall have been
taken;
(b) cause the Equipment to be maintained and preserved in the same
condition, repair and working order as when new, ordinary wear and tear
excepted, and in accordance with Grantor's past practices, and shall forthwith
make or cause to be made all repairs, replacements and other improvements in
connection therewith that are necessary or desirable to such end. Grantor shall
promptly furnish to Secured Party a statement respecting any material loss or
damage to any of the equipment which involves loss or damage exceeding
$1,000,000 in the aggregate during any Fiscal Year;
(c) keep correct and accurate records of the Inventory, itemizing and
describing the kind, type and quantity thereof, Grantor's cost therefor and
(where applicable) the current list prices for the Inventory; provided that
--------
nothing in this Section 7 with respect to Inventory being sold in the ordinary
course shall require Grantor to maintain records in any manner deferent from
those being maintained by Grantor as of the date hereof (as such manner may be
revised in the good faith of Grantor);
(d) promptly upon the issuance and delivery to Grantor of any
Negotiable Document of Title deliver such Negotiable Document of Title to
Secured Party; and
(e) promptly upon the issuance and delivery to Grantor of any
Negotiable Document of Title, deliver such Negotiable Document of Title to
Secured Party.
9
<PAGE>
SECTION 8. INSURANCE.
---------
(a) Grantor shall, at its own expense, maintain insurance with respect
to the Equipment and Inventory in accordance with the terms of the Credit
Agreement. Such insurance shall include, without limitation, property damage
insurance and liability insurance. Subject to Section 2.4(B) of the Credit
Agreement, each policy for property damage insurance shall provide for all
losses (except for losses of less than $1,000,000 per occurrence) to be paid
directly to Secured Party. Each policy shall in addition name Grantor and
Secured Party as insured parties thereunder (without any representation or
warranty by or obligation upon Secured Party) as their interests may appear and
have attached thereto a loss payable clause acceptable to Secured Party that
shall (i) contain an agreement by the insurer that any loss thereunder shall be
payable to Secured Party notwithstanding any action, inaction or breach of
representation or warranty by Grantor, (ii) provide that there shall be no
recourse against Secured Party for payment of premiums or other amounts with
respect thereto, and (iii) provide that at least 30 days' prior written notice
of cancellation, material amendment, reduction in scope or limits of coverage or
of lapse shall be given to Secured Party by the insurer. Grantor shall, if so
requested by Secured Party, deliver to Secured Party original or duplicate
policies of such insurance and, as often as Secured Party may reasonably
request, a report of a reputable insurance broker with respect to such
insurance. Further, Grantor shall, at the request of Secured Party, duly execute
and deliver instruments of assignment of such insurance policies to comply with
the requirements of Section 5(a) and cause the respective insurers to
acknowledge notice of such assignment.
(b) Reimbursement under any liability insurance maintained by Grantor
pursuant to this Section 8 may be paid directly to the Person who shall have
incurred liability covered by such insurance. In case of any loss involving
damage to Equipment or Inventory when subsection (c) of this Section 8 is not
applicable and subject to the provisions of subsection 2.4B(iii)(b) of the
Credit Agreement, Grantor shall make or cause to be made the necessary repairs
to or replacements of such Equipment or Inventory, and any proceeds of insurance
maintained by Grantor pursuant to this Section 8 shall be paid to Grantor as
reimbursement for the costs of such repairs or replacements.
(c) Subject to the provisions of subsection 2.4B(iii)(b) of the Credit
Agreement, upon (i) the occurrence and during the continuation of any Event of
Default or (ii) the actual or constructive loss (in excess of $1,000,000 per
occurrence) of any Equipment or Inventory, all insurance payments in respect of
such Equipment or Inventory shall be paid to and applied by Secured Party as
specified in Section 18.
SECTION 9. SPECIAL COVENANTS WITH RESPECT TO ACCOUNTS AND RELATED
------------------------------------------------------
CONTRACTS.
- ---------
(a) Grantor shall keep its chief place of business and chief executive
office and the office where it keeps its records concerning the Accounts and
Related Contracts, and all originals of all chattel paper that evidence
Accounts, at the location therefor specified in Section 4 or, upon at least 30
days prior written notice to Secured
10
<PAGE>
Party, at such other location in a jurisdiction where all action that may be
necessary or desirable, or that Secured Party may reasonably request, in order
to perfect and protect any security interest granted or purported to be granted
hereby, or to enable Secured Party to exercise and enforce its rights and
remedies hereunder, with respect to such Accounts and Related Contracts shall
have been taken. Subject to the terms of the Credit Agreement, Grantor will hold
and preserve such records and chattel paper and will permit representatives of
Secured Party at any time during normal business hours to inspect and make
abstracts from such records and chattel paper, and Grantor agrees to render to
Secured Party, at Grantor's cost and expense, such clerical and other assistance
as may be reasonably requested with regard thereto. Promptly upon the request of
Secured Party, Grantor shall deliver to Secured Party complete and correct
copies of each Related Contract.
(b) Except as otherwise provided in this subsection (c), Grantor shall
continue to collect, at its own expense, all amounts due or to become due to
Grantor under the Accounts and Related Contracts. In connection with such
collections, Grantor may take (and, after the occurrence and during the
continuation of an Event of Default, at Secured Party's direction, shall take)
such action as Grantor or Secured Party may deem necessary or advisable to
enforce collection of amounts due or to become due under the Accounts; provided,
--------
however, that Secured Party shall have the right at any time, upon the
- -------
occurrence and during the continuation of an Event of Default or a Potential
Event of Default and upon written notice to Grantor of its intention to do so,
to notify the account debtors or obligors under any Accounts of the assignment
of such Accounts to Secured Party and to direct such account debtors or obligors
to make payment of all amounts due or to become due to Grantor thereunder
directly to Secured Party, to notify each Person maintaining a lockbox or
similar arrangement to which account debtors or obligors under any Accounts have
been directed to make payment to remit all amounts representing collections on
checks and other payment items from time to time sent to or deposited in such
lockbox or other arrangement directly to Secured Party and, upon such
notification and at the expense of Grantor, to enforce collection of any such
Accounts and to adjust, settle or compromise the amount or payment thereof, in
the same manner and to the same extent as Grantor might have done. After receipt
by Grantor of the notice from Secured Party referred to in the proviso to the
-------
preceding sentence, (i) all amounts and proceeds (including checks and other
instruments) received by Grantor in respect of the Accounts and the Related
Contracts shall be received in trust for the benefit of Secured Party hereunder,
shall be segregated from other funds of Grantor and shall be forthwith paid over
or delivered to Secured Party in the same form as so received (with any
necessary endorsement) to be held as cash Collateral and either (A) be released
to Grantor so long as no Event of Default shall have occurred and be continuing
or (B) if any Event of Default shall have occurred and be continuing, be applied
as provided by Section 18, and (ii) Grantor shall not adjust, settle or
compromise the amount or payment of any Account, or release wholly or partly any
account debtor or obligor thereof, or allow any credit or discount thereon.
11
<PAGE>
SECTION 10. SPECIAL PROVISIONS WITH RESPECT TO THE ASSIGNED
-----------------------------------------------
AGREEMENTS. Grantor shall at its expense:
- ----------
(a) perform and observe all terms and provisions of the Assigned
Agreements to be performed or observed by it in all material respects, maintain
the Assigned Agreements in full force and effect, enforce the Assigned
Agreements in accordance with their terms, and take all such action to such end
as may be from time to time requested by Secured Party; and
(b) from time to time (A) furnish to Secured Party such information and
reports regarding the Assigned Agreements as Secured Party may reasonably
request and (B) upon request of Secured Party make to any party to the Assigned
Agreements listed in Schedule I annexed hereto such demands and requests for
----------
information and reports or for action as Grantor is entitled to make under the
Assigned Agreements.
SECTION 11. DEPOSIT ACCOUNTS. Upon the occurrence and during the
----------------
continuation of an Event of Default, Secured Party may exercise dominion and
control over, and refuse to permit further withdrawals (whether of money,
securities, instruments or other property) from any deposit accounts maintained
with Secured Party constituting part of the Collateral.
SECTION 12. LICENSE OF PATENTS, TRADEMARKS, COPYRIGHTS, ETC. Grantor
------------------------------------------------
hereby grants to Secured Party, effective upon the occurrence and during the
continuation of any Event of Default, the nonexclusive right and license to use
all trademarks, tradenames, copyrights, patents or technical processes owned or
used by Grantor that relate to the Collateral and any other collateral granted
by Grantor as security for the Secured Obligations, together with any goodwill
associated therewith, all to the extent necessary to enable Secured Party to
use, possess and realize on the Collateral and to enable any successor or assign
to enjoy the benefits of the Collateral. This right and license shall inure to
the benefit of all successors, assigns and transferees of Secured Party and its
successors, assigns and transferees, whether by voluntary conveyance, operation
of law, assignment, transfer, foreclosure, deed in lieu of foreclosure or
otherwise. Such right and license is granted free of charge, without requirement
that any monetary payment whatsoever be made to Grantor.
SECTION 13. TRANSFERS AND OTHER LIENS. Grantor shall not:
-------------------------
(a) sell, assign (by operation of law or otherwise) or otherwise
dispose of any of the Collateral, except as permitted by the Credit Agreement;
or
(b) except for the security interest created by this Agreement and
the Permitted Encumbrances, create or suffer to exist any Lien upon or with
respect to any of the Collateral to secure the indebtedness or other obligations
of any Person.
SECTION 14. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Grantor hereby
----------------------------------------
irrevocably appoints Secured Party as Grantor's attorney-in-fact, with full
12
<PAGE>
authority in the place and stead of Grantor and in the name of Grantor, Secured
Party or otherwise, from time to time in Secured Party's discretion to take any
action and to execute any instrument that Secured Party may deem necessary or
advisable, consistent with the provisions of the Agreement, to accomplish the
purposes of this Agreement, including without limitation:
(a) during the continuation of an Event of Default, to obtain and
adjust insurance required to be maintained by Grantor or paid to Secured Party
pursuant to Section 8;
(b) during the continuation of any Event of Default, to ask for,
demand, collect, sue for, recover, compound, receive and give acquittance and
receipts for moneys due and to become due under or in respect of any of the
Collateral;
(c) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection with clauses (a) and (b) above;
(d) during the continuation of any Event of Default, to file any
claims or take any action or institute any proceedings that Secured Party may
deem necessary or desirable for the collection of any of the Collateral or
otherwise to enforce the rights of Secured Party with respect to any of the
Collateral;
(e) during the continuation of an Event of Default, to pay or
discharge taxes or Liens (other than Liens permitted under this Agreement or the
Credit Agreement) levied or placed upon or threatened against the Collateral,
the legality or validity thereof and the amounts necessary to discharge the same
to be determined by Secured Party in its sole discretion, any such payments made
by Secured Party to become obligations of Grantor to Secured Party, due and
payable immediately without demand;
(f) during the continuation of an Event of Default, to sign and
endorse any invoices, freight or express bills, bills of lading, storage or
warehouse receipts, drafts against debtors, assignments, verifications and
notices in connection with Accounts and other documents relating to the
Collateral; and
(g) upon the occurrence and during the continuation of an Event of
Default, generally to sell, transfer, pledge, make any agreement with respect to
or otherwise deal with any of the Collateral as fully and completely as though
Secured Party were the absolute owner thereof for all purposes, and to do, at
Secured Party's option and Grantor's expense, at any time or from time to time,
all acts and things that Secured Party reasonably deems necessary to protect,
preserve or realize upon the Collateral and Secured Party's security interest
therein in order to effect the intent of this Agreement, all as fully and
effectively as Grantor might do.
SECTION 15. SECURED PARTY MAY PERFORM. If Grantor fails to perform
-------------------------
any agreement contained herein, Secured Party may itself perform, or cause
performance
13
<PAGE>
of, such agreement, and the expenses of Secured Party incurred in connection
therewith shall be payable by Grantor under Section 19.
SECTION 16. STANDARD OF CARE. The powers conferred on Secured Party
----------------
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the exercise of
reasonable care in the custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, Secured Party shall
have no duty as to any Collateral or as to the taking of any necessary steps to
preserve rights against prior parties or any other rights pertaining to any
Collateral. Secured Party shall be deemed to have exercised reasonable care in
the custody and preservation of Collateral in its possession if such Collateral
is accorded treatment substantially equal to that which Secured Party accords
its own property.
SECTION 17. REMEDIES. If any Event of Default shall have occurred and
--------
be continuing, Secured Party may exercise in respect of the Collateral, in
addition to all other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on default under
the Uniform Commercial Code as in effect in any relevant jurisdiction (the
"CODE") (whether or not the Code applies to the affected Collateral), and also
may (a) require Grantor to, and Grantor hereby agrees that it will at its
expense and upon request of Secured Party forthwith, assemble all or part of the
Collateral as directed by Secured Party and make it available to Secured Party
at a place to be designated by Secured Party that is reasonably convenient to
both parties, (b) enter onto the property where any Collateral is located and
take possession thereof with or without judicial process, (c) prior to the
disposition of the Collateral, store, process, repair or recondition the
Collateral or otherwise prepare the Collateral for disposition in any manner to
the extent Secured Party deems appropriate, (d) take possession of Grantor's
premises or place custodians in exclusive control thereof, remain on such
premises and use the same and any of Grantor's equipment for the purpose of
completing any work in process, taking any actions described in the preceding
clause (c) and collecting any Secured Obligation, and (e) without notice except
as specified below, sell the Collateral or any part thereof in one or more
parcels at public or private sale, at any of Secured Party's offices or
elsewhere, for cash, on credit or for future delivery, at such time or times and
at such price or prices and upon such other terms as Secured Party may deem
commercially reasonable. Secured Party or any Lender may be the purchaser of any
or all of the Collateral at any such sale and Secured Party, as agent for and
representative of Lenders (but not any Lender or Lenders in its or their
respective individual capacities unless Requisite Lenders shall otherwise agree
in writing), shall be entitled, for the purpose of bidding and making settlement
or payment of the purchase price for all or any portion of the Collateral sold
at any such public sale, to use and apply any of the Secured Obligations as a
credit on account of the purchase price for any Collateral payable by Secured
Party at such sale. Each purchaser at any such sale shall hold the property sold
absolutely free from any claim or right on the part of Grantor, and Grantor
hereby waives (to the extent permitted by applicable law) all rights of
redemption, stay and/or appraisal which it now has or may at any time in the
future have under any rule of law or statute now existing or hereafter enacted.
Grantor agrees that,
14
<PAGE>
to the extent notice of sale shall be required by law, at least ten days' notice
to Grantor of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification. Secured
Party shall not be obligated to make any sale of Collateral regardless of notice
of sale having been given. Secured Party may adjourn any public or private sale
from time to time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to which it was
so adjourned. Grantor hereby waives any claims against Secured Party arising by
reason of the fact that the price at which any Collateral may have been sold at
such a private sale was less than the price which might have been obtained at a
public sale, even if Secured Party accepts the first offer received and does not
offer such Collateral to more than one offeree. If the proceeds of any sale or
other disposition of the Collateral are insufficient to pay all the Secured
Obligations, Grantor shall be liable for the deficiency and the fees of any
attorneys employed by Secured Party to collect such deficiency.
SECTION 18. APPLICATION OF PROCEEDS. Except as expressly provided
-----------------------
elsewhere in this Agreement, all proceeds received by Secured Party in respect
of any sale of, collection from, or other realization upon all or any part of
the Collateral may, in the discretion of Secured Party, be held by Secured Party
as Collateral for, and/or then, or at any other time thereafter, applied in full
or in part by Secured Party against, the Secured Obligations in the following
order of priority:
FIRST: To the payment of all reasonable out-of-pocket costs and
expenses of such sale, collection or other realization, including
reasonable compensation to Secured Party and its agents and counsel, and
all other reasonable out-of-pocket expenses, liabilities and advances made
or incurred by Secured Party in connection therewith, and all amounts for
which Secured Party is entitled to indemnification hereunder and all
advances made by Secured Party hereunder for the account of Grantor, and to
the payment of all costs and expenses paid or incurred by Secured Party in
connection with the exercise of any right or remedy hereunder, all in
accordance with Section 19;
SECOND: To the payment of all other Secured Obligations in such order
as Secured Party shall elect; and
THIRD: To the payment to or upon the order of Grantor, or to
whosoever may be lawfully entitled to receive the same or as a court of
competent jurisdiction may direct, of any surplus then remaining from such
proceeds.
SECTION 19. INDEMNITY AND EXPENSES.
----------------------
(a) Grantor agrees to indemnify Secured Party and each Lender from
and against any and all claims, losses and liabilities in any way relating to,
growing out of or resulting from this Agreement and the transactions
contemplated hereby (including, without limitation, enforcement of this
Agreement), except to the extent such claims,
15
<PAGE>
losses or liabilities result from Secured Party's or such Lender's gross
negligence or willful misconduct as finally determined by a court of competent
jurisdiction.
(b) Grantor shall pay to Secured Party upon demand the amount of any
and all reasonable out-of-pocket costs and expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents, that Secured
Party may incur in connection with (i) the administration of this Agreement,
(ii) the custody, preservation, use or operation of, or the sale of, collection
from, or other realization upon, any of the Collateral, (iii) the exercise or
enforcement of any of the rights of Secured Party hereunder, or (iv) the failure
by Grantor to perform or observe any of the provisions hereof.
SECTION 20. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS. This
-----------------------------------------------
Agreement shall create a continuing security interest in the Collateral and
shall (a) remain in full force and effect until the payment in full of the
Secured Obligations, the cancellation or termination of the Commitments and the
cancellation or expiration of all outstanding Letters of Credit, (b) be binding
upon Grantor, its successors and assigns, and (c) inure, together with the
rights and remedies of Secured Party hereunder, to the benefit of Secured Party
and its permitted successors, transferees and assigns. Without limiting the
generality of the foregoing clause (c), but subject to the provisions of
subsection 10.1 of the Credit Agreement, any Lender may assign or otherwise
transfer any Loans held by it to any other Person, and such other Person shall
thereupon become vested with all the benefits in respect thereof granted to
Lenders herein or otherwise. Upon the payment in full of all Secured
Obligations, the cancellation or termination of the Commitments and the
cancellation or expiration of all outstanding Letters of Credit, the security
interest granted hereby shall terminate and all rights to the Collateral shall
revert to Grantor. Upon any such termination Secured Party will, at Grantor's
expense, execute and deliver to Grantor such documents as Grantor shall
reasonably request to evidence such termination.
SECTION 21. SECURED PARTY AS ADMINISTRATIVE AGENT.
-------------------------------------
(a) Secured Party has been appointed to act as Secured Party
hereunder by Lenders and, by their acceptance of the benefits hereof, Interest
Rate Exchangers. Secured Party shall be obligated, and shall have the right
hereunder, to make demands, to give notices, to exercise or refrain from
exercising any rights, and to take or refrain from taking any action (including
the release or substitution of Collateral), solely in accordance with this
Agreement and the Credit Agreement; provided that Secured Party shall exercise,
--------
or refrain from exercising, any remedies provided for in Section 17 in
accordance with the instructions of (i) Requisite Lenders or (ii) after payment
in full of all Obligations under the Credit Agreement and the other Loan
Documents, the holders of a majority of the aggregate notional amount (or, with
respect to any Lender Interest Rate Agreement that has been terminated in
accordance with its terms, the amount then due and payable (exclusive of
expenses and similar payments but including any early termination payments then
due) under such Lender Interest Rate Agreement) under all Lender Interest Rate
Agreements (Requisite Lenders or, if applicable, such holders being
16
<PAGE>
referred to herein as "REQUISITE OBLIGEES"). In furtherance of the foregoing
provisions of this Section 21(a), each Interest Rate Exchanger, by its
acceptance of the benefits hereof, agrees that it shall have no right
individually to realize upon any of the Collateral hereunder, it being
understood and agreed by such Interest Rate Exchanger that all rights and
remedies hereunder may be exercised solely by Secured Party for the benefit of
Lenders and Interest Rate Exchangers in accordance with the terms of this
Section 21(a).
(b) Secured Party shall at all times be the same Person that is
Administrative Agent under the Credit Agreement. Written notice of resignation
by Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall
also constitute notice of resignation as Secured Party under this Agreement;
removal of Administrative Agent pursuant to subsection 9.5 of the Credit
Agreement shall also constitute removal as Secured Party under this Agreement;
and appointment of a successor Administrative Agent pursuant to subsection 9.5
of the Credit Agreement shall also constitute appointment of a successor Secured
Party under this Agreement. Upon the acceptance of any appointment as
Administrative Agent under subsection 9.5 of the Credit Agreement by a successor
Administrative Agent, that successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring or removed Secured Party under this Agreement, and the retiring
or removed Secured Party under this Agreement shall promptly (i) transfer to
such successor Secured Party all sums, securities and other items of Collateral
held hereunder, together with all records and other documents necessary or
appropriate in connection with the performance of the duties of the successor
Secured Party under this Agreement, and (ii) execute and deliver to such
successor Secured Party such amendments to financing statements, and take such
other actions, as may be necessary or appropriate in connection with the
assignment to such successor Secured Party of the security interests created
hereunder, whereupon such retiring or removed Secured Party shall be discharged
from its duties and obligations under this Agreement. After any retiring or
removed Administrative Agent's resignation or removal hereunder as Secured
Party, the provisions of this Agreement shall inure to its benefit as to any
actions taken or omitted to be taken by it under this Agreement while it was
Secured Party hereunder.
SECTION 22. AMENDMENTS; ETC. No amendment, modification, termination
----------------
or waiver of any provision of this Agreement, and no consent to any departure by
Grantor therefrom, shall in any event be effective unless the same shall be in
writing and signed by Secured Party and, in the case of any such amendment or
modification, by Grantor. Any such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which it was given.
SECTION 23. NOTICES. Any notice or other communication herein
-------
required or permitted to be given shall be given as provided in the Credit
Agreement. For the purposes hereof, the address of each party hereto shall be
as set forth under such party's name on the signature pages hereof or, as to
either party, such other address as shall be designated by such party in a
written notice delivered to the other party hereto.
17
<PAGE>
SECTION 24. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
-----------------------------------------------------
failure or delay on the part of Secured Party in the exercise of any power,
right or privilege hereunder shall impair such power, right or privilege or be
construed to be a waiver of any default or acquiescence therein, nor shall any
single or partial exercise of any such power, right or privilege preclude any
other or further exercise thereof or of any other power, right or privilege.
All rights and remedies existing under this Agreement are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
SECTION 25. SEVERABILITY. In case any provision in or obligation
------------
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 26. HEADINGS. Section and subsection headings in this
--------
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given any
substantive effect.
SECTION 27. GOVERNING LAW; TERMS. THIS AGREEMENT AND THE RIGHTS AND
--------------------
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW
OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES,
EXCEPT TO THE EXTENT THAT THE CODE PROVIDES THAT THE PERFECTION OF THE SECURITY
INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR
COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF
NEW YORK. Unless otherwise defined herein or in the Credit Agreement, terms used
in Articles 8 and 9 of the Uniform Commercial Code in the State of New York are
used herein as therein defined.
SECTION 28. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL
----------------------------------------------
JUDICIAL PROCEEDINGS BROUGHT AGAINST GRANTOR ARISING OUT OF OR RELATING TO THIS
AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION
IN THE STATE OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT
GRANTOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY
ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. Grantor hereby
agrees that service of all process in any such proceeding in any such court may
be made by registered or certified mail, return receipt requested, to Grantor at
its address provided in Section 23, such service being hereby acknowledged by
18
<PAGE>
Grantor to be sufficient for personal jurisdiction in any action against Grantor
in any such court and to be otherwise effective and binding service in every
respect. Nothing herein shall affect the right to serve process in any other
manner permitted by law or shall limit the right of Secured Party to bring
proceedings against Grantor in the courts of any other jurisdiction.
SECTION 29. WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY LAW,
--------------------
GRANTOR AND SECURED PARTY HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT. The scope of this waiver is intended to be all-encompassing of any
and all disputes that may be filed in any court and that relate to the subject
matter of this transaction, including without limitation contract claims, tort
claims, breach of duty claims, and all other common law and statutory claims.
Grantor and Secured Party each acknowledge that this waiver is a material
inducement for Grantor and Secured Party to enter into a business relationship,
that Grantor and Secured Party have already relied on this waiver in entering
into this Agreement and that each will continue to rely on this waiver in their
related future dealings. Grantor and Secured Party further warrant and
represent that each has reviewed this waiver with its legal counsel, and that
each knowingly and voluntarily waives its jury trial rights following
consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT
MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO
ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT. In the event of litigation, this Agreement may be filed as a written
consent to a trial by the court.
SECTION 30. COUNTERPARTS. This Agreement may be executed in one or
------------
more counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
(Remainder of page intentionally left blank)
19
<PAGE>
IN WITNESS WHEREOF, Grantor and Secured Party have caused this Agreement to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
FORSTER INC.
By: ________________________________
Name: ________________________________
Title: ________________________________
Notice Address:
1800 Cloquet Avenue
Cloquet, MN 55720-2141
Attention: Tom Knuesel
WELLS FARGO BANK, N.A., as
Administrative Agent
By: ______________________________
Name: ______________________________
Title: ______________________________
Notice Address:
555 Montgomery Street, 17th Floor
San Francisco, CA 9411
Attention: Alan Wray
S-1
<PAGE>
SCHEDULE I
TO SECURITY AGREEMENT
Assigned Agreements
-------------------
<PAGE>
SCHEDULE II
TO SECURITY AGREEMENT
Deposit Accounts
----------------
<TABLE>
<CAPTION>
================================================================================
Bank Name Location Account Number
--------- -------- --------------
<S> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
</TABLE>
<PAGE>
SCHEDULE III
TO SECURITY AGREEMENT
Licenses
--------
[Please list all of Grantor's licenses]
<PAGE>
SCHEDULE IV
TO SECURITY AGREEMENT
Equipment and Inventory Location
--------------------------------
[Please list all locations where Grantor maintains equipment or inventory]
<PAGE>
SCHEDULE V
TO SECURITY AGREEMENT
Tradenames
----------
[Please list all tradenames of Grantor]
<PAGE>
SUBSIDIARY COPYRIGHT SECURITY AGREEMENT
THIS SUBSIDIARY COPYRIGHT SECURITY AGREEMENT dated as of April 21, 1998
(this "AGREEMENT") is made by [SUBSIDIARY], a [___________________] Corporation
("GRANTOR"), to WELLS FARGO BANK, N.A., as administrative agent for and
representative of (in such capacity herein called "ADMINISTRATIVE AGENT")
financial institutions ("LENDERS") party to the Credit Agreement referred to
below and any Interest Rate Exchangers (as hereinafter defined).
PRELIMINARY STATEMENTS
A. Administrative Agent and Lenders have entered into the Credit
Agreement dated as of April 21, 1998 with Diamond Brands Operating Corp., a
Delaware corporation ("COMPANY" or "BORROWER"), DLJ Capital Funding, Inc., as
Syndication Agent, and Morgan Stanley Senior Funding Inc., as Documentation
Agent (said Credit Agreement and any successor agreement, as it may be amended,
amended and restated, modified or otherwise supplemented from time to time,
being the "CREDIT AGREEMENT"; the terms defined therein and not otherwise
defined herein being used herein as therein defined).
B. Company may from time to time enter, or may from time to time have
entered, into one or more Interest Rate Agreements (collectively, the "LENDER
INTEREST RATE AGREEMENTS") with one ore more Lenders (in such capacity,
collectively, "INTEREST RATE EXCHANGERS").
C. Grantor has executed and delivered the Subsidiary Guaranty dated
as of April 21, 1998 (said Subsidiary Guaranty, as it may hereafter be amended,
supplemented or otherwise modified from time to time, being the "SUBSIDIARY
GUARANTY") in favor of Administrative Agent for the benefit of Lenders and
Interest Rate Exchangers, pursuant to which Grantor has guarantied the prompt
payment and performance when due of all Obligations of the Borrower under the
Credit Agreement and under any Lender Interest Rate Agreements.
D. Grantor owns and uses in its business and will in the future,
adopt and so use various published and unpublished works of authorship
(collectively, the "COPYRIGHTS").
1
<PAGE>
E. Administrative Agent, for its benefit and the ratable benefit of
Lenders, desires to become a secured creditor with respect to and, under the
circumstances described herein, an assignee of all of the existing and future
Copyrights, all copyright registrations and applications for copyright
registration which have heretofore been or may hereafter be issued thereon or
applied for with the United States Copyright Office and throughout the world
(the "REGISTRATIONS"), all common law and other rights in and to the Copyrights
throughout the world, including all copyright licenses (the "COPYRIGHT RIGHTS")
and all proceeds of the Copyrights, the Registrations and the Copyright Rights,
and Grantor agrees to create a secured and protected interest in the Copyrights,
the Registrations, the Copyright Rights and all the proceeds thereof as provided
herein.
F. Upon the occurrence of and during the continuance of an Event of
Default under the Credit Agreement and to permit Administrative Agent to
continue operating Grantor's business without interruption and to use the
Copyrights, Registrations and Copyright Rights in conjunction therewith, Grantor
is willing to grant to Administrative Agent for its benefit and the ratable
benefit of Lenders and Interest Rate Exchangers the conditional assignment of
Grantor's entire right, title and interest in and to the Collateral (as
hereinafter defined) and to appoint Administrative Agent or Administrative
Agent's designee as Grantor's attorney-in-law and attorney-in-fact to execute
documents and take actions to confirm said assignments.
G. The Credit Agreement requires that Grantor grant the security
interest and make the conditional assignment contemplated by this Agreement as a
condition precedent to the availability of the credit facilities thereunder.
NOW THEREFORE, in consideration of the premises, and in order to induce
Lenders to extend the credit facilities under the Credit Agreement and to induce
Interest Rate Exchangers to enter into Interest Rate Agreements, Grantor hereby
agrees with Administrative Agent for Administrative Agent's benefit and the
ratable benefit of Lenders and Interest Rate Exchangers as follows:
SECTION 1. GRANT OF SECURITY. Grantor hereby grants a first priority
-----------------
security interest in, pledges and mortgages, but does not transfer title, to
Administrative Agent for its benefit and the ratable benefit of Lenders and
Interest Rate Exchangers, all of Grantor's right, title and interest in and to
the following (the "COLLATERAL") to secure the Secured Obligations (as
hereinafter defined):
(a) Each of the Copyrights, rights, titles and interests in and to the
Copyrights and works protectable by copyright, which are presently, or in the
future may be, owned, created, authored (as a work for hire), acquired or used
(whether pursuant to a license or otherwise) by Grantor, in whole or in part,
and all Copyright Rights with respect thereto and all Registrations therefor,
heretofore or hereafter granted or applied for, and all renewals and extensions
thereof, throughout the world, including all proceeds thereof (such as, by way
of example and not by limitation, license royalties and proceeds of infringement
suits), the right (but not the obligation) to renew and extend such
Copyrights, Registrations and Copyright Rights and to register works protectable
by copyright and the right (but not
2
<PAGE>
the obligation) to sue or bring opposition or cancellation proceedings in the
name of Grantor or in the name of Administrative Agent or Lenders or Interest
Rate Exchangers for past, present and future infringements of the Copyrights and
Copyright Rights, including, without limitation:
(i) all of Grantor's right, title and interest, to the extent that it
has the same, in and to all copyrights or rights or interests in copyrights
registered or recorded in the United States Copyright Office, including,
without limitation, the Registrations listed on Schedule A attached hereto,
as the same may be amended pursuant hereto from time to time;
(ii) all of Grantor's right, title and interest, to the extent that it
has the same, in and to all renewals and extensions of any such copyrights
that may be secured under the law now or hereafter in force and effect; and
(iii) all of Grantor's right, title and interest, to the extent that it
has the same, to make and exploit all derivative works based on or adopted
from all works covered by the copyrights referred to herein;
it being understood and agreed that the Collateral assigned hereby shall
include, without limitation, rights and interests pursuant to licensing or other
contracts in favor of Grantor pertaining to copyrights and works protectable by
copyright presently or in the future owned or used by third-parties, but in the
case of third-parties which are not Affiliates of Grantor only to the extent
permitted by such licensing or other contracts and, if not so permitted, only
with the consent of such third-parties;
(b) All general intangibles (as defined in Article 9 of the Uniform
Commercial Code as in effect in the State of New York (the "CODE") relating to
the Collateral; and
(c) All proceeds of any and all of the foregoing Collateral
(including, without limitation, license royalties and proceeds of infringement
suits) and, to the extent not otherwise included, all payments under insurance
(whether or not Administrative Agent or any Lender or Interest Rate Exchanger is
the loss payee thereof) or any indemnity, warranty or guaranty payable by reason
of loss or damage to or otherwise with respect to the foregoing Collateral. For
purposes of this Agreement, the term "PROCEEDS" includes whatever is receivable
or received when Collateral or proceeds are sold, collected, exchanged or
otherwise disposed of, whether such disposition is voluntary or involuntary, and
includes, without limitation, all rights to payment, including returned
premiums, with respect to any insurance relating thereto.
It is the intention of Grantor and Administrative Agent that the
security interest granted hereby shall attach to the Collateral as of the date
hereof and shall remain in effect until the indefeasible payment in full of the
Secured Obligations, the cancellation or termination of the Commitments and the
cancellation or expiration of all outstanding Letter of Credit.
3
<PAGE>
In addition to, and not by way of limitation of, the pledge and
mortgage of the Collateral set forth above, Grantor hereby, effective upon the
occurrence of an Event of Default, assigns, grants, sells, conveys, transfers
and sets over to Administrative Agent for its benefit and the ratable benefit of
Lenders and Interest Rate Exchangers all of Grantor's rights, title and interest
in and to the Collateral as security for the Secured Obligations.
SECURED 2. SECURITY FOR OBLIGATIONS. This Agreement secures, and the
------------------------
Collateral is collateral security for, the prompt payment or performance in full
when due, whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise (including the payment of amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code, 11 U.S.C. Section 362(a)), of all obligations and
liabilities of every nature of Grantor now or hereafter existing under or
arising out of or in connection with the Subsidiary Guaranty, the other Loan
Documents and the Lender Interest Rate Agreements and all extensions or renewals
thereof, whether for principal, interest (including interest that, but for the
filing of a petition in bankruptcy with respect to Grantor, would accrue on such
obligations, whether or not a claim is allowed against Grantor for such interest
in the related bankruptcy proceeding), reimbursement of amounts drawn under
Letters of Credit, payments for early termination of Lender Interest Rate
Agreements, fees, expenses, indemnities or otherwise, whether voluntary or
involuntary, direct or indirect, absolute or contingent, liquidated or
unliquidated, whether or not jointly owed with others, and whether or not from
time to time decreased or extinguished and later increased, created or incurred,
and all or any portion of such obligations or liabilities that are paid, to the
extent all or any part of such payment is avoided or recovered directly or
indirectly from Secured Party or any Lender or Interest Rate Exchanger as a
preference, fraudulent transfer or otherwise (all such obligations and
liabilities being the "UNDERLYING DEBT"), and all obligations of every nature of
Grantor now or hereafter existing under this Agreement (all such obligations of
Grantor, together with the Underlying Debt, being the "SECURED OBLIGATIONS").
SECTION 3. REPRESENTATIONS AND WARRANTIES. Grantor represents,
------------------------------
warrants and covenants as follows:
(a) A true and complete list of all Registrations and applications
for Registrations owned, held (whether pursuant to a license or otherwise) or
used by Grantor, in whole or in part, in conducting its business is set forth in
Schedule A attached hereto.
(b) Grantor has full power, authority and legal right to pledge all
of the Collateral pursuant to this Agreement and none of Grantor's Affiliates
has any right, title or interest in any Collateral.
(c) Each of the Copyrights and Copyright Rights are subsisting and
none of the Copyrights, Registrations or Copyright Rights have been adjudged
invalid or unenforceable.
(d) Each material Copyright and each material Copyright Right are
believed to be valid and enforceable and Grantor is not presently aware of any
past, present or
4
<PAGE>
prospective claim by any third party that any material Copyright or material
Copyright Right is invalid or unenforceable or of any basis for any such claim.
(e) No claim known to Grantor has been made that the works of any
material Copyright, material Registration or material Copyright Right does or
may violate the rights of any third person.
(f) Grantor has taken and will continue to take all reasonable steps
to protect the secrecy of all trade secrets relating to unpublished Collateral.
(g) Except as may be prohibited by law, Grantor will use statutory
notice in connection with its use of each material Copyright, material
Registration and material Copyright Right.
(h) The execution, delivery and performance of this Agreement by
Grantor does not conflict with, result in a breach of, constitute (with due
notice or lapse of time or both) a default under, or require the limitation of
or consent under, any Contractual Obligation of Grantor, including, without
limitation, any agreement pursuant to which Grantor licenses or has the right to
use any Collateral.
(i) Grantor is the legal and beneficial owner of each material
Copyright, material Registration and material Copyright Right, free and clear of
any Lien, including, without limitation, pledges, assignments, licenses and
covenants by Grantor not to sue third persons, except for the Lien and
conditional assignment created by this Agreement and Permitted Liens. No
effective financing statement or other instrument similar in effect covering all
or any part of the Collateral is on file in any recording office, except such as
may have been filed in favor of Administrative Agent relating to the Credit
Agreement or this Agreement or for which duly executed termination statements
have been recorded or delivered to Administrative Agent. No effective filing
with the United States Copyright Office covering all or any part of the
Collateral is on file with the United States Copyright Office, except such as
may be filed in favor of Grantor evidencing Grantor's right, title and interest
in the Copyrights or in favor of Administrative Agent relating to this Agreement
or for which duly executed termination statements have been delivered to
Administrative Agent.
(j) Grantor's chief executive office is located at the address
specified on the signature page to this Agreement which address qualifies as its
"location" under the Code.
(k) This Agreement will create in favor of Administrative Agent for
its benefit and the ratable benefit of Lenders and Interest Rate Exchangers a
valid and perfected first priority security interest in the Collateral upon
making the filings referred to in clause (l) below.
(l) Except for the filing of financing statements with the Secretary
of State of the State of [___________] under the Code and filings with the
United States Copyright Office necessary to perfect the security interest
created hereunder, no authorization, approval or other action by, and no notice
to or filing with, any governmental authority or regulatory
5
<PAGE>
body is required either (i) for the grant by Grantor of the security interest
granted hereby or for the execution, delivery or performance of this Agreement
by Grantor or (ii) for the perfection of or the exercise by Administrative Agent
of its rights and remedies hereunder to the Collateral in the United States of
America.
(m) All information heretofore, herein or hereafter supplied to
Administrative Agent and Lenders by or on behalf of Grantor with respect to the
Collateral is accurate and complete in all material respects.
SECTION 4. INSPECTION RIGHTS. Subject to the terms of the Credit
-----------------
Agreement, Grantor hereby grants to Administrative Agent and any and all of its
employees, representatives and agents the right to visit Grantor's and any of
its Affiliate's or subcontractor's plants, facilities and other places of
business that are utilized in connection with the manufacture, production,
inspection, storage or sale of products and services sold or delivered utilizing
any of the Copyrights, Registrations or Copyright Rights (or which were so
utilized during the prior six month period), and to inspect the records relating
thereto upon reasonable notice to Grantor and as often as may be reasonably
requested.
SECTION 5. NEW COPYRIGHTS, REGISTRATIONS AND COPYRIGHT RIGHTS. If
--------------------------------------------------
Grantor shall obtain rights to any new works protectable by copyright, or become
entitled to the benefit of any Registration, application for Registration or
renewals or extension of any Copyright, the provisions of this Agreement shall
automatically apply thereto. With respect to any such Registration,
applications for Registration or renewal or extension of any Copyright, Grantor
shall give prompt notice thereof in writing to Administrative Agent.
Concurrently with the filing of an application for any Registration for any
Copyright, Grantor shall execute, deliver and record in all places where this
Agreement is recorded an appropriate Copyright Security Agreement, substantially
in the form hereof, with appropriate insertions or an amendment to this
Agreement, in form and substance satisfactory to Administrative Agent, pursuant
to which Grantor shall grant a security interest and conditional assignment to
the extent of its interest in such Registration as provided herein to
Administrative Agent on its behalf and on behalf of Lenders and Interest Rate
Exchangers unless so doing would, in the reasonable judgment of Grantor, after
due inquiry, result in the grant of a Registration in the name of Administrative
Agent, in which event Grantor shall give written notice to Administrative Agent
as soon as reasonably practicable and the filing shall instead be undertaken as
soon as practicable but in no case later than immediately following the grant of
the Registration.
SECTION 6. COPYRIGHT REGISTRATION, RENEWAL AND LITIGATION.
----------------------------------------------
(a) Grantor shall have the duty diligently to make any application
for Registration on any existing or future unregistered but copyrightable works
(except for works of nominal commercial value) and to do any and all acts which
are reasonably necessary or desirable to preserve, renew and maintain all rights
in all Copyrights, Registrations and Copyright Rights which are material to
Grantor's business. Any expenses incurred in connection therewith shall be borne
solely by Grantor. Grantor shall not abandon any Copyright, Registration or
Copyright Right which is material to Grantor's business.
6
<PAGE>
(b) Except as provided in Section 9 and notwithstanding Section 1,
Grantor shall have the right and obligation to commence and diligently prosecute
in its own name, as real party in interest, for its own benefit and at its own
expense, such suits, proceedings or other actions for infringement or other
damage as are in its reasonable business judgment necessary to protect the
Collateral. Grantor shall provide to Administrative Agent any information with
respect thereto requested by Administrative Agent. Administrative Agent shall
provide at Grantor's expense all and necessary cooperation in connection with
any such suit, proceeding or action including, without limitation, joining as a
necessary party.
(c) Grantor shall promptly, following its becoming aware thereof,
notify Administrative Agent of the institution of, or any adverse determination
in, any proceeding in the United States Copyright Office or any United States or
foreign court described in Section 6(a) or 6(b) or regarding Grantor's claim of
ownership in any material Copyright, material Registration or material Copyright
Right, its right to register the same, or its right to keep and maintain such
registration;
SECTION 7. GRANTOR'S COVENANTS. On a continuing basis, Grantor shall
-------------------
make, execute, acknowledge and deliver, and file and record in the proper filing
and recording places, all such instruments and documents, including, without
limitation, appropriate financing and continuation statements and security
agreements, and take all such action as may be necessary or advisable or may be
requested by Administrative Agent or (i) Requisite Lenders or (ii) after payment
in full of all Obligations under the Credit Agreement and the other Loan
Documents, the holders of a majority of the aggregate notional amount (or, with
respect to any Lender Interest Rate Agreement that has been terminated in
accordance with its terms, the amount then due and payable (exclusive of
expenses and similar payments but including any early termination payments then
due) under such Lender Interest Rate Agreement) under all Lender Interest Rate
Agreements (Requisite Lenders or, if applicable, such holders being referred to
herein as "REQUISITE OBLIGEES") to carry out the intent and purposes of this
Agreement, or for assuring, confirming or protecting the grant or perfection of
security interest and the conditional assignment granted or purported to be
granted hereby, to ensure Grantor's compliance with this Agreement or to enable
Administrative Agent to exercise and enforce its rights and remedies hereunder
with respect to the Collateral. Without limiting the generality of the
foregoing sentence, Grantor:
(a) authorizes Administrative Agent in its sole discretion to modify
this Agreement without first obtaining Grantor's approval of or signature to
such modification by amending Schedule A thereof to include a reference to any
right, title or interest in any existing Copyright, Registration or Copyright
Right or any Copyright, Registration or Copyright Right acquired by Grantor
after the execution hereof or to delete any reference to any right, title or
interest in any Copyright, Registration or Copyright Right in which Grantor no
longer has or claims any right, title or interest;
(b) shall, from time to time, cause its books and records to be
marked with such legends or segregated in such manner as Administrative Agent
may reasonably specify, and take or cause to be taken such other action and
adopt such procedures as Administrative Agent may reasonably specify to give
notice of or to perfect the security interest and
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assignment in the Collateral intended to be created hereby;
(c) hereby authorizes Administrative Agent, in its sole discretion,
to file one or more financing or continuation statements, and amendments
thereto, relative to all or any portion of the Collateral without the signature
of Grantor where permitted by law;
(d) shall diligently keep reasonable records respecting the
Collateral;
(e) shall at all times keep at least one complete set of its records
concerning substantially all of the Copyrights, Registrations and Copyright
Rights at its chief executive office as set forth above and will not change the
location of its chief executive office or such records without giving
Administrative Agent at least 30 days' prior written notice thereof;
(f) shall notify Administrative Agent promptly of any change in
Grantor's name, identity or corporate structure;
(g) shall not enter into any agreement that would or might in any
material way impair or conflict with Grantor's obligations hereunder;
(h) shall use its best efforts to obtain any necessary consents of
third parties to the grant or perfection of a security interest and assignment
to Administrative Agent with respect to the Collateral;
(i) shall not permit the inclusion in any contract to which it
becomes a party of any provision that could impair or prevent the creation of a
security interest in Grantor's rights and interest in any property included
within definitions of the Copyrights, Copyright Registrations and Copyright
Rights acquired under such contracts;
(j) shall properly maintain and care for the Collateral;
(k) shall not grant or permit to exist any Lien in the Collateral or
any portion thereof except for Permitted Liens;
(l) upon any officer of Grantor obtaining knowledge thereof, shall
promptly notify Administrative Agent in writing of any event that may materially
adversely affect the value of the Collateral, the ability of Grantor or
Administrative Agent to dispose of the Collateral or any portion thereof or the
rights and remedies of Administrative Agent in relation thereto including,
without limitation, the levy of any legal process against the Collateral or any
portion thereof;
(m) shall not use or permit any Collateral to be used unlawfully or
in violation of any provision of this Agreement, or any applicable statute,
regulation or ordinance or any policy of insurance covering the Collateral;
(n) shall pay promptly when due all property and other taxes,
assessments and governmental charges or levies imposed upon, and all claims
(including claims for labor,
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materials and supplies) against, the Collateral, except to the extent permitted
under the Credit Agreement.
(o) shall furnish to Administrative Agent from time to time
statements and schedules further identifying and describing the Collateral and
such other materials evidencing or reports pertaining to the Collateral as
Administrative Agent may reasonably request, all in reasonable detail;
(p) shall not do any act or omit to do any act whereby any of the
Collateral may become abandoned;
(q) shall notify Administrative Agent immediately and in writing of
any claim of infringement of any of the Collateral by any third party and of all
steps, including the commencement and course of litigation, taken to remedy such
infringement; and
(r) shall use proper statutory copyright notice with respect to all
copies or phonorecords of the works which are the subject of the Collateral.
SECTION 8. AMOUNTS PAYABLE IN RESPECT OF THE COLLATERAL. Except as
--------------------------------------------
otherwise provided in this Section 8 and in the Credit Agreement, Grantor shall
continue to collect, at its own expense, all amounts due or to become due to
Grantor in respect of the Collateral or any portion thereof. Upon the occurrence
and during the continuance of an Event of Default, Administrative Agent is
hereby given full power and authority, on its behalf and on behalf of Lenders
and Interest Rate Exchangers without notice or demand, (a) to notify any and all
obligors with respect to the Collateral or any portion thereof of the existence
of the security interest created and the conditional assignment effected hereby
and (b) to demand, take, collect, sue for and receive for its own use all
amounts due or to become due to Grantor in respect of the Collateral or any
portion thereof and (c) in connection therewith, to enforce all rights and
remedies with respect to the Collateral or any portion thereof which Grantor
could enforce if this Agreement had not been made. Grantor hereby ratifies any
action which Administrative Agent shall lawfully take to enforce Administrative
Agent's rights hereunder. Whether or not Administrative Agent shall have so
notified any obligors, Grantor shall at its expense render all reasonable
assistance to Administrative Agent in enforcing claims against such obligors.
SECTION 9. COPYRIGHT LITIGATION AFTER DEFAULT. Upon the occurrence
----------------------------------
and during the continuance of an Event of Default, Administrative Agent shall
have the right but shall in no way be obligated to bring suit in the name of
Grantor, Administrative Agent or Lenders or Interest Rate Exchangers to enforce
any Copyright, Registration, Copyright Right and any license thereunder, in
which event Grantor shall, at the request of Administrative Agent, do any and
all lawful acts and execute any and all documents required by Administrative
Agent in aid of such enforcement and Grantor shall promptly, upon demand,
reimburse and indemnify Administrative Agent and any other Indemnitee as
provided in Section 16 or 17 in connection with the exercise of their rights
under this Section 9. To the extent that Administrative Agent shall elect not
to bring suit to enforce any Copyright, Registration, Copyright Rights or any
license thereunder, Grantor agrees to use all reasonable
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measures, whether by action, suit, proceeding or otherwise, to prevent the
infringement of any of the Copyrights, Registrations or Copyright Rights by
others and for that purpose agrees to diligently maintain any action, suit or
proceeding against any Person so infringing necessary to prevent such
infringement.
SECTION 10. CERTAIN REMEDIES. If any Event of Default has occurred
----------------
and is continuing:
(a) Administrative Agent may exercise in respect of the Collateral,
in addition to all other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on default under
the Uniform Commercial Code as in effect in any relevant jurisdiction (the
"CODE") (whether or not the Code applies to the affected Collateral), and also
may (i) require Grantor to, and Grantor hereby agrees that it will at its
expense and upon request of Administrative Agent forthwith, assemble all or part
of the Collateral as directed by Administrative Agent and make it available to
Administrative Agent at a place to be designated by Administrative Agent that is
reasonably convenient to both parties, (ii) enter onto the property where any
Collateral is located and take possession thereof with or without judicial
process, (iii) prior to the disposition of the Collateral, store the Collateral
or otherwise prepare the Collateral for disposition in any manner to the extent
Administrative Agent deems appropriate, (iv) take possession of Grantor's
premises or place custodians in exclusive control thereof, remain on such
premises and use the same for the purpose of taking any actions described in the
preceding clause (iii) and collecting any Secured Obligation, (v) exercise any
and all rights and remedies of Grantor under or in connection with the contracts
related to the Collateral or otherwise in respect of the Collateral, including
without limitation any and all rights of Grantor to demand or otherwise require
payment of any amount under, or performance of any provision of, such contracts,
and (vi) without notice except as specified below, sell the Collateral or any
part thereof in one or more parcels at public or private sale, at any of
Administrative Agent's offices or elsewhere, for cash, on credit or for future
delivery, at such time or times and at such price or prices and upon such other
terms as Administrative Agent may deem commercially reasonable. Administrative
Agent or any Lender or any Interest Rate Exchanger may be the purchaser of any
or all of the Collateral at any such sale and Administrative Agent, as
administrative agent for and representative of Lenders (but not any Lender or
Lenders in its or their respective individual capacities unless Requisite
Lenders shall otherwise agree in writing), shall be entitled, for the purpose of
bidding and making settlement or payment of the purchase price for all or any
portion of the Collateral sold at any such public sale, to use and apply any of
the Secured Obligations as a credit on account of the purchase price for any
Collateral payable by Administrative Agent at such sale. Each purchaser at any
such sale shall hold the property sold absolutely free from any claim or right
on the part of Grantor, and Grantor hereby waives (to the extent permitted by
applicable law) all rights of redemption, stay and/or appraisal which it now has
or may at any time in the future have under any rule of law or statute now
existing or hereafter enacted. Grantor agrees that, to the extent notice of sale
shall be required by law, at least ten days' notice to Grantor of the time and
place of any public sale or the time after which any private sale is to be made
shall constitute reasonable notification. Administrative Agent shall not be
obligated to make any sale of Collateral regardless of notice of sale having
been given. Administrative Agent may
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<PAGE>
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. Grantor hereby waives any
claims against Administrative Agent arising by reason of the fact that the price
at which any Collateral may have been sold at such a private sale was less than
the price which might have been obtained at a public sale, even if
Administrative Agent accepts the first offer received and does not offer such
Collateral to more than one offeree. If the proceeds of any sale or other
disposition of the Collateral are insufficient to pay all the Secured
Obligations, Grantor shall be liable for the deficiency and the fees of any
attorneys employed by Administrative Agent to collect such deficiency.
(b) Upon the written demand of Administrative Agent, Grantor shall
execute and deliver to Administrative Agent an assignment or assignments of the
Copyrights, Registrations and Copyright Rights and such other documents as are
necessary or appropriate to carry out the intent and purposes of this Agreement;
provided that the failure of Grantor to comply with such demand will not impair
- --------
or affect the validity of the conditional assignment effected by Section 1.
Grantor agrees that such an assignment (including, without limitation, the
conditional assignment effected by Section 1) and/or recording shall be applied
to reduce the Secured Obligations outstanding only to the extent that
Administrative Agent (or any Lender or Interest Rate Exchanger) receives cash
proceeds in respect of the sale of, or other realization upon, the Collateral.
(c) Within five Business Days of written notice from Administrative
Agent, Grantor shall make available to Administrative Agent, to the extent
within Grantor's power and authority, such personnel in Grantor's employ on the
date of the Event of Default as Administrative Agent may reasonably designate,
by name, title or job responsibility, to permit Grantor to continue, directly or
indirectly, to produce, advertise and sell the products and services sold or
delivered by Grantor under or in connection with the Copyrights, Registrations
and Copyrights, such persons to be available to perform their prior functions on
Administrative Agent's behalf and to be compensated by Administrative Agent at
Grantor's expense on a per diem, pro-rata basis consistent with the salary and
benefit structure applicable to each as of the date of such Event of Default.
All cash proceeds received by Administrative Agent (or any Lender or
Interest Rate Exchanger) in respect of any sale of, collection from, or other
realization upon, all or any part of the Collateral, in the discretion of
Administrative Agent (at the request of Requisite Lenders or Requisite Obligees,
shall be held by Administrative Agent as collateral for, and/or then or at any
time thereafter applied (after payment of any amounts payable to Administrative
Agent pursuant to Sections 16 and 17 hereof) in whole or in part by
Administrative Agent at the request of Requisite Lenders or Requisite Obligees
against all or any part of the Secured Obligations in the order required after
an Event of Default as set forth in subsection 2.4D of the Credit Agreement.
SECTION 11. DECISIONS RELATING TO EXERCISE OF REMEDIES; AMENDMENTS,
-------------------------------------------------------
NON-DISTURBANCE AGREEMENT ETC. Administrative Agent shall exercise, or shall
- ------------------------------
refrain from exercising, any remedy provided for in Section 10 in accordance
with
11
<PAGE>
the instructions of Requisite Lenders or Requisite Obligees. No amendment
or waiver of any provision of this Agreement nor consent to any departure by the
Grantor herefrom, shall in any event be effective unless the same shall be in
writing and signed by the Requisite Lenders or Requisite Obligees, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given, except as provided in Section 7, in which case
the writing need only be signed by Administrative Agent. If and to the extent
that Grantor is permitted to license the Collateral, at Grantor's request and
expense, Administrative Agent shall enter into a non-disturbance agreement or
other similar arrangement with Grantor and any licensee of any Collateral
permitted hereunder in form and substance satisfactory to Administrative Agent
pursuant to which (a) Administrative Agent, on behalf of Lenders and Interest
Rate Exchangers, shall agree not to disturb or interfere with such licensee's
rights under its license agreement with Grantor so long as such licensee is not
in default thereunder and (b) such licensee shall acknowledge and agree that the
Collateral licensed to it is subject to the security interest and conditional
assignment created in favor of Administrative Agent on its behalf and on behalf
of Lenders and Interest Rate Exchangers and the other terms of this Agreement.
SECTION 12. GRANTOR REMAINS LIABLE. Anything herein to the contrary
-----------------------
notwithstanding, (a) Grantor shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein, to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed, (b) the exercise by Administrative Agent
or any Lender or Interest Rate Exchanger of any of the rights hereunder shall
not release Grantor from any of its duties or obligations under the contracts
and agreements included in the Collateral, (c) neither Administrative Agent nor
any Lender nor Interest Rate Exchanger shall have any obligation or liability
under the contracts and agreements included in the Collateral by reason of this
Agreement nor shall Administrative Agent or any Lender or Interest Rate
Exchanger be obligated to perform any of the obligations or duties of Grantor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder and (d) the powers conferred on Administrative Agent and
Lenders and Interest Rate Exchangers hereunder are solely to protect their
interests in the Collateral and shall not impose any duty upon Administrative
Agent or any Lender or Interest Rate Exchanger to exercise any such powers.
SECTION 13. ADMINISTRATIVE AGENT APPOINTED ATTORNEY-IN-FACT. Grantor
-----------------------------------------------
hereby irrevocably appoints Administrative Agent Grantor's attorney-in-fact,
with full authority in the place and stead of Grantor and in the name of
Grantor, Administrative Agent or otherwise, from time to time in Administrative
Agent's discretion while an Event of Default exists to take any action and to
execute any instrument which Administrative Agent may deem necessary or
advisable to accomplish the purposes of this Agreement, including, without
limitation: (a) to endorse Grantor's name on all applications, documents,
papers and instruments necessary for Administrative Agent in the use or
maintenance of the Collateral, (b) to ask, demand, collect, sue for, recover,
impound, receive and give acquittance and receipts for money due and to become
due under or in respect of any of the Collateral, (c) to file any claims or take
any action or institute any proceedings that Administrative Agent may deem
necessary or desirable for the collection of any of the Collateral or otherwise
to enforce the rights of Administrative Agent with respect to any of the
Collateral and, upon the
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<PAGE>
occurrence and during the continuance of an Event of Default, to execute and
deliver any of the assignments or documents requested by Administrative Agent
pursuant to Section 10(b) of this Agreement, to grant or issue an exclusive or
non-exclusive license to the Collateral or any portion thereof to any Person, or
to assign, pledge, convey or otherwise transfer title in or dispose of the
Collateral to any Person. Grantor hereby ratifies all that such attorney shall
lawfully do or cause to be done by virtue hereof.
SECTION 14. ADMINISTRATIVE AGENT MAY PERFORM. If Grantor fails to
--------------------------------
perform any agreement contained herein, Administrative Agent may itself perform,
or cause performance of, such agreement, and the expenses so incurred in
connection therewith, including the fees and expenses of Administrative Agent's
counsel, shall be payable by Grantor under Section 16 hereof.
SECTION 15. ADMINISTRATIVE AGENT AND LENDERS DUTIES AND LIABILITIES.
-------------------------------------------------------
(a) The powers conferred on Administrative Agent and Lenders and
Interest Rate Exchangers hereunder are solely to protect their interests in the
Collateral and shall not impose any duty upon it to exercise any such powers.
Except for the safe custody of any Collateral constituting tangible personal
property in its possession and the accounting for moneys actually received by it
hereunder, neither Administrative Agent nor any Lender nor Interest Rate
Exchanger shall have any duty as to any Collateral or as to the taking of any
necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral. Administrative Agent shall be deemed to
exercise reasonable care in the custody and preservation of such Collateral if
such Collateral is accorded treatment substantially equal to that which the
Administrative Agent accords its own property.
(b) Neither Administrative Agent nor any Lender nor Interest Rate
Exchanger shall be liable to the Grantor (i) for any loss or damage sustained by
it, or (ii) for any loss, damage, depreciation or other diminution in the value
of any of the Collateral, that may occur as a result of, in connection with or
that is in any way related to (x) any exercise by Administrative Agent or any
Lender or Interest Rate Exchanger of any right or remedy under this Agreement or
(y) any other act of or failure to act by Administrative Agent or any Lender or
Interest Rate Exchanger, except to the extent that the same shall be determined
by a judgment of a court or competent jurisdiction that is final and not subject
to review on appeal, to be the result of acts or omissions on the part of
Administrative Agent or such Lender constituting gross negligence or willful
misconduct.
(c) NO CLAIM MAY BE MADE BY THE GRANTOR AGAINST ADMINISTRATIVE AGENT,
ANY LENDER OR ITS AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS OR
INTEREST RATE EXCHANGERS OR AGENTS FOR ANY SPECIAL, INDIRECT, OR CONSEQUENTIAL
DAMAGES IN RESPECT OF ANY BREACH OR WRONGFUL CONDUCT (WHETHER THE CLAIM THEREFOR
IS BASED ON CONTRACT, TORT OR DUTY IMPOSED BY LAW) IN CONNECTION WITH, ARISING
OUT OF OR IN ANY WAY RELATED TO THE TRANSACTIONS CONTEMPLATED AND RELATIONSHIP
ESTABLISHED BY THIS AGREEMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN
CONNECTION
13
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THEREWITH; AND THE GRANTOR HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE UPON
ANY SUCH CLAIM FOR ANY SUCH DAMAGES, WHETHER OR NOT ACCRUED AND WHETHER OR NOT
KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR.
SECTION 16. EXPENSES. Grantor will, upon demand, pay to
--------
Administrative Agent the amount of any and all reasonable out-of-pocket fees and
expenses, including, without limitation, fees and disbursements of its counsel
(including foreign counsel) and of any experts and agents, that Administrative
Agent may incur in connection with (a) the administration of this Agreement
(including, without limitation, any amendments, modifications or waivers hereto
and the filing or recording of any documents), (b) the custody, preservation,
use or operation of, or the sale of, collection from, or other realization upon,
any of the Collateral, (c) the exercise or enforcement of any of the rights of
Administrative Agent or any other Lender or any Interest Rate Exchanger
hereunder, or (d) the failure by the Grantor to perform or observe any of the
provisions hereof.
SECTION 17. INDEMNIFICATION. Grantor hereby agrees to indemnify, pay
---------------
and hold Administrative Agent, Lenders and Interest Rate Exchangers and any of
their officers, directors, employees, agents and affiliates (collectively called
the "Indemnitees") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses or disbursements of any kind and nature whatsoever (including,
without limitation, the fees and disbursements of counsel for such Indemnitees
(including foreign counsel and experts in connection with any matter, including
any investigative, administrative or judicial proceeding commenced or threatened
described in Section 6 or otherwise, whether or not such Indemnitee shall be
designated a party thereto)) which may be imposed on, incurred by or asserted
against that Indemnitee in any way relating to or arising out of this Agreement
or any other documents contemplated by or referred to herein or the transactions
contemplated hereby or the enforcement of the terms hereof or of any such other
documents (the "indemnified liabilities"); provided, however, that Grantor shall
-------- -------
not be liable to an Indemnitee for any indemnified liability to the extent
arising from the gross negligence or willful misconduct of that Indemnitee.
Notwithstanding anything herein to the contrary, no Indemnitee shall have any
duty to Grantor to undertake any affirmative action in connection with this
Agreement or the Collateral and any failure by any Indemnitee to undertake any
action hereunder shall not constitute gross negligence or willful misconduct of
such Indemnitee.
SECTION 18. NO WAIVER; CUMULATIVE REMEDIES. No failure on the part of
-------------------------------
Administrative Agent to exercise, and no course of dealing with respect to and
no delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise by Administrative Agent
of any right, power or remedy hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or remedy. The remedies
herein provided are to the fullest extent permitted by law cumulative of any
remedies provided by law.
SECTION 19. ADDRESSES FOR NOTICES. All notices and other
---------------------
communications to any party provided for hereunder shall be given as provided in
the Credit Agreement.
14
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SECTION 20. CONTINUING SECURITY INTEREST AND TRANSFER OF LOANS. This
--------------------------------------------------
Agreement shall create a continuing security interest in the Collateral and
shall (a) remain in full force and effect until the payment in full of all
Secured Obligations, the cancellation or termination of the Commitments and the
cancellation or expiration of all outstanding Letters of Credit, (b) be binding
upon Grantor, its successors and assigns, and (c) inure, together with the
rights and remedies of Administrative Agent hereunder, to the benefit of
Administrative Agent and its successors, transferees and assigns. Without
limiting the generality of the foregoing clause (c), but subject to the
provisions of subsection 10.1 of the Credit Agreement, any Lender may assign or
otherwise transfer any Loans held by it to any other Person, and such other
Person shall thereupon become vested with all the benefits in respect thereof
granted to Lenders herein or otherwise. Upon the payment in full of all Secured
Obligations, the cancellation or termination of the Commitments and the
cancellation or expiration of all outstanding Letters of Credit, the security
interest granted hereby shall terminate and all rights to the Collateral shall
revert to Grantor. Upon any such termination Administrative Agent will, at
Grantor's expense, execute and deliver to Grantor such documents as Grantor
shall reasonably request to evidence such termination and Grantor shall be
entitled to the return, upon its request and at its expense, against receipt and
without recourse to Administrative Agent, of such of the Collateral as shall not
have been sold or otherwise applied pursuant to the terms hereof.
SECTION 21. REASSIGNMENT. If (a) an Event of Default shall have
------------
occurred and, by reason of waiver, modification, amendment or otherwise, no
longer be continuing, (b) no other Event of Default shall be continuing, (c) an
assignment to the Administrative Agent shall have been previously made pursuant
to Sections 1, 10(b) or Section 13 hereof, and (d) the Secured Obligations shall
not have become immediately due and payable, upon the written request of Grantor
and the written consent of Administrative Agent or the written election of
Requisite Lenders or Requisite Obligees, Administrative Agent shall promptly
execute and deliver to Grantor such assignments as may be necessary to reassign
to Grantor any rights, title and interests as may have been assigned pursuant to
Sections 1, 10(b) or 13 hereof, subject to any disposition thereof that may have
been made by Administrative Agent pursuant hereto; provided that, after giving
--------
effect to such reassignment, Administrative Agent's security interest and
conditional assignment granted pursuant to Section 1 hereof, as well as all
other rights and remedies of Administrative Agent granted hereunder, shall
continue to be in full force and effect; and provided, further, that the rights,
-------- -------
title and interests so reassigned shall be free and clear of all Liens other
than Liens (if any) encumbering such rights, title and interest at the time of
their assignment to Administrative Agent and Permitted Liens.
SECTION 22. WAIVER. Grantor hereby waives promptness, diligence,
------
notice of acceptance and any other notice with respect to any of the Secured
Obligations and this Agreement and any requirement that Administrative Agent
protect, secure, perfect or insure any security interest or lien or any property
subject thereto or exhaust any right or take any action against Grantor or any
other person or entity or any of the Collateral.
SECTION 23. GOVERNING LAW; TERMS; RULES OF CONSTRUCTION. THIS
-------------------------------------------
AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
15
<PAGE>
HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION
1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO
CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE CODE PROVIDES THAT
THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN
RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION
OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined herein or in the
Credit Agreement, terms used in Articles 8 and 9 of the Uniform Commercial Code
in the State of New York are used herein as therein defined. The rules of
construction set forth in subsection 1.3 of the Credit Agreement shall be
applicable to this Agreement mutatis mutandis.
SECTION 24. SEVERABILITY. In case any provision in or obligation
------------
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 25. COUNTERPARTS. This Agreement may be executed in one or
------------
more counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
SECTION 26. CREDIT AGREEMENT CONTROLS. In case of any irreconcilable
-------------------------
conflict between the provisions of this Agreement and the Credit Agreement, the
provisions of the Credit Agreement shall control.
SECTION 27. CONSENT TO JURISDICTION; WAIVER OF IMMUNITIES. ALL
---------------------------------------------
JUDICIAL PROCEEDINGS BROUGHT AGAINST GRANTOR ARISING OUT OF OR RELATING TO THIS
AGREEMENT, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL
COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY
EXECUTING AND DELIVERING THIS AGREEMENT, GRANTOR, FOR ITSELF AND IN CONNECTION
WITH ITS PROPERTIES, IRREVOCABLY
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY
SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO GRANTOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 18;
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(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER GRANTOR IN ANY SUCH
PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT;
(V) AGREES THAT ADMINISTRATIVE AGENT RETAINS THE RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST
GRANTOR IN THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SECTION 27 RELATING TO
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR
OTHERWISE.
SECTION 28. WAIVER OF JURY TRIAL. GRANTOR AND ADMINISTRATIVE AGENT
--------------------
HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this
waiver is intended to be all-encompassing of any and all disputes that may be
filed in any court and that relate to the subject matter of this transaction,
including contract claims, tort claims, breach of duty claims, and all other
common law and statutory claims. Grantor and Administrative Agent each
acknowledge that this waiver is a material inducement for Grantor and
Administrative Agent to enter into a business relationship, that Grantor and
Administrative Agent have already relied on this waiver in entering into this
Agreement and that each will continue to rely on this waiver in their related
future dealings. Grantor and Administrative Agent further warrant and represent
that each has reviewed this waiver with its legal counsel, and that each
knowingly and voluntarily waives its jury trial rights following consultation
with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER
SPECIFICALLY REFERRING TO THIS SECTION 28 AND EXECUTED BY EACH OF THE PARTIES
HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. In the event of litigation,
this Agreement may be filed as a written consent to a trial by the court.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
[NAME OF SUBSIDIARY],
as Grantor
By: __________________________
Name: __________________________
Title: __________________________
Notice Address:
1800 Cloquet Avenue
Cloquet, MN 55720-2141
Attention: Tom Knuesel
WELLS FARGO BANK, N.A.,
as Administrative Agent
By: __________________________
Name: __________________________
Title: __________________________
Notice Address:
Attention:
S-1
<PAGE>
SCHEDULE A
----------
U.S. COPYRIGHTS
DATE
COPYRIGHT REG. NO. OF ISSUE
- --------- -------- --------
<PAGE>
SCHEDULE A
----------
FOREIGN COPYRIGHT REGISTRATIONS
DATE
COUNTRY COPYRIGHT REGISTRATION NO. OF ISSUE
- ------- --------- ---------------- --------
<PAGE>
SCHEDULE A
----------
PENDING U.S. COPYRIGHTS
DATE OF
COPYRIGHT REF. NO. APPLICATION
- --------- -------- -----------
<PAGE>
SCHEDULE A
----------
LICENSES
<PAGE>
STATE OF CALIFORNIA )
) SS.:
COUNTY OF ____________ )
On ___________, 19___, before me, ____________________, a Notary
Public in and for said State, personally appeared
__________________________________________, personally known to me (or proved to
me on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature ________________________________ (Seal)
<PAGE>
SUBSIDIARY COPYRIGHT SECURITY AGREEMENT
THIS SUBSIDIARY COPYRIGHT SECURITY AGREEMENT dated as of April 21,
1998 (this "AGREEMENT") is made by [SUBSIDIARY], a [___________________]
Corporation ("GRANTOR"), to WELLS FARGO BANK, N.A., as administrative agent for
and representative of (in such capacity herein called "ADMINISTRATIVE AGENT")
financial institutions ("LENDERS") party to the Credit Agreement referred to
below and any Interest Rate Exchangers (as hereinafter defined).
PRELIMINARY STATEMENTS
A. Administrative Agent and Lenders have entered into the Credit
Agreement dated as of April 21, 1998 with Diamond Brands Operating Corp., a
Delaware corporation ("COMPANY" or "BORROWER"), DLJ Capital Funding, Inc., as
Syndication Agent, and Morgan Stanley Senior Funding Inc., as Documentation
Agent (said Credit Agreement and any successor agreement, as it may be amended,
amended and restated, modified or otherwise supplemented from time to time,
being the "CREDIT AGREEMENT"; the terms defined therein and not otherwise
defined herein being used herein as therein defined).
B. Company may from time to time enter, or may from time to time
have entered, into one or more Interest Rate Agreements (collectively, the
"LENDER INTEREST RATE AGREEMENTS") with one ore more Lenders (in such capacity,
collectively, "INTEREST RATE EXCHANGERS").
C. Grantor has executed and delivered the Subsidiary Guaranty dated
as of April 21, 1998 (said Subsidiary Guaranty, as it may hereafter be amended,
supplemented or otherwise modified from time to time, being the "SUBSIDIARY
GUARANTY") in favor of Administrative Agent for the benefit of Lenders and
Interest Rate Exchangers, pursuant to which Grantor has guarantied the prompt
payment and performance when due of all Obligations of the Borrower under the
Credit Agreement and under any Lender Interest Rate Agreements.
D. Grantor owns and uses in its business and will in the future,
adopt and so use various published and unpublished works of authorship
(collectively, the "COPYRIGHTS").
E. Administrative Agent, for its benefit and the ratable benefit of
Lenders, desires to become a secured creditor with respect to and, under the
circumstances described herein, an assignee of all of the existing and future
Copyrights, all copyright registrations and applications for copyright
registration which have heretofore been or may hereafter be issued thereon or
applied for with the United States Copyright Office and throughout the world
(the "REGISTRATIONS"), all common law and other rights in and to the
1
<PAGE>
Copyrights throughout the world, including all copyright licenses (the
"COPYRIGHT RIGHTS") and all proceeds of the Copyrights, the Registrations and
the Copyright Rights, and Grantor agrees to create a secured and protected
interest in the Copyrights, the Registrations, the Copyright Rights and all the
proceeds thereof as provided herein.
F. Upon the occurrence of and during the continuance of an Event of
Default under the Credit Agreement and to permit Administrative Agent to
continue operating Grantor's business without interruption and to use the
Copyrights, Registrations and Copyright Rights in conjunction therewith, Grantor
is willing to grant to Administrative Agent for its benefit and the ratable
benefit of Lenders and Interest Rate Exchangers the conditional assignment of
Grantor's entire right, title and interest in and to the Collateral (as
hereinafter defined) and to appoint Administrative Agent or Administrative
Agent's designee as Grantor's attorney-in-law and attorney-in-fact to execute
documents and take actions to confirm said assignments.
G. The Credit Agreement requires that Grantor grant the security
interest and make the conditional assignment contemplated by this Agreement as a
condition precedent to the availability of the credit facilities thereunder.
NOW THEREFORE, in consideration of the premises, and in order to
induce Lenders to extend the credit facilities under the Credit Agreement and to
induce Interest Rate Exchangers to enter into Interest Rate Agreements, Grantor
hereby agrees with Administrative Agent for Administrative Agent's benefit and
the ratable benefit of Lenders and Interest Rate Exchangers as follows:
SECTION 1. GRANT OF SECURITY. Grantor hereby grants a first priority
-----------------
security interest in, pledges and mortgages, but does not transfer title, to
Administrative Agent for its benefit and the ratable benefit of Lenders and
Interest Rate Exchangers, all of Grantor's right, title and interest in and to
the following (the "COLLATERAL") to secure the Secured Obligations (as
hereinafter defined):
(a) Each of the Copyrights, rights, titles and interests in and to
the Copyrights and works protectable by copyright, which are presently, or in
the future may be, owned, created, authored (as a work for hire), acquired or
used (whether pursuant to a license or otherwise) by Grantor, in whole or in
part, and all Copyright Rights with respect thereto and all Registrations
therefor, heretofore or hereafter granted or applied for, and all renewals and
extensions thereof, throughout the world, including all proceeds thereof (such
as, by way of example and not by limitation, license royalties and proceeds of
infringement suits), the right (but not the obligation) to renew and extend such
Copyrights, Registrations and Copyright Rights and to register works protectable
by copyright and the right (but not the obligation) to sue or bring opposition
or cancellation proceedings in the name of Grantor or in the name of
Administrative Agent or Lenders or Interest Rate Exchangers for past, present
and future infringements of the Copyrights and Copyright Rights, including,
without limitation:
(i) all of Grantor's right, title and interest, to the extent that it
has the
2
<PAGE>
same, in and to all copyrights or rights or interests in copyrights
registered or recorded in the United States Copyright Office, including,
without limitation, the Registrations listed on Schedule A attached hereto,
as the same may be amended pursuant hereto from time to time;
(ii) all of Grantor's right, title and interest, to the extent that
it has the same, in and to all renewals and extensions of any such
copyrights that may be secured under the law now or hereafter in force and
effect; and
(iii) all of Grantor's right, title and interest, to the extent that
it has the same, to make and exploit all derivative works based on or
adopted from all works covered by the copyrights referred to herein;
it being understood and agreed that the Collateral assigned hereby shall
include, without limitation, rights and interests pursuant to licensing or other
contracts in favor of Grantor pertaining to copyrights and works protectable by
copyright presently or in the future owned or used by third-parties, but in the
case of third-parties which are not Affiliates of Grantor only to the extent
permitted by such licensing or other contracts and, if not so permitted, only
with the consent of such third-parties;
(b) All general intangibles (as defined in Article 9 of the Uniform
Commercial Code as in effect in the State of New York (the "CODE") relating to
the Collateral; and
(c) All proceeds of any and all of the foregoing Collateral
(including, without limitation, license royalties and proceeds of infringement
suits) and, to the extent not otherwise included, all payments under insurance
(whether or not Administrative Agent or any Lender or Interest Rate Exchanger is
the loss payee thereof) or any indemnity, warranty or guaranty payable by reason
of loss or damage to or otherwise with respect to the foregoing Collateral. For
purposes of this Agreement, the term "PROCEEDS" includes whatever is receivable
or received when Collateral or proceeds are sold, collected, exchanged or
otherwise disposed of, whether such disposition is voluntary or involuntary, and
includes, without limitation, all rights to payment, including returned
premiums, with respect to any insurance relating thereto.
It is the intention of Grantor and Administrative Agent that the
security interest granted hereby shall attach to the Collateral as of the date
hereof and shall remain in effect until the indefeasible payment in full of the
Secured Obligations, the cancellation or termination of the Commitments and the
cancellation or expiration of all outstanding Letter of Credit.
In addition to, and not by way of limitation of, the pledge and
mortgage of the Collateral set forth above, Grantor hereby, effective upon the
occurrence of an Event of Default, assigns, grants, sells, conveys, transfers
and sets over to Administrative Agent for its benefit and the ratable benefit of
Lenders and Interest Rate Exchangers all of Grantor's rights, title and interest
in and to the Collateral as security for the Secured
3
<PAGE>
Obligations.
SECURED 2. SECURITY FOR OBLIGATIONS. This Agreement secures, and the
------------------------
Collateral is collateral security for, the prompt payment or performance in full
when due, whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise (including the payment of amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code, 11 U.S.C. Section 362(a)), of all obligations and
liabilities of every nature of Grantor now or hereafter existing under or
arising out of or in connection with the Subsidiary Guaranty, the other Loan
Documents and the Lender Interest Rate Agreements and all extensions or renewals
thereof, whether for principal, interest (including interest that, but for the
filing of a petition in bankruptcy with respect to Grantor, would accrue on such
obligations, whether or not a claim is allowed against Grantor for such interest
in the related bankruptcy proceeding), reimbursement of amounts drawn under
Letters of Credit, payments for early termination of Lender Interest Rate
Agreements, fees, expenses, indemnities or otherwise, whether voluntary or
involuntary, direct or indirect, absolute or contingent, liquidated or
unliquidated, whether or not jointly owed with others, and whether or not from
time to time decreased or extinguished and later increased, created or incurred,
and all or any portion of such obligations or liabilities that are paid, to the
extent all or any part of such payment is avoided or recovered directly or
indirectly from Secured Party or any Lender or Interest Rate Exchanger as a
preference, fraudulent transfer or otherwise (all such obligations and
liabilities being the "UNDERLYING DEBT"), and all obligations of every nature of
Grantor now or hereafter existing under this Agreement (all such obligations of
Grantor, together with the Underlying Debt, being the "SECURED OBLIGATIONS").
SECTION 3. REPRESENTATIONS AND WARRANTIES. Grantor represents,
------------------------------
warrants and covenants as follows:
(a) A true and complete list of all Registrations and applications
for Registrations owned, held (whether pursuant to a license or otherwise) or
used by Grantor, in whole or in part, in conducting its business is set forth in
Schedule A attached hereto.
(b) Grantor has full power, authority and legal right to pledge all
of the Collateral pursuant to this Agreement and none of Grantor's Affiliates
has any right, title or interest in any Collateral.
(c) Each of the Copyrights and Copyright Rights are subsisting and
none of the Copyrights, Registrations or Copyright Rights have been adjudged
invalid or unen forceable.
(d) Each material Copyright and each material Copyright Right are
believed to be valid and enforceable and Grantor is not presently aware of any
past, present or prospective claim by any third party that any material
Copyright or material Copyright Right is invalid or unenforceable or of any
basis for any such claim.
(e) No claim known to Grantor has been made that the works of any
4
<PAGE>
material Copyright, material Registration or material Copyright Right does or
may violate the rights of any third person.
(f) Grantor has taken and will continue to take all reasonable steps
to protect the secrecy of all trade secrets relating to unpublished Collateral.
(g) Except as may be prohibited by law, Grantor will use statutory
notice in connection with its use of each material Copyright, material
Registration and material Copyright Right.
(h) The execution, delivery and performance of this Agreement by
Grantor does not conflict with, result in a breach of, constitute (with due
notice or lapse of time or both) a default under, or require the limitation of
or consent under, any Contractual Obligation of Grantor, including, without
limitation, any agreement pursuant to which Grantor licenses or has the right to
use any Collateral.
(i) Grantor is the legal and beneficial owner of each material
Copyright, material Registration and material Copyright Right, free and clear of
any Lien, including, without limitation, pledges, assignments, licenses and
covenants by Grantor not to sue third persons, except for the Lien and
conditional assignment created by this Agreement and Permitted Liens. No
effective financing statement or other instrument similar in effect covering all
or any part of the Collateral is on file in any recording office, except such as
may have been filed in favor of Administrative Agent relating to the Credit
Agreement or this Agreement or for which duly executed termination statements
have been recorded or delivered to Administrative Agent. No effective filing
with the United States Copyright Office covering all or any part of the
Collateral is on file with the United States Copyright Office, except such as
may be filed in favor of Grantor evidencing Grantor's right, title and interest
in the Copyrights or in favor of Administrative Agent relating to this Agreement
or for which duly executed termination statements have been delivered to
Administrative Agent.
(j) Grantor's chief executive office is located at the address
specified on the signature page to this Agreement which address qualifies as its
"location" under the Code.
(k) This Agreement will create in favor of Administrative Agent for
its benefit and the ratable benefit of Lenders and Interest Rate Exchangers a
valid and perfected first priority security interest in the Collateral upon
making the filings referred to in clause (l) below.
(l) Except for the filing of financing statements with the Secretary
of State of the State of [___________] under the Code and filings with the
United States Copyright Office necessary to perfect the security interest
created hereunder, no authorization, approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body is required
either (i) for the grant by Grantor of the security interest granted hereby or
for the execution, delivery or performance of this Agreement by
5
<PAGE>
Grantor or (ii) for the perfection of or the exercise by Administrative Agent of
its rights and remedies hereunder to the Collateral in the United States of
America.
(m) All information heretofore, herein or hereafter supplied to
Administrative Agent and Lenders by or on behalf of Grantor with respect to the
Collateral is accurate and complete in all material respects.
SECTION 4. INSPECTION RIGHTS. Subject to the terms of the Credit
-----------------
Agreement, Grantor hereby grants to Administrative Agent and any and all of its
employees, representatives and agents the right to visit Grantor's and any of
its Affiliate's or subcontractor's plants, facilities and other places of
business that are utilized in connection with the manufacture, production,
inspection, storage or sale of products and services sold or delivered utilizing
any of the Copyrights, Registrations or Copyright Rights (or which were so
utilized during the prior six month period), and to inspect the records relating
thereto upon reasonable notice to Grantor and as often as may be reasonably
requested.
SECTION 5. NEW COPYRIGHTS, REGISTRATIONS AND COPYRIGHT RIGHTS. If
--------------------------------------------------
Grantor shall obtain rights to any new works protectable by copyright, or become
entitled to the benefit of any Registration, application for Registration or
renewals or extension of any Copyright, the provisions of this Agreement shall
automatically apply thereto. With respect to any such Registration,
applications for Registration or renewal or extension of any Copyright, Grantor
shall give prompt notice thereof in writing to Administrative Agent.
Concurrently with the filing of an application for any Registration for any
Copyright, Grantor shall execute, deliver and record in all places where this
Agreement is recorded an appropriate Copyright Security Agreement, substantially
in the form hereof, with appropriate insertions or an amendment to this
Agreement, in form and substance satisfactory to Administrative Agent, pursuant
to which Grantor shall grant a security interest and conditional assignment to
the extent of its interest in such Registration as provided herein to
Administrative Agent on its behalf and on behalf of Lenders and Interest Rate
Exchangers unless so doing would, in the reasonable judgment of Grantor, after
due inquiry, result in the grant of a Registration in the name of Administrative
Agent, in which event Grantor shall give written notice to Administrative Agent
as soon as reasonably practicable and the filing shall instead be undertaken as
soon as practicable but in no case later than immediately following the grant of
the Registration.
SECTION 6. COPYRIGHT REGISTRATION, RENEWAL AND LITIGATION.
----------------------------------------------
(a) Grantor shall have the duty diligently to make any application
for Registration on any existing or future unregistered but copyrightable works
(except for works of nominal commercial value) and to do any and all acts which
are reasonably necessary or desirable to preserve, renew and maintain all rights
in all Copyrights, Registrations and Copyright Rights which are material to
Grantor's business. Any expenses incurred in connection therewith shall be borne
solely by Grantor. Grantor shall not abandon any Copyright, Registration or
Copyright Right which is material to Grantor's business.
6
<PAGE>
(b) Except as provided in Section 9 and notwithstanding Section 1,
Grantor shall have the right and obligation to commence and diligently prosecute
in its own name, as real party in interest, for its own benefit and at its own
expense, such suits, proceedings or other actions for infringement or other
damage as are in its reasonable business judgment necessary to protect the
Collateral. Grantor shall provide to Administrative Agent any information with
respect thereto requested by Administrative Agent. Administrative Agent shall
provide at Grantor's expense all and necessary cooperation in connection with
any such suit, proceeding or action including, without limitation, joining as a
necessary party.
(c) Grantor shall promptly, following its becoming aware thereof,
notify Administrative Agent of the institution of, or any adverse determination
in, any proceeding in the United States Copyright Office or any United States or
foreign court described in Section 6(a) or 6(b) or regarding Grantor's claim of
ownership in any material Copyright, material Registration or material Copyright
Right, its right to register the same, or its right to keep and maintain such
registration;
SECTION 7. GRANTOR'S COVENANTS. On a continuing basis, Grantor shall
-------------------
make, execute, acknowledge and deliver, and file and record in the proper filing
and recording places, all such instruments and documents, including, without
limitation, appropriate financing and continuation statements and security
agreements, and take all such action as may be necessary or advisable or may be
requested by Administrative Agent or (i) Requisite Lenders or (ii) after payment
in full of all Obligations under the Credit Agreement and the other Loan
Documents, the holders of a majority of the aggregate notional amount (or, with
respect to any Lender Interest Rate Agreement that has been terminated in
accordance with its terms, the amount then due and payable (exclusive of
expenses and similar payments but including any early termination payments then
due) under such Lender Interest Rate Agreement) under all Lender Interest Rate
Agreements (Requisite Lenders or, if applicable, such holders being referred to
herein as "REQUISITE OBLIGEES") to carry out the intent and purposes of this
Agreement, or for assuring, confirming or protecting the grant or perfection of
security interest and the conditional assignment granted or purported to be
granted hereby, to ensure Grantor's compliance with this Agreement or to enable
Administrative Agent to exercise and enforce its rights and remedies hereunder
with respect to the Collateral. Without limiting the generality of the
foregoing sentence, Grantor:
(a) authorizes Administrative Agent in its sole discretion to modify
this Agreement without first obtaining Grantor's approval of or signature to
such modification by amending Schedule A thereof to include a reference to any
right, title or interest in any existing Copyright, Registration or Copyright
Right or any Copyright, Registration or Copyright Right acquired by Grantor
after the execution hereof or to delete any reference to any right, title or
interest in any Copyright, Registration or Copyright Right in which Grantor no
longer has or claims any right, title or interest;
(b) shall, from time to time, cause its books and records to be
marked with such legends or segregated in such manner as Administrative Agent
may reasonably
7
<PAGE>
specify, and take or cause to be taken such other action and adopt such
procedures as Administrative Agent may reasonably specify to give notice of or
to perfect the security interest and assignment in the Collateral intended to be
created hereby;
(c) hereby authorizes Administrative Agent, in its sole discretion,
to file one or more financing or continuation statements, and amendments
thereto, relative to all or any portion of the Collateral without the signature
of Grantor where permitted by law;
(d) shall diligently keep reasonable records respecting the
Collateral;
(e) shall at all times keep at least one complete set of its records
concerning substantially all of the Copyrights, Registrations and Copyright
Rights at its chief executive office as set forth above and will not change the
location of its chief executive office or such records without giving
Administrative Agent at least 30 days' prior written notice thereof;
(f) shall notify Administrative Agent promptly of any change in
Grantor's name, identity or corporate structure;
(g) shall not enter into any agreement that would or might in any
material way impair or conflict with Grantor's obligations hereunder;
(h) shall use its best efforts to obtain any necessary consents of
third parties to the grant or perfection of a security interest and assignment
to Administrative Agent with respect to the Collateral;
(i) shall not permit the inclusion in any contract to which it
becomes a party of any provision that could impair or prevent the creation of a
security interest in Grantor's rights and interest in any property included
within definitions of the Copyrights, Copyright Registrations and Copyright
Rights acquired under such contracts;
(j) shall properly maintain and care for the Collateral;
(k) shall not grant or permit to exist any Lien in the Collateral or
any portion thereof except for Permitted Liens;
(l) upon any officer of Grantor obtaining knowledge thereof, shall
promptly notify Administrative Agent in writing of any event that may materially
adversely affect the value of the Collateral, the ability of Grantor or
Administrative Agent to dispose of the Collateral or any portion thereof or the
rights and remedies of Administrative Agent in relation thereto including,
without limitation, the levy of any legal process against the Collateral or any
portion thereof;
(m) shall not use or permit any Collateral to be used unlawfully or
in violation of any provision of this Agreement, or any applicable statute,
regulation or ordinance or any policy of insurance covering the Collateral;
8
<PAGE>
(n) shall pay promptly when due all property and other taxes,
assessments and governmental charges or levies imposed upon, and all claims
(including claims for labor, materials and supplies) against, the Collateral,
except to the extent permitted under the Credit Agreement.
(o) shall furnish to Administrative Agent from time to time
statements and schedules further identifying and describing the Collateral and
such other materials evidencing or reports pertaining to the Collateral as
Administrative Agent may reasonably request, all in reasonable detail;
(p) shall not do any act or omit to do any act whereby any of the
Collateral may become abandoned;
(q) shall notify Administrative Agent immediately and in writing of
any claim of infringement of any of the Collateral by any third party and of all
steps, including the commencement and course of litigation, taken to remedy such
infringement; and
(r) shall use proper statutory copyright notice with respect to all
copies or phonorecords of the works which are the subject of the Collateral.
SECTION 8. AMOUNTS PAYABLE IN RESPECT OF THE COLLATERAL. Except as
--------------------------------------------
otherwise provided in this Section 8 and in the Credit Agreement, Grantor shall
continue to collect, at its own expense, all amounts due or to become due to
Grantor in respect of the Collateral or any portion thereof. Upon the
occurrence and during the continuance of an Event of Default, Administrative
Agent is hereby given full power and authority, on its behalf and on behalf of
Lenders and Interest Rate Exchangers without notice or demand, (a) to notify any
and all obligors with respect to the Collateral or any portion thereof of the
existence of the security interest created and the conditional assignment
effected hereby and (b) to demand, take, collect, sue for and receive for its
own use all amounts due or to become due to Grantor in respect of the Collateral
or any portion thereof and (c) in connection therewith, to enforce all rights
and remedies with respect to the Collateral or any portion thereof which Grantor
could enforce if this Agreement had not been made. Grantor hereby ratifies any
action which Administrative Agent shall lawfully take to enforce Administrative
Agent's rights hereunder. Whether or not Administrative Agent shall have so
notified any obligors, Grantor shall at its expense render all reasonable
assistance to Administrative Agent in enforcing claims against such obligors.
SECTION 9. COPYRIGHT LITIGATION AFTER DEFAULT. Upon the occurrence
----------------------------------
and during the continuance of an Event of Default, Administrative Agent shall
have the right but shall in no way be obligated to bring suit in the name of
Grantor, Administrative Agent or Lenders or Interest Rate Exchangers to enforce
any Copyright, Registration, Copyright Right and any license thereunder, in
which event Grantor shall, at the request of Administrative Agent, do any and
all lawful acts and execute any and all documents required by Administrative
Agent in aid of such enforcement and Grantor shall promptly, upon demand,
reimburse and indemnify Administrative Agent and any other Indemnitee as
provided in Section 16 or 17 in connection with the exercise of their rights
under this
9
<PAGE>
Section 9. To the extent that Administrative Agent shall elect not to bring suit
to enforce any Copyright, Registration, Copyright Rights or any license
thereunder, Grantor agrees to use all reasonable measures, whether by action,
suit, proceeding or otherwise, to prevent the infringement of any of the
Copyrights, Registrations or Copyright Rights by others and for that purpose
agrees to diligently maintain any action, suit or proceeding against any Person
so infringing necessary to prevent such infringement.
SECTION 10. CERTAIN REMEDIES. If any Event of Default has occurred
----------------
and is continuing:
(a) Administrative Agent may exercise in respect of the Collateral,
in addition to all other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on default under
the Uniform Commercial Code as in effect in any relevant jurisdiction (the
"CODE") (whether or not the Code applies to the affected Collateral), and also
may (i) require Grantor to, and Grantor hereby agrees that it will at its
expense and upon request of Administrative Agent forthwith, assemble all or part
of the Collateral as directed by Administrative Agent and make it available to
Administrative Agent at a place to be designated by Administrative Agent that is
reasonably convenient to both parties, (ii) enter onto the property where any
Collateral is located and take possession thereof with or without judicial
process, (iii) prior to the disposition of the Collateral, store the Collateral
or otherwise prepare the Collateral for disposition in any manner to the extent
Administrative Agent deems appropriate, (iv) take possession of Grantor's
premises or place custodians in exclusive control thereof, remain on such
premises and use the same for the purpose of taking any actions described in the
preceding clause (iii) and collecting any Secured Obligation, (v) exercise any
and all rights and remedies of Grantor under or in connection with the contracts
related to the Collateral or otherwise in respect of the Collateral, including
without limitation any and all rights of Grantor to demand or otherwise require
payment of any amount under, or performance of any provision of, such contracts,
and (vi) without notice except as specified below, sell the Collateral or any
part thereof in one or more parcels at public or private sale, at any of
Administrative Agent's offices or elsewhere, for cash, on credit or for future
delivery, at such time or times and at such price or prices and upon such other
terms as Administrative Agent may deem commercially reasonable. Administrative
Agent or any Lender or any Interest Rate Exchanger may be the purchaser of any
or all of the Collateral at any such sale and Administrative Agent, as
administrative agent for and representative of Lenders (but not any Lender or
Lenders in its or their respective individual capacities unless Requisite
Lenders shall otherwise agree in writing), shall be entitled, for the purpose of
bidding and making settlement or payment of the purchase price for all or any
portion of the Collateral sold at any such public sale, to use and apply any of
the Secured Obligations as a credit on account of the purchase price for any
Collateral payable by Administrative Agent at such sale. Each purchaser at any
such sale shall hold the property sold absolutely free from any claim or right
on the part of Grantor, and Grantor hereby waives (to the extent permitted by
applicable law) all rights of redemption, stay and/or appraisal which it now has
or may at any time in the future have under any rule of law or statute now
existing or hereafter enacted. Grantor agrees that, to the extent notice of sale
shall be required by law, at least ten days' notice to Grantor of the time and
place of any public sale or the time after which any private sale is to be made
shall
10
<PAGE>
constitute reasonable notification. Administrative Agent shall not be obligated
to make any sale of Collateral regardless of notice of sale having been given.
Administrative Agent may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned.
Grantor hereby waives any claims against Administrative Agent arising by reason
of the fact that the price at which any Collateral may have been sold at such a
private sale was less than the price which might have been obtained at a public
sale, even if Administrative Agent accepts the first offer received and does not
offer such Collateral to more than one offeree. If the proceeds of any sale or
other disposition of the Collateral are insufficient to pay all the Secured
Obligations, Grantor shall be liable for the deficiency and the fees of any
attorneys employed by Administrative Agent to collect such deficiency.
(b) Upon the written demand of Administrative Agent, Grantor shall
execute and deliver to Administrative Agent an assignment or assignments of the
Copyrights, Registrations and Copyright Rights and such other documents as are
necessary or appropriate to carry out the intent and purposes of this Agreement;
provided that the failure of Grantor to comply with such demand will not impair
- --------
or affect the validity of the conditional assignment effected by Section 1.
Grantor agrees that such an assignment (including, without limitation, the
conditional assignment effected by Section 1) and/or recording shall be applied
to reduce the Secured Obligations outstanding only to the extent that
Administrative Agent (or any Lender or Interest Rate Exchanger) receives cash
proceeds in respect of the sale of, or other realization upon, the Collateral.
(c) Within five Business Days of written notice from Administrative
Agent, Grantor shall make available to Administrative Agent, to the extent
within Grantor's power and authority, such personnel in Grantor's employ on the
date of the Event of Default as Administrative Agent may reasonably designate,
by name, title or job responsibility, to permit Grantor to continue, directly or
indirectly, to produce, advertise and sell the products and services sold or
delivered by Grantor under or in connection with the Copyrights, Registrations
and Copyrights, such persons to be available to perform their prior functions on
Administrative Agent's behalf and to be compensated by Administrative Agent at
Grantor's expense on a per diem, pro-rata basis consistent with the salary and
benefit structure applicable to each as of the date of such Event of Default.
All cash proceeds received by Administrative Agent (or any Lender or
Interest Rate Exchanger) in respect of any sale of, collection from, or other
realization upon, all or any part of the Collateral, in the discretion of
Administrative Agent (at the request of Requisite Lenders or Requisite Obligees,
shall be held by Administrative Agent as collateral for, and/or then or at any
time thereafter applied (after payment of any amounts payable to Administrative
Agent pursuant to Sections 16 and 17 hereof) in whole or in part by
Administrative Agent at the request of Requisite Lenders or Requisite Obligees
against all or any part of the Secured Obligations in the order required after
an Event of Default as set forth in subsection 2.4D of the Credit Agreement.
SECTION 11. DECISIONS RELATING TO EXERCISE OF REMEDIES;
-------------------------------------------
11
<PAGE>
AMENDMENTS, NON-DISTURBANCE AGREEMENT ETC. Administrative Agent shall exercise,
- ------------------------------------------
or shall refrain from exercising, any remedy provided for in Section 10 in
accordance with the instructions of Requisite Lenders or Requisite Obligees. No
amendment or waiver of any provision of this Agreement nor consent to any
departure by the Grantor herefrom, shall in any event be effective unless the
same shall be in writing and signed by the Requisite Lenders or Requisite
Obligees, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given, except as
provided in Section 7, in which case the writing need only be signed by
Administrative Agent. If and to the extent that Grantor is permitted to license
the Collateral, at Grantor's request and expense, Administrative Agent shall
enter into a non-disturbance agreement or other similar arrangement with Grantor
and any licensee of any Collateral permitted hereunder in form and substance
satisfactory to Administrative Agent pursuant to which (a) Administrative Agent,
on behalf of Lenders and Interest Rate Exchangers, shall agree not to disturb or
interfere with such licensee's rights under its license agreement with Grantor
so long as such licensee is not in default thereunder and (b) such licensee
shall acknowledge and agree that the Collateral licensed to it is subject to the
security interest and conditional assignment created in favor of Administrative
Agent on its behalf and on behalf of Lenders and Interest Rate Exchangers and
the other terms of this Agreement.
SECTION 12. GRANTOR REMAINS LIABLE. Anything herein to the contrary
-----------------------
notwithstanding, (a) Grantor shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein, to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed, (b) the exercise by Administrative Agent
or any Lender or Interest Rate Exchanger of any of the rights hereunder shall
not release Grantor from any of its duties or obligations under the contracts
and agreements included in the Collateral, (c) neither Administrative Agent nor
any Lender nor Interest Rate Exchanger shall have any obligation or liability
under the contracts and agreements included in the Collateral by reason of this
Agreement nor shall Administrative Agent or any Lender or Interest Rate
Exchanger be obligated to perform any of the obligations or duties of Grantor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder and (d) the powers conferred on Administrative Agent and
Lenders and Interest Rate Exchangers hereunder are solely to protect their
interests in the Collateral and shall not impose any duty upon Administrative
Agent or any Lender or Interest Rate Exchanger to exercise any such powers.
SECTION 13. ADMINISTRATIVE AGENT APPOINTED ATTORNEY-IN-FACT. Grantor
-----------------------------------------------
hereby irrevocably appoints Administrative Agent Grantor's attorney-in-fact,
with full authority in the place and stead of Grantor and in the name of
Grantor, Administrative Agent or otherwise, from time to time in Administrative
Agent's discretion while an Event of Default exists to take any action and to
execute any instrument which Administrative Agent may deem necessary or
advisable to accomplish the purposes of this Agreement, including, without
limitation: (a) to endorse Grantor's name on all applications, documents,
papers and instruments necessary for Administrative Agent in the use or
maintenance of the Collateral, (b) to ask, demand, collect, sue for, recover,
impound, receive and give acquittance and receipts for money due and to become
due under or in respect of any of the Collateral, (c) to file any claims or take
any action or institute any proceedings that
12
<PAGE>
Administrative Agent may deem necessary or desirable for the collection of any
of the Collateral or otherwise to enforce the rights of Administrative Agent
with respect to any of the Collateral and, upon the occurrence and during the
continuance of an Event of Default, to execute and deliver any of the
assignments or documents requested by Administrative Agent pursuant to Section
10(b) of this Agreement, to grant or issue an exclusive or non-exclusive license
to the Collateral or any portion thereof to any Person, or to assign, pledge,
convey or otherwise transfer title in or dispose of the Collateral to any
Person. Grantor hereby ratifies all that such attorney shall lawfully do or
cause to be done by virtue hereof.
SECTION 14. ADMINISTRATIVE AGENT MAY PERFORM. If Grantor fails to
--------------------------------
perform any agreement contained herein, Administrative Agent may itself perform,
or cause performance of, such agreement, and the expenses so incurred in
connection therewith, including the fees and expenses of Administrative Agent's
counsel, shall be payable by Grantor under Section 16 hereof.
SECTION 15. ADMINISTRATIVE AGENT AND LENDERS DUTIES AND LIABILITIES.
-------------------------------------------------------
(a) The powers conferred on Administrative Agent and Lenders and
Interest Rate Exchangers hereunder are solely to protect their interests in the
Collateral and shall not impose any duty upon it to exercise any such powers.
Except for the safe custody of any Collateral constituting tangible personal
property in its possession and the accounting for moneys actually received by it
hereunder, neither Administrative Agent nor any Lender nor Interest Rate
Exchanger shall have any duty as to any Collateral or as to the taking of any
necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral. Administrative Agent shall be deemed to exercise
reasonable care in the custody and preservation of such Collateral if such
Collateral is accorded treatment substantially equal to that which the
Administrative Agent accords its own property.
(b) Neither Administrative Agent nor any Lender nor Interest Rate
Exchanger shall be liable to the Grantor (i) for any loss or damage sustained by
it, or (ii) for any loss, damage, depreciation or other diminution in the value
of any of the Collateral, that may occur as a result of, in connection with or
that is in any way related to (x) any exercise by Administrative Agent or any
Lender or Interest Rate Exchanger of any right or remedy under this Agreement or
(y) any other act of or failure to act by Administrative Agent or any Lender or
Interest Rate Exchanger, except to the extent that the same shall be determined
by a judgment of a court or competent jurisdiction that is final and not subject
to review on appeal, to be the result of acts or omissions on the part of
Administrative Agent or such Lender constituting gross negligence or willful
misconduct.
(c) NO CLAIM MAY BE MADE BY THE GRANTOR AGAINST ADMINISTRATIVE AGENT,
ANY LENDER OR ITS AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS OR
INTEREST RATE EXCHANGERS OR AGENTS FOR ANY SPECIAL, INDIRECT, OR CONSEQUENTIAL
DAMAGES IN RESPECT OF ANY BREACH OR WRONGFUL CONDUCT (WHETHER THE CLAIM THEREFOR
IS BASED ON CONTRACT, TORT OR DUTY IMPOSED BY LAW) IN
13
<PAGE>
CONNECTION WITH, ARISING OUT OF OR IN ANY WAY RELATED TO THE TRANSACTIONS
CONTEMPLATED AND RELATIONSHIP ESTABLISHED BY THIS AGREEMENT, OR ANY ACT,
OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH; AND THE GRANTOR HEREBY
WAIVES, RELEASES AND AGREES NOT TO SUE UPON ANY SUCH CLAIM FOR ANY SUCH DAMAGES,
WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED TO EXIST IN ITS
FAVOR.
SECTION 16. EXPENSES. Grantor will, upon demand, pay to
--------
Administrative Agent the amount of any and all reasonable out-of-pocket fees and
expenses, including, without limitation, fees and disbursements of its counsel
(including foreign counsel) and of any experts and agents, that Administrative
Agent may incur in connection with (a) the administration of this Agreement
(including, without limitation, any amendments, modifications or waivers hereto
and the filing or recording of any documents), (b) the custody, preservation,
use or operation of, or the sale of, collection from, or other realization upon,
any of the Collateral, (c) the exercise or enforcement of any of the rights of
Administrative Agent or any other Lender or any Interest Rate Exchanger
hereunder, or (d) the failure by the Grantor to perform or observe any of the
provisions hereof.
SECTION 17. INDEMNIFICATION. Grantor hereby agrees to indemnify, pay
---------------
and hold Administrative Agent, Lenders and Interest Rate Exchangers and any of
their officers, directors, employees, agents and affiliates (collectively called
the "Indemnitees") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses or disbursements of any kind and nature whatsoever (including,
without limitation, the fees and disbursements of counsel for such Indemnitees
(including foreign counsel and experts in connection with any matter, including
any investigative, administrative or judicial proceeding commenced or threatened
described in Section 6 or otherwise, whether or not such Indemnitee shall be
designated a party thereto)) which may be imposed on, incurred by or asserted
against that Indemnitee in any way relating to or arising out of this Agreement
or any other documents contemplated by or referred to herein or the transactions
contemplated hereby or the enforcement of the terms hereof or of any such other
documents (the "indemnified liabilities"); provided, however, that Grantor shall
-------- -------
not be liable to an Indemnitee for any indemnified liability to the extent
arising from the gross negligence or willful misconduct of that Indemnitee.
Notwithstanding anything herein to the contrary, no Indemnitee shall have any
duty to Grantor to undertake any affirmative action in connection with this
Agreement or the Collateral and any failure by any Indemnitee to undertake any
action hereunder shall not constitute gross negligence or willful misconduct of
such Indemnitee.
SECTION 18. NO WAIVER; CUMULATIVE REMEDIES. No failure on the part of
-------------------------------
Administrative Agent to exercise, and no course of dealing with respect to and
no delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise by Administrative Agent
of any right, power or remedy hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or remedy. The remedies
herein provided are to the fullest extent permitted by law cumulative of any
remedies provided by law.
14
<PAGE>
SECTION 19. ADDRESSES FOR NOTICES. All notices and other
---------------------
communications to any party provided for hereunder shall be given as provided in
the Credit Agreement.
SECTION 20. CONTINUING SECURITY INTEREST AND TRANSFER OF LOANS. This
--------------------------------------------------
Agreement shall create a continuing security interest in the Collateral and
shall (a) remain in full force and effect until the payment in full of all
Secured Obligations, the cancellation or termination of the Commitments and the
cancellation or expiration of all outstanding Letters of Credit, (b) be binding
upon Grantor, its successors and assigns, and (c) inure, together with the
rights and remedies of Administrative Agent hereunder, to the benefit of
Administrative Agent and its successors, transferees and assigns. Without
limiting the generality of the foregoing clause (c), but subject to the
provisions of subsection 10.1 of the Credit Agreement, any Lender may assign or
otherwise transfer any Loans held by it to any other Person, and such other
Person shall thereupon become vested with all the benefits in respect thereof
granted to Lenders herein or otherwise. Upon the payment in full of all Secured
Obligations, the cancellation or termination of the Commitments and the
cancellation or expiration of all outstanding Letters of Credit, the security
interest granted hereby shall terminate and all rights to the Collateral shall
revert to Grantor. Upon any such termination Administrative Agent will, at
Grantor's expense, execute and deliver to Grantor such documents as Grantor
shall reasonably request to evidence such termination and Grantor shall be
entitled to the return, upon its request and at its expense, against receipt and
without recourse to Administrative Agent, of such of the Collateral as shall not
have been sold or otherwise applied pursuant to the terms hereof.
SECTION 21. REASSIGNMENT. If (a) an Event of Default shall have
------------
occurred and, by reason of waiver, modification, amendment or otherwise, no
longer be continuing, (b) no other Event of Default shall be continuing, (c) an
assignment to the Administrative Agent shall have been previously made pursuant
to Sections 1, 10(b) or Section 13 hereof, and (d) the Secured Obligations shall
not have become immediately due and payable, upon the written request of Grantor
and the written consent of Administrative Agent or the written election of
Requisite Lenders or Requisite Obligees, Administrative Agent shall promptly
execute and deliver to Grantor such assignments as may be necessary to reassign
to Grantor any rights, title and interests as may have been assigned pursuant to
Sections 1, 10(b) or 13 hereof, subject to any disposition thereof that may have
been made by Administrative Agent pursuant hereto; provided that, after giving
--------
effect to such reassignment, Administrative Agent's security interest and
conditional assignment granted pursuant to Section 1 hereof, as well as all
other rights and remedies of Administrative Agent granted hereunder, shall
continue to be in full force and effect; and provided, further, that the rights,
-------- -------
title and interests so reassigned shall be free and clear of all Liens other
than Liens (if any) encumbering such rights, title and interest at the time of
their assignment to Administrative Agent and Permitted Liens.
SECTION 22. WAIVER. Grantor hereby waives promptness, diligence,
------
notice of acceptance and any other notice with respect to any of the Secured
Obligations and this Agreement and any requirement that Administrative Agent
protect, secure, perfect or insure any security interest or lien or any property
subject thereto or exhaust any right or
15
<PAGE>
take any action against Grantor or any other person or entity or any of the
Collateral.
SECTION 23. GOVERNING LAW; TERMS; RULES OF CONSTRUCTION. THIS
-------------------------------------------
AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE
GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL
OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES, EXCEPT TO THE EXTENT THAT THE CODE PROVIDES THAT THE PERFECTION OF
THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY
PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
STATE OF NEW YORK. Unless otherwise defined herein or in the Credit Agreement,
terms used in Articles 8 and 9 of the Uniform Commercial Code in the State of
New York are used herein as therein defined. The rules of construction set
forth in subsection 1.3 of the Credit Agreement shall be applicable to this
Agreement mutatis mutandis.
SECTION 24. SEVERABILITY. In case any provision in or obligation
------------
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 25. COUNTERPARTS. This Agreement may be executed in one or
------------
more counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
SECTION 26. CREDIT AGREEMENT CONTROLS. In case of any irreconcilable
-------------------------
conflict between the provisions of this Agreement and the Credit Agreement, the
provisions of the Credit Agreement shall control.
SECTION 27. CONSENT TO JURISDICTION; WAIVER OF IMMUNITIES. ALL
---------------------------------------------
JUDICIAL PROCEEDINGS BROUGHT AGAINST GRANTOR ARISING OUT OF OR RELATING TO THIS
AGREEMENT, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL
COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY
EXECUTING AND DELIVERING THIS AGREEMENT, GRANTOR, FOR ITSELF AND IN CONNECTION
WITH ITS PROPERTIES, IRREVOCABLY
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
16
<PAGE>
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN
ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO GRANTOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION
18;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER GRANTOR IN ANY SUCH
PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT;
(V) AGREES THAT ADMINISTRATIVE AGENT RETAINS THE RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS
AGAINST GRANTOR IN THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SECTION 27 RELATING TO
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR
OTHERWISE.
SECTION 28. WAIVER OF JURY TRIAL. GRANTOR AND ADMINISTRATIVE AGENT
--------------------
HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this
waiver is intended to be all-encompassing of any and all disputes that may be
filed in any court and that relate to the subject matter of this transaction,
including contract claims, tort claims, breach of duty claims, and all other
common law and statutory claims. Grantor and Administrative Agent each
acknowledge that this waiver is a material inducement for Grantor and
Administrative Agent to enter into a business relationship, that Grantor and
Administrative Agent have already relied on this waiver in entering into this
Agreement and that each will continue to rely on this waiver in their related
future dealings. Grantor and Administrative Agent further warrant and represent
that each has reviewed this waiver with its legal counsel, and that each
knowingly and voluntarily waives its jury trial rights following consultation
with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER
SPECIFICALLY REFERRING TO THIS SECTION 28 AND EXECUTED BY EACH OF THE PARTIES
HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. In the event of litigation,
this Agreement may be filed as a written consent to a trial by the court.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
EMPIRE CANDLE, INC.,
as Grantor
By: __________________________
Name: __________________________
Title: __________________________
Notice Address:
1800 Cloquet Avenue
Cloquet, MN 55720-2141
Attention: Tom Knuesel
WELLS FARGO BANK, N.A.,
as Administrative Agent
By: __________________________
Name: __________________________
Title: __________________________
Notice Address:
555 Montgomery Street, 17th Floor
San Francisco, CA 94111
Attention: Alan Wray
S-1
<PAGE>
SCHEDULE A
----------
U.S. COPYRIGHTS
DATE
COPYRIGHT REG. NO. OF ISSUE
- --------- -------- --------
<PAGE>
SCHEDULE A
----------
FOREIGN COPYRIGHT REGISTRATIONS
DATE
COUNTRY COPYRIGHT REGISTRATION NO. OF ISSUE
- ------- --------- ---------------- --------
<PAGE>
SCHEDULE A
----------
PENDING U.S. COPYRIGHTS
DATE OF
COPYRIGHT REF. NO. APPLICATION
- --------- -------- -----------
<PAGE>
SCHEDULE A
----------
LICENSES
<PAGE>
STATE OF CALIFORNIA )
) SS.:
COUNTY OF ____________ )
On ___________, 19___, before me, ____________________, a Notary
Public in and for said State, personally appeared
__________________________________________, personally known to me (or proved to
me on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature ________________________________ (Seal)
<PAGE>
SUBSIDIARY TRADEMARK SECURITY AGREEMENT
This SUBSIDIARY TRADEMARK SECURITY AGREEMENT (this "AGREEMENT") is
dated as of April 21, 1998 and entered into by and between [SUBSIDIARY], a
____________________ corporation ("GRANTOR"), and WELLS FARGO BANK, N.A., as
administrative agent for and representative of (in such capacity herein called
"SECURED PARTY") the financial institutions ("LENDERS") party to the Credit
Agreement referred to below and any Interest Rate Exchangers (as hereinafter
defined).
PRELIMINARY STATEMENTS
A. Diamond Brands Operating Corp., a Delaware corporation
("COMPANY"), has entered into that certain Credit Agreement dated as of April
21, 1998 with DLJ Capital Funding, Inc., as Syndication Agent, Secured Party,
Morgan Stanley Senior Funding Inc., as Documentation Agent, and Lenders (said
Credit Agreement, as it may hereafter be amended, supplemented or otherwise
modified from time to time, being the "CREDIT AGREEMENT"; capitalized terms
defined therein and not otherwise defined herein being used herein as therein
defined).
B. Company may from time to time enter, or may from time to time
have entered, into one or more Interest Rate Agreements (collectively, the
"LENDER INTEREST RATE AGREEMENTS") with or one or more Lenders (in such
capacity, collectively, "INTEREST RATE EXCHANGERS").
C. Grantor has executed and delivered a Subsidiary Guaranty dated as
of April 21, 1998 (said Subsidiary Guaranty, as it may hereafter be amended,
supplemented or otherwise modified from time to time, being the "SUBSIDIARY
GUARANTY") in favor of Secured Party for the benefit of Lenders and Interest
Rate Exchangers, pursuant to which Grantor has guarantied the prompt payment and
performance when due of all obligations of Company under the Credit Agreement
and under any Lender Interest Rate Agreements.
D. Grantor owns and uses in its business, and will in the future
adopt and so use, various intangible assets, including trademarks, service
marks, designs, logos, indicia, tradenames, corporate names, company names,
business names, fictitious business names, trade styles and/or other source
and/or business identifiers and applications pertaining thereto (collectively,
the "TRADEMARKS").
E. Secured Party desires Grantor to assign and grant to it a lien on
and security interest in all of Grantor's existing and future Trademarks, all
registrations that have been or may hereafter be issued or applied for thereon
in the United States and any state
<PAGE>
thereof and in foreign countries (the "REGISTRATIONS"), all common law and other
rights in and to the Trademarks in the United States and any state thereof and
in foreign countries (the "TRADEMARK RIGHTS"), all goodwill of Grantor's
business symbolized by the Trademarks and associated therewith, including
without limitation the documents and things described in Section 1(b) (the
"ASSOCIATED GOODWILL"), and all proceeds of the Trademarks, the Registrations,
the Trademark Rights and the Associated Goodwill, and Grantor agrees to assign
and grant to Secured Party a secured and protected interest in the Trademarks,
the Registrations, the Trademark Rights, the Associated Goodwill and all the
proceeds thereof as provided herein.
F. Pursuant to the Subsidiary Security Agreement, Grantor has
assigned and granted to Secured Party a lien on and security interest in, among
other assets, all of Grantor's equipment, inventory, accounts and general
intangibles relating to the products and services sold or delivered under or in
connection with the Trademarks such that, upon the occurrence and during the
continuation of an Event of Default, Secured Party would be able to exercise its
remedies consistent with the Subsidiary Security Agreement, this Agreement and
applicable law to foreclose upon Grantor's business and use the Trademarks, the
Registrations and the Trademark Rights in conjunction with the continued
operation of such business, maintaining substantially the same product and
service specifications and quality as maintained by Grantor, and benefit from
the Associated Goodwill.
G. It is a condition precedent to the initial extensions of credit
by Lenders under the Credit Agreement that Grantor shall have assigned and
granted the security interests and undertaken the obligations contemplated by
this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to
induce Lenders to make Loans and other extensions of credit under the Credit
Agreement and to induce Interest Rate Exchangers to enter into Lender Interest
Rate Agreements and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Grantor hereby agrees with Secured
Party as follows:
SECTION 1. ASSIGNMENT AND GRANT OF SECURITY. Grantor hereby assigns
--------------------------------
to Secured Party, and hereby grants to Secured Party a security interest in, all
of Grantor's right, title and interest in and to the following, in each case
whether now or hereafter existing or in which Grantor now has or hereafter
acquires an interest and wherever the same may be located (the "COLLATERAL"):
(a) each of the Trademarks and rights and interests in Trademarks
that are presently, or in the future may be, owned, held (whether pursuant to a
license or otherwise) or used by Grantor, in whole or in part (including,
without limitation, the Trademarks specifically identified in Schedule A annexed
----------
hereto, as the same may be amended pursuant hereto from time to time), and
including all Trademark Rights with respect thereto and all federal, state and
foreign Registrations therefor heretofore or hereafter granted or applied for,
the right (but not the obligation) to register claims under any state or federal
trademark law or regulation or any trademark law or regulation of any foreign
country and to apply for,
2
<PAGE>
renew and extend the Trademarks, Registrations and Trademark Rights, the right
(but not the obligation) to sue or bring opposition or cancellation proceedings
in the name of Grantor or in the name of Secured Party or otherwise for past,
present and future infringements of the Trademarks, Registrations or Trademark
Rights and all rights (but not obligations) corresponding thereto in the United
States and any foreign country, and the Associated Goodwill; it being understood
that the rights and interests included herein shall include, without limitation,
all rights and interests pursuant to licensing or other contracts in favor of
Grantor pertaining to any Trademarks, Registrations or Trademark Rights
presently or in the future owned, held or used by third parties but, in the case
of third parties which are not Affiliates of Grantor, only to the extent
permitted by such licensing or other contracts or otherwise permitted by
applicable law and, if not so permitted under any such contracts and applicable
law, only with the consent of such third parties;
(b) the following documents and things in Grantor's possession, or
subject to Grantor's right to possession, related to (Y) the production, sale
and delivery by Grantor, or by any Affiliate, licensee or subcontractor of
Grantor, of products or services sold or delivered by or under the authority of
Grantor in connection with the Trademarks, Registrations or Trademark Rights
(which products and services shall, for purposes of this Agreement, be deemed to
include, without limitation, products and services sold or delivered pursuant to
merchandising operations utilizing any Trademarks, Registrations or Trademark
Rights); or (Z) any retail or other merchandising operations conducted under the
name of or in connection with the Trademarks, Registrations or Trademark Rights
by Grantor or any Affiliate, licensee or subcontractor of Grantor:
(i) all lists and ancillary documents that identify and
describe any of Grantor's customers, or those of its Affiliates, licensees
or subcontractors, for products sold and services delivered under or in
connection with the Trademarks or Trademark Rights, including without
limitation any lists and ancillary documents that contain a customer's name
and address, the name and address of any of its warehouses, branches or
other places of business, the identity of the Person or Persons having the
principal responsibility on a customer's behalf for ordering products or
services of the kind supplied by Grantor, or the credit, payment, discount,
delivery or other sale terms applicable to such customer, together with
information setting forth the total purchases, by brand, product, service,
style, size or other criteria, and the patterns of such purchases;
(ii) all product and service specification documents and
production and quality control manuals used in the manufacture or delivery
of products and services sold or delivered under or in connection with the
Trademarks or Trademark Rights;
(iii) all documents which reveal the name and address of any
source of supply, and any terms of purchase and delivery, for any and all
materials, components and services used in the production of products and
services sold or delivered under or in connection with the Trademarks or
Trademark Rights; and
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(iv) all documents constituting or concerning the then current or
proposed advertising and promotion by Grantor or its Affiliates, licensees
or subcontractors of products and services sold or delivered under or in
connection with the Trademarks or Trademark Rights including, without
limitation, all documents which reveal the media used or to be used and the
cost for all such advertising conducted within the described period or
planned for such products and services;
(c) all books, records, ledger cards, files, correspondence, computer
programs, tapes, disks and related data processing software that at any time
evidence or contain information relating to any of the Collateral or are
otherwise necessary or helpful in the collection thereof or realization
thereupon;
(d) to the extent not included in the foregoing clauses (a) - (c),
all general intangibles relating to the Collateral; and
(e) all proceeds, products, rents and profits (including without
limitation license royalties and proceeds of infringement suits) of or from any
and all of the foregoing Collateral and, to the extent not otherwise included,
all payments under insurance (whether or not Secured Party is the loss payee
thereof), or any indemnity, warranty or guaranty, payable by reason of loss or
damage to or otherwise with respect to any of the foregoing Collateral. For
purposes of this Agreement, the term "PROCEEDS" includes whatever is receivable
or received when Collateral or proceeds are sold, exchanged, collected or
otherwise disposed of, whether such disposition is voluntary or involuntary.
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures, and the
------------------------
Collateral is collateral security for, the prompt payment or performance in full
when due, whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise (including the payment of amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code, 11 U.S.C. (S)362(a)), of all obligations and liabilities of
every nature of Grantor now or hereafter existing under or arising out of or in
connection with the Subsidiary Guaranty, the other Loan Documents and the Lender
Interest Rate Agreements and all extensions or renewals thereof, whether for
principal, interest (including without limitation interest that, but for the
filing of a petition in bankruptcy with respect to Grantor, would accrue on such
obligations), reimbursement of amounts drawn under Letters of Credit, payments
for early termination of Lender Interest Rate Agreements, fees, expenses,
indemnities or otherwise, whether voluntary or involuntary, direct or indirect,
absolute or contingent, liquidated or unliquidated, whether or not jointly owed
with others, and whether or not from time to time decreased or extinguished and
later increased, created or incurred, and all or any portion of such obligations
or liabilities that are paid, to the extent all or any part of such payment is
avoided or recovered directly or indirectly from Secured Party or any Lender or
Interest Rate Exchanger as a preference, fraudulent transfer or otherwise (all
such obligations and liabilities being the "UNDERLYING DEBT"), and all
obligations of every nature of Grantor now or hereafter existing under this
Agreement (all such obligations of Grantor, together with the Underlying Debt,
being the "SECURED OBLIGATIONS").
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SECTION 3. GRANTOR REMAINS LIABLE. Anything contained herein to the
----------------------
contrary notwithstanding, (a) Grantor shall remain liable under any contracts
and agreements included in the Collateral, to the extent set forth therein, to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed, (b) the exercise by Secured Party of any
of its rights hereunder shall not release Grantor from any of its duties or
obligations under the contracts and agreements included in the Collateral, and
(c) Secured Party shall not have any obligation or liability under any contracts
and agreements included in the Collateral by reason of this Agreement, nor shall
Secured Party be obligated to perform any of the obligations or duties of
Grantor thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder.
SECTION 4. REPRESENTATIONS AND WARRANTIES. Grantor represents and
------------------------------
warrants as follows:
(a) Description of Collateral. A true and complete list of all
-------------------------
Trademarks, Registrations and Trademark Rights owned, held (whether pursuant to
a license or otherwise) or used by Grantor, in whole or in part, as of the date
of this Agreement is set forth in Schedule A annexed hereto. Each Trademark,
----------
Registration or Trademark Right designated on Schedule A annexed hereto as a
----------
Material Trademark Property, each other Trademark, Registration or Trademark
Right that uses or incorporates the name "_____________" or any other
identifiers or symbols derived from or associated with the name
"[_____________]" hereafter arising or otherwise owned, held or used by Grantor,
and each other Trademark, Registration or Trademark Right hereafter arising or
otherwise owned, held or used by Grantor is referred to herein as a "MATERIAL
TRADEMARK PROPERTY".
(b) Validity and Enforceability of Collateral. Each Material
-----------------------------------------
Trademark Property is valid, subsisting and enforceable. As of the Closing Date,
Grantor is not aware of any pending or threatened claim by any third party that
any Material Trademark Property is invalid or unenforceable or that the use of
any Material Trademark Property violates the rights of any third person or of
any basis for any such claim, and there is no such pending or, to the knowledge
of Grantor, threatened claim that could reasonably be expected to have a
Material Adverse Effect.
(c) Ownership of Collateral. Except for the security interest
-----------------------
assigned and created by this Agreement, Grantor is the sole legal and beneficial
owner of the entire right, title and interest in and to each Material Trademark
Property, free and clear of any Lien other than Liens of mechanics, materialmen,
attorneys and other similar liens imposed by law in the ordinary course of
business in connection with the establishment, creation or application for
Registration of any Trademarks, Registrations or Trademark Rights for sums not
yet delinquent or being contested in good faith (such Liens being referred to
herein as "PERMITTED TRADEMARK LIENS"). Except such as may have been filed in
favor of Secured Party relating to this Agreement, no effective financing
statement or other instrument similar in effect covering all or any part of the
Collateral is on file in any filing or recording office, including the United
States Patent and Trademark Office.
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(d) Office Locations; Other Names. The chief place of business, the
-----------------------------
chief executive office and the office where Grantor keeps its records regarding
the Collateral is, and has been for the four month period preceding the date
hereof, located at ___________________________________. Grantor has not in the
past done, and does not now do, business under any other name (including any
trade-name or fictitious business name).
(e) Governmental Authorizations. No authorization, approval or other
---------------------------
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for either (i) the assignment and grant by Grantor
of the security interest created hereby, (ii) the execution, delivery or
performance of this Agreement by Grantor, or (iii) the perfection or exercise by
Secured Party of its rights and remedies hereunder (except as may have been
taken by or at the direction of Grantor).
(f) Perfection. This Agreement, together with the filing of a
----------
financing statement describing the Collateral with the Secretary of State of the
State of ______________ and the recording of this Agreement with the United
States Patent and Trademark Office, which will be made, assigns and creates a
valid, perfected and First Priority security interest in the Collateral (subject
only to Permitted Trademark Liens), securing the payment of the Secured
Obligations, and all filings and other actions necessary or desirable to perfect
and protect such security interest have been or will be duly made or taken.
(g) Other Information. All information heretofore, herein or
-----------------
hereafter supplied to Secured Party by or on behalf of Grantor with respect to
the Collateral is accurate and complete in all material respects.
SECTION 5. FURTHER ASSURANCES; NEW TRADEMARKS, REGISTRATIONS AND
-----------------------------------------------------
TRADEMARK RIGHTS; CERTAIN INSPECTION RIGHTS.
- -------------------------------------------
(a) Grantor agrees that from time to time, at the expense of Grantor,
Grantor will promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or desirable, or that Secured
Party may request, in order to perfect and protect any security interest
assigned or granted or purported to be assigned or granted hereby or to enable
Secured Party to exercise and enforce its rights and remedies hereunder with
respect to any Collateral. Without limiting the generality of the foregoing,
Grantor will: (i) at the request of Secured Party, mark conspicuously each of
its records pertaining to the Collateral with a legend, in form and substance
satisfactory to Secured Party, indicating that such Collateral is subject to the
security interest granted hereby, (ii) execute and file such financing or
continuation statements, or amendments thereto, and such other instruments or
notices, as may be necessary or desirable, or as Secured Party may request, in
order to perfect and preserve the security interests granted or purported to be
granted hereby, (iii) use its best efforts to obtain any necessary consents of
third parties to the assignment and perfection of a security interest to Secured
Party with respect to any Collateral, (iv) subject to the terms of the Credit
Agreement, at any reasonable
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<PAGE>
time and upon request by Secured Party, exhibit the Collateral to and allow
inspection of the Collateral by Secured Party, or persons designated by Secured
Party, and (v) at Secured Party's request, appear in and defend any action or
proceeding that may affect Grantor's title to or Secured Party's security
interest in all or any part of the Collateral.
(b) Grantor hereby authorizes Secured Party to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Collateral without the signature of Grantor. Grantor agrees
that a carbon, photographic or other reproduction of this Agreement or of a
financing statement signed by Grantor shall be sufficient as a financing
statement and may be filed as a financing statement in any and all
jurisdictions.
(c) Grantor hereby authorizes Secured Party to modify this Agreement
without obtaining Grantor's approval of or signature to such modification by
amending Schedule A annexed hereto to include reference to any right, title or
----------
interest in any existing Trademark, Registration or Trademark Right or any
Trademark, Registration or Trademark Right acquired or developed by Grantor
after the execution hereof or to delete any reference to any right, title or
interest in any Trademark, Registration or Trademark Right in which Grantor no
longer has or claims any right, title or interest.
(d) Grantor will furnish to Secured Party from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as Secured Party may
reasonably request, all in reasonable detail.
(e) If Grantor shall obtain rights to any new Trademarks,
Registrations or Trademark Rights, the provisions of this Agreement shall
automatically apply thereto. Grantor shall promptly notify Secured Party in
writing of any rights to any new Trademarks or Trademark Rights acquired by
Grantor after the date hereof and of any Registrations issued or applications
for Registration made after the date hereof, which notice shall state whether
such Trademark, Registration or Trademark Right constitutes a Material Trademark
Property. Concurrently with the filing of an application for Registration for
any Trademark, Grantor shall execute, deliver and record in all places where
this Agreement is recorded an appropriate Trademark Security Agreement,
substantially in the form hereof, with appropriate insertions, or an amendment
to this Agreement, in form and substance satisfactory to Secured Party, pursuant
to which Grantor shall assign and grant a security interest to the extent of its
interest in such Registration as provided herein to Secured Party unless so
doing would, in the reasonable judgment of Grantor, after due inquiry, result in
the grant of a Registration in the name of Secured Party, in which event Grantor
shall give written notice to Secured Party as soon as reasonably practicable and
the filing shall instead be undertaken as soon as practicable but in no case
later than immediately following the grant of the Registration.
(f) Grantor hereby grants to Secured Party and its employees,
representatives and agents the right to visit Grantor's and any of its
Affiliate's or subcontractor's plants, facilities and other places of business
that are utilized in connection
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<PAGE>
with the manufacture, production, inspection, storage or sale of products and
services sold or delivered under any of the Trademarks, Registrations or
Trademark Rights (or which were so utilized during the prior six month period),
and to inspect the quality control and all other records relating thereto upon
reasonable notice to Grantor and as often as may be reasonably requested.
SECTION 6. CERTAIN COVENANTS OF GRANTOR. Grantor shall:
----------------------------
(a) not use or permit any Collateral to be used unlawfully or in
violation of any provision of this Agreement or any applicable statute,
regulation or ordinance or any policy of insurance covering the Collateral;
(b) notify Secured Party of any change in Grantor's name, identity or
corporate structure within 15 days of such change;
(c) give Secured Party 30 days' prior written notice of any change in
Grantor's chief place of business or chief executive office or the office where
Grantor keeps its records regarding the Collateral;
(d) pay promptly when due all property and other taxes, assessments
and governmental charges or levies imposed upon, and all claims (including
claims for labor, materials and supplies) against, the Collateral, except to the
extent permitted under the Credit Agreement;
(e) not sell, assign (by operation of law or otherwise) or otherwise
dispose of any of the Collateral, except as permitted by the Credit Agreement;
(f) except for Permitted Trademark Liens and the security interest
assigned and created by this Agreement, not create or suffer to exist any Lien
upon or with respect to any of the Collateral to secure the indebtedness or
other obligations of any Person;
(g) diligently keep reasonable records respecting the Collateral and
at all times keep at least one complete set of its records concerning
substantially all of the Trademarks, Registrations and Trademark Rights at its
chief executive office or principal place of business;
(h) not permit the inclusion in any contract to which it becomes a
party of any provision that could or might in any way conflict with this
Agreement or impair or prevent the assignment and creation of a security
interest in Grantor's rights and interests in any property included within the
definitions of any Trademarks, Registrations, Trademark Rights and Associated
Goodwill;
(i) take all steps necessary to protect the secrecy of all trade
secrets relating to the products and services sold or delivered under or in
connection with the Trademarks
8
<PAGE>
and Trademark Rights, including without limitation entering into confidentiality
agreements with employees and labeling and restricting access to secret
information and documents;
(j) use proper statutory notice in connection with its use of each
Material Trademark Property to the extent reasonably necessary for the
protection of such Material Trademark Property;
(k) use consistent standards of high quality (which may be consistent
with Grantor's past practices) in the manufacture, sale and delivery of products
and services sold or delivered under or in connection with the Trademarks,
Registrations and Trademark Rights, including, to the extent applicable, in the
operation and maintenance of its merchandising operations; and
(l) upon any officer of Grantor obtaining knowledge thereof, promptly
notify Secured Party in writing of any event that may materially and adversely
affect the value of the Collateral or any portion thereof, the ability of
Grantor or Secured Party to dispose of the Collateral or any portion thereof, or
the rights and remedies of Secured Party in relation thereto, including without
limitation the levy of any legal process against the Collateral or any portion
thereof.
SECTION 7. AMOUNTS PAYABLE IN RESPECT OF THE COLLATERAL. Except as
--------------------------------------------
otherwise provided in this Section 7, Grantor shall continue to collect, at its
own expense, all amounts due or to become due to Grantor in respect of the
Collateral or any portion thereof. In connection with such collections, Grantor
may take (and, at Secured Party's direction, shall take) such action as Grantor
or Secured Party may deem necessary or advisable to enforce collection of such
amounts; provided, however, that Secured Party shall have the right at any time,
-------- -------
upon the occurrence and during the continuation of an Event of Default and upon
written notice to Grantor of its intention to do so, to notify the obligors with
respect to any such amounts of the existence of the security interest assigned
and created hereby, and to direct such obligors to make payment of all such
amounts directly to Secured Party, and, upon such notification and at the
expense of Grantor, to enforce collection of any such amounts and to adjust,
settle or compromise the amount or payment thereof, in the same manner and to
the same extent as Grantor might have done. After receipt by Grantor of the
notice from Secured Party referred to in the proviso to the preceding sentence,
-------
(i) all amounts and proceeds (including checks and other instruments) received
by Grantor in respect of amounts due to Grantor in respect of the Collateral or
any portion thereof shall be received in trust for the benefit of Secured Party
hereunder, shall be segregated from other funds of Grantor and shall be
forthwith paid over or delivered to Secured Party in the same form as so
received (with any necessary endorsement) to be held as cash Collateral and
applied as provided by Section 14, and (ii) Grantor shall not adjust, settle or
compromise the amount or payment of any such amount or release wholly or partly
any obligor with respect thereto or allow any credit or discount thereon.
SECTION 8. TRADEMARK APPLICATIONS AND LITIGATION.
-------------------------------------
9
<PAGE>
(a) Grantor shall have the duty diligently to prosecute any trademark
application relating to any Material Trademark Property that is pending as of
the date of this Agreement, to make federal application on any existing or
future registerable but unregistered Material Trademark Property (whenever it is
commercially reasonable in the reasonable judgment of Grantor to do so), and to
file and prosecute opposition and cancellation proceedings, renew Registrations
and do any and all acts which are necessary or desirable to preserve and
maintain all rights in all Material Trademark Properties. Any expenses incurred
in connection therewith shall be borne solely by Grantor. Grantor shall not
abandon any Material Trademark Property.
(b) Except as provided in Section 8(d), Grantor shall have the right
to commence and prosecute in its own name, as real party in interest, for its
own benefit and at its own expense, such suits, proceedings or other actions for
infringement, unfair competition, dilution or other damage as are in its
reasonable business judgment necessary to protect the Collateral. Secured Party
shall provide, at Grantor's expense, all reasonable and necessary cooperation in
connection with any such suit, proceeding or action including, without
limitation, joining as a necessary party.
(c) Grantor shall promptly, following its becoming aware thereof,
notify Secured Party of the institution of, or of any adverse determination in,
any proceeding (whether in the United States Patent and Trademark Office or any
federal, state, local or foreign court) described in Section 8(a) or 8(b) or
regarding Grantor's claim of ownership in or right to use any material
Trademark, material Registration or material Trademark Right, its right to
register the same, or its right to keep and maintain such Registration. Grantor
shall provide to Secured Party any information with respect thereto requested by
Secured Party.
(d) Anything contained herein to the contrary notwithstanding, upon
the occurrence and during the continuation of an Event of Default, Secured Party
shall have the right (but not the obligation) to bring suit, in the name of
Grantor, Secured Party or otherwise, to enforce any Trademark, Registration,
Trademark Right, Associated Goodwill and any license thereunder, in which event
Grantor shall, at the request of Secured Party, do any and all lawful acts and
execute any and all documents required by Secured Party in aid of such
enforcement and Grantor shall promptly, upon demand, reimburse and indemnify
Secured Party as provided in Section 15 in connection with the exercise of its
rights under this Section 8. To the extent that Secured Party shall elect not to
bring suit to enforce any Trademark, Registration, Trademark Right, Associated
Goodwill or any license thereunder as provided in this Section 8(d), Grantor
agrees to use all reasonable measures, whether by action, suit, proceeding or
otherwise, to prevent the infringement of any of the Trademarks, Registrations,
Trademark Rights or Associated Goodwill by others and for that purpose agrees to
diligently maintain any action, suit or proceeding against any Person so
infringing necessary to prevent such infringement.
SECTION 9. NON-DISTURBANCE AGREEMENTS, ETC. If and to the extent
--------------------------------
that Grantor is permitted to license the Collateral, Secured Party shall enter
into a non-disturbance
10
<PAGE>
agreement or other similar arrangement, at Grantor's request and expense, with
Grantor and any licensee of any Collateral permitted hereunder in form and
substance satisfactory to Secured Party pursuant to which (a) Secured Party
shall agree not to disturb or interfere with such licensee's rights under its
license agreement with Grantor so long as such licensee is not in default
thereunder and (b) such licensee shall acknowledge and agree that the Collateral
licensed to it is subject to the security interest assigned and created in favor
of Secured Party and the other terms of this Agreement.
SECTION 10. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Grantor hereby
----------------------------------------
irrevocably appoints Secured Party as Grantor's attorney-in-fact, with full
authority in the place and stead of Grantor and in the name of Grantor, Secured
Party or otherwise, from time to time in Secured Party's discretion to take any
action and to execute any instrument that Secured Party may deem necessary or
advisable to accomplish the purposes of this Agreement, including without
limitation:
(a) while an Event of Default exists, to endorse Grantor's name on
all applications, documents, papers and instruments necessary for Secured Party
in the use or maintenance of the Collateral;
(b) while an Event of Default exists, to ask for, demand, collect,
sue for, recover, compound, receive and give acquittance and receipts for moneys
due and to become due under or in respect of any of the Collateral;
(c) while an Event of Default exists, to receive, endorse and collect
any drafts or other instruments, documents and chattel paper in connection with
clause (b) above;
(d) while an Event of Default exists, to file any claims or take any
action or institute any proceedings that Secured Party may deem necessary or
desirable for the collection of any of the Collateral or otherwise to enforce
the rights of Secured Party with respect to any of the Collateral;
(e) while an Event of Default exists, to pay or discharge taxes or
Liens (other than Liens permitted under this Agreement or the Credit Agreement)
levied or placed upon or threatened against the Collateral, the legality or
validity thereof and the amounts necessary to discharge the same to be
determined by Secured Party in its sole discretion, any such payments made by
Secured Party to become obligations of Grantor to Secured Party, due and payable
immediately without demand; and
(f) upon the occurrence and during the continuation of an Event of
Default, (i) to execute and deliver any of the assignments or documents
requested by Secured Party pursuant to Section 13(b), (ii) to grant or issue an
exclusive or non-exclusive license to the Collateral or any portion thereof to
any Person, and (iii) otherwise generally to sell, transfer, pledge, make any
agreement with respect to or otherwise deal with any of the Collateral as fully
and completely as though Secured Party were the absolute owner thereof for all
purposes, and to do, at Secured Party's option and Grantor's expense, at any
time or from
11
<PAGE>
time to time, all acts and things that Secured Party deems necessary to protect,
preserve or realize upon the Collateral and Secured Party's security interest
therein in order to effect the intent of this Agreement, all as fully and
effectively as Grantor might do.
SECTION 11. SECURED PARTY MAY PERFORM. If Grantor fails to perform
-------------------------
any agreement contained herein, Secured Party may itself perform, or cause
performance of, such agreement, and the expenses of Secured Party incurred in
connection therewith shall be payable by Grantor under Section 15.
SECTION 12. STANDARD OF CARE. The powers conferred on Secured Party
----------------
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the exercise of
reasonable care in the custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, Secured Party shall
have no duty as to any Collateral or as to the taking of any necessary steps to
preserve rights against prior parties or any other rights pertaining to any
Collateral. Secured Party shall be deemed to have exercised reasonable care in
the custody and preservation of Collateral in its possession if such Collateral
is accorded treatment substantially equal to that which Secured Party accords
its own property.
SECTION 13. REMEDIES. If any Event of Default shall have occurred and
--------
be continuing:
(a) Secured Party may exercise in respect of the Collateral, in
addition to all other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on default under
the Uniform Commercial Code as in effect in any relevant jurisdiction (the
"CODE") (whether or not the Code applies to the affected Collateral), and also
may (i) require Grantor to, and Grantor hereby agrees that it will at its
expense and upon request of Secured Party forthwith, assemble all or part of the
Collateral as directed by Secured Party and make it available to Secured Party
at a place to be designated by Secured Party that is reasonably convenient to
both parties, (ii) enter onto the property where any Collateral is located and
take possession thereof with or without judicial process, (iii) prior to the
disposition of the Collateral, store the Collateral or otherwise prepare the
Collateral for disposition in any manner to the extent Secured Party deems
appropriate, (iv) take possession of Grantor's premises or place custodians in
exclusive control thereof, remain on such premises and use the same for the
purpose of taking any actions described in the preceding clause (iii) and
collecting any Secured Obligation, (v) exercise any and all rights and remedies
of Grantor under or in connection with the contracts related to the Collateral
or otherwise in respect of the Collateral, including without limitation any and
all rights of Grantor to demand or otherwise require payment of any amount
under, or performance of any provision of, such contracts, and (vi) without
notice except as specified below, sell the Collateral or any part thereof in one
or more parcels at public or private sale, at any of Secured Party's offices or
elsewhere, for cash, on credit or for future delivery, at such time or times and
at such price or prices and upon such other terms as Secured Party may deem
commercially reasonable. Secured Party or any Lender or Interest Rate Exchanger
may be the purchaser of any or all of the Collateral at any such sale and
12
<PAGE>
Secured Party, as administrative agent for and representative of Lenders (but
not any Lender or Lenders in its or their respective individual capacities
unless Requisite Lenders shall otherwise agree in writing), shall be entitled,
for the purpose of bidding and making settlement or payment of the purchase
price for all or any portion of the Collateral sold at any such public sale, to
use and apply any of the Secured Obligations as a credit on account of the
purchase price for any Collateral payable by Secured Party at such sale. Each
purchaser at any such sale shall hold the property sold absolutely free from any
claim or right on the part of Grantor, and Grantor hereby waives (to the extent
permitted by applicable law) all rights of redemption, stay and/or appraisal
which it now has or may at any time in the future have under any rule of law or
statute now existing or hereafter enacted. Grantor agrees that, to the extent
notice of sale shall be required by law, at least ten days' notice to Grantor of
the time and place of any public sale or the time after which any private sale
is to be made shall constitute reasonable notification. Secured Party shall not
be obligated to make any sale of Collateral regardless of notice of sale having
been given. Secured Party may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned. Grantor hereby waives any claims against Secured Party arising by
reason of the fact that the price at which any Collateral may have been sold at
such a private sale was less than the price which might have been obtained at a
public sale, even if Secured Party accepts the first offer received and does not
offer such Collateral to more than one offeree. If the proceeds of any sale or
other disposition of the Collateral are insufficient to pay all the Secured
Obligations, Grantor shall be liable for the deficiency and the fees of any
attorneys employed by Secured Party to collect such deficiency.
(b) Upon written demand from Secured Party, Grantor shall execute and
deliver to Secured Party an assignment or assignments of the Trademarks,
Registrations, Trademark Rights and the Associated Goodwill and such other
documents as are requested by Secured Party. Grantor agrees that such an
assignment and/or recording shall be applied to reduce the Secured Obligations
outstanding only to the extent that Secured Party (or any Lender or Interest
Rate Exchanger) receives cash proceeds in respect of the sale of, or other
realization upon, the Collateral.
(c) Within five Business Days after written notice from Secured
Party, Grantor shall make available to Secured Party, to the extent within
Grantor's power and authority, such personnel in Grantor's employ on the date of
such Event of Default as Secured Party may reasonably designate, by name, title
or job responsibility, to permit Grantor to continue, directly or indirectly, to
produce, advertise and sell the products and services sold or delivered by
Grantor under or in connection with the Trademarks, Registrations and Trademark
Rights, such persons to be available to perform their prior functions on Secured
Party's behalf and to be compensated by Secured Party at Grantor's expense on a
per diem, pro-rata basis consistent with the salary and benefit structure
applicable to each as of the date of such Event of Default.
13
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SECTION 14. APPLICATION OF PROCEEDS. All proceeds received by Secured
-----------------------
Party in respect of any sale of, collection from, or other realization upon all
or any part of the Collateral shall be applied as provided in subsection 2.4D of
the Credit Agreement.
SECTION 15. INDEMNITY AND EXPENSES.
----------------------
(a) Grantor agrees to indemnify Secured Party and each Lender and
each Interest Rate Exchanger from and against any and all claims, losses and
liabilities in any way relating to, growing out of or resulting from this
Agreement and the transactions contemplated hereby (including, without
limitation, enforcement of this Agreement), except to the extent such claims,
losses or liabilities result solely from Secured Party's or such Lender's or
such Interest Rate Exchanger's gross negligence or willful misconduct as finally
determined by a court of competent jurisdiction.
(b) Grantor shall pay to Secured Party upon demand the amount of any
and all reasonable out-of-pocket costs and expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents, that Secured
Party may incur in connection with (i) the administration of this Agreement,
(ii) the custody, preservation, use or operation of, or the sale of, collection
from, or other realization upon, any of the Collateral, (iii) the exercise or
enforcement of any of the rights of Secured Party hereunder, or (iv) the failure
by Grantor to perform or observe any of the provisions hereof.
SECTION 16. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS. This
-----------------------------------------------
Agreement shall assign and create a continuing security interest in the
Collateral and shall (a) remain in full force and effect until the payment in
full of the Secured Obligations, the cancellation or termination of the
Commitments and the cancellation or expiration of all outstanding Letters of
Credit, (b) be binding upon Grantor, its successors and assigns, and (c) inure,
together with the rights and remedies of Secured Party hereunder, to the benefit
of Secured Party and its successors, transferees and assigns. Without limiting
the generality of the foregoing clause (c), but subject to the provisions of
subsection 10.1 of the Credit Agreement, any Lender may assign or otherwise
transfer any Loans held by it to any other Person, and such other Person shall
thereupon become vested with all the benefits in respect thereof granted to
Lenders herein or otherwise. Upon the payment in full of all Secured
Obligations, the cancellation or termination of the Commitments and the
cancellation or expiration of all outstanding Letters of Credit, the security
interest assigned and granted hereby shall terminate and all rights to the
Collateral shall revert to Grantor. Upon any such termination Secured Party
will, at Grantor's expense, execute and deliver to Grantor such documents as
Grantor shall reasonably request to evidence such termination.
SECTION 17. SECURED PARTY AS ADMINISTRATIVE AGENT.
-------------------------------------
(a) Secured Party has been appointed to act as Secured Party
hereunder by Lenders and, by their acceptance of the benefits hereof, Interest
Rate Exchangers. Secured Party shall be obligated, and shall have the right
hereunder, to make demands, to give notices, to exercise or refrain from
exercising any rights, and to take or refrain from taking
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any action (including the release or substitution of Collateral), solely in
accordance with this Agreement and the Credit Agreement; provided that Secured
--------
Party shall exercise, or refrain from exercising, any remedies provided for in
Section 11 in accordance with the instructions of (i) Requisite Lenders or (ii)
after payment in full of all Obligations under the Credit Agreement and the
other Loan Documents, the holders of a majority of the aggregate notional amount
(or, with respect to any Lender Interest Rate Agreement that has been terminated
in accordance with its terms, the amount then due and payable (exclusive of
expenses and similar payments but including any early termination payments then
due) under such Lender Interest Rate Agreement) under all Lender Interest Rate
Agreements (Requisite Lenders or, if applicable, such holders being referred to
herein as "REQUISITE OBLIGEES"). In furtherance of the foregoing provisions of
this Section 17(a), each Interest Rate Exchanger, by its acceptance of the
benefits hereof, agrees that it shall have no right individually to realize upon
any of the Collateral hereunder, it being understood and agreed by such Interest
Rate Exchanger that all rights and remedies hereunder may be exercised solely by
Secured Party for the benefit of Lenders and Interest Rate Exchangers in
accordance with the terms of this Section 17(a).
(b) Secured Party shall at all times be the same Person that is
Administrative Agent under the Credit Agreement. Written notice of resignation
by Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall
also constitute notice of resignation as Secured Party under this Agreement;
removal of Administrative Agent pursuant to subsection 9.5 of the Credit
Agreement shall also constitute removal as Secured Party under this Agreement;
and appointment of a successor Administrative Agent pursuant to subsection 9.5
of the Credit Agreement shall also constitute appointment of a successor Secured
Party under this Agreement. Upon the acceptance of any appointment as
Administrative Agent under subsection 9.5 of the Credit Agreement by a successor
Administrative Agent, that successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring or removed Secured Party under this Agreement, and the retiring
or removed Secured Party under this Agreement shall promptly (i) transfer to
such successor Secured Party all sums, securities and other items of Collateral
held hereunder, together with all records and other documents necessary or
appropriate in connection with the performance of the duties of the successor
Secured Party under this Agreement, and (ii) execute and deliver to such
successor Secured Party such amendments to financing statements, and take such
other actions, as may be necessary or appropriate in connection with the
assignment to such successor Secured Party of the security interests created
hereunder, whereupon such retiring or removed Secured Party shall be discharged
from its duties and obligations under this Agreement. After any retiring or
removed Administrative Agent's resignation or removal hereunder as Secured
Party, the provisions of this Agreement shall inure to its benefit as to any
actions taken or omitted to be taken by it under this Agreement while it was
Secured Party hereunder.
SECTION 18. AMENDMENTS; ETC. No amendment, modification, termination
---------------
or waiver of any provision of this Agreement, and no consent to any departure by
Grantor therefrom, shall in any event be effective unless the same shall be in
writing and signed by Secured Party and, in the case of any such amendment or
modification, by Grantor. Any
15
<PAGE>
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which it was given.
SECTION 19. NOTICES. Any notice or other communication herein
-------
required or permitted to be given shall be given as provided in the Credit
Agreement. For the purposes hereof, the address of each party hereto shall be
as set forth under such party's name on the signature pages hereof or, as to
either party, such other address as shall be designated by such party in a
written notice delivered to the other party hereto.
SECTION 20. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
-----------------------------------------------------
failure or delay on the part of Secured Party in the exercise of any power,
right or privilege hereunder shall impair such power, right or privilege or be
construed to be a waiver of any default or acquiescence therein, nor shall any
single or partial exercise of any such power, right or privilege preclude any
other or further exercise thereof or of any other power, right or privilege.
All rights and remedies existing under this Agreement are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
SECTION 21. SEVERABILITY. In case any provision in or obligation
------------
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 22. HEADINGS. Section and subsection headings in this
--------
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given any
substantive effect.
SECTION 23. GOVERNING LAW; TERMS. THIS AGREEMENT AND THE RIGHTS AND
--------------------
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW
OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES,
EXCEPT TO THE EXTENT THAT THE CODE PROVIDES THAT THE PERFECTION OF THE SECURITY
INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR
COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF
NEW YORK. Unless otherwise defined herein or in the Credit Agreement, terms
used in Articles 8 and 9 of the Uniform Commercial Code in the State of New York
are used herein as therein defined.
SECTION 24. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL
----------------------------------------------
JUDICIAL PROCEEDINGS BROUGHT AGAINST GRANTOR ARISING OUT OF OR RELATING TO THIS
AGREEMENT, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL
COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY
16
<PAGE>
EXECUTING AND DELIVERING THIS AGREEMENT, GRANTOR, FOR ITSELF AND IN CONNECTION
WITH ITS PROPERTIES, IRREVOCABLY
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN
ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO GRANTOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 19;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER GRANTOR IN ANY SUCH
PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT;
(V) AGREES THAT SECURED PARTY RETAINS THE RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST GRANTOR IN
THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SECTION 24 RELATING TO
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR
OTHERWISE.
SECTION 25. WAIVER OF JURY TRIAL. GRANTOR AND SECURED PARTY HEREBY
--------------------
AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this waiver is
intended to be all-encompassing of any and all disputes that may be filed in any
court and that relate to the subject matter of this transaction, including
without limitation contract claims, tort claims, breach of duty claims, and all
other common law and statutory claims. Grantor and Secured Party each
acknowledge that this waiver is a material inducement for Grantor and Secured
Party to enter into a business relationship, that Grantor and Secured Party have
already relied on this waiver in entering into this Agreement and that each will
continue to rely on this waiver in their related future dealings. Grantor and
Secured Party further warrant and represent that each has reviewed this waiver
with its legal counsel, and that each knowingly and voluntarily waives its jury
trial rights following consultation with legal counsel. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING
(OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 25
AND EXECUTED BY EACH
17
<PAGE>
OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. In the
event of litigation, this Agreement may be filed as a written consent to a trial
by the court.
SECTION 26. COUNTERPARTS. This Agreement may be executed in one or
------------
more counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
[Remainder of page intentionally left blank]
18
<PAGE>
IN WITNESS WHEREOF, Grantor and Secured Party have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
[GRANTOR]
By: __________________________
Name: __________________________
Title: __________________________
Notice Address:
1800 Cloquet Avenue
Cloquet, MN 55720-2141
Attention: Tom Knuesel
WELLS FARGO BANK, N.A.,
as Administrative Agent
By: __________________________
Name: __________________________
Title: __________________________
Notice Address:
Attention:
1
<PAGE>
SCHEDULE A
TO
TRADEMARK SECURITY AGREEMENT
UNITED STATES
REGISTERED TRADEMARK REGISTRATION REGISTRATION
OWNER DESCRIPTION NUMBER DATE
---------- ------------- ------------ ------------
2
<PAGE>
STATE OF CALIFORNIA )
) SS.:
COUNTY OF ____________ )
On ___________, 19___, before me, ____________________, a Notary Public
in and for said State, personally appeared ____________________________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
Signature ________________________________ (Seal)
3
<PAGE>
SUBSIDIARY TRADEMARK SECURITY AGREEMENT
This SUBSIDIARY TRADEMARK SECURITY AGREEMENT (this "AGREEMENT") is
dated as of April 21, 1998 and entered into by and between EMPIRE CANDLE, INC.,
a Kansas corporation ("GRANTOR"), and WELLS FARGO BANK, N.A., as administrative
agent for and representative of (in such capacity herein called "SECURED PARTY")
the financial institutions ("LENDERS") party to the Credit Agreement referred to
below and any Interest Rate Exchangers (as hereinafter defined).
PRELIMINARY STATEMENTS
A. Diamond Brands Operating Corp., a Delaware corporation
("COMPANY"), has entered into that certain Credit Agreement dated as of April
21, 1998 with DLJ Capital Funding, Inc., as Syndication Agent, Secured Party,
Morgan Stanley Senior Funding Inc., as Documentation Agent, and Lenders (said
Credit Agreement, as it may hereafter be amended, supplemented or otherwise
modified from time to time, being the "CREDIT AGREEMENT"; capitalized terms
defined therein and not otherwise defined herein being used herein as therein
defined).
B. Company may from time to time enter, or may from time to time have
entered, into one or more Interest Rate Agreements (collectively, the "LENDER
INTEREST RATE AGREEMENTS") with or one or more Lenders (in such capacity,
collectively, "INTEREST RATE EXCHANGERS").
C. Grantor has executed and delivered a Subsidiary Guaranty dated as
of April 21, 1998 (said Subsidiary Guaranty, as it may hereafter be amended,
supplemented or otherwise modified from time to time, being the "SUBSIDIARY
GUARANTY") in favor of Secured Party for the benefit of Lenders and Interest
Rate Exchangers, pursuant to which Grantor has guarantied the prompt payment and
performance when due of all obligations of Company under the Credit Agreement
and under any Lender Interest Rate Agreements.
D. Grantor owns and uses in its business, and will in the future
adopt and so use, various intangible assets, including trademarks, service
marks, designs, logos, indicia, tradenames, corporate names, company names,
business names, fictitious business names, trade styles and/or other source
and/or business identifiers and applications pertaining thereto (collectively,
the "TRADEMARKS").
E. Secured Party desires Grantor to assign and grant to it a lien on
and security interest in all of Grantor's existing and future Trademarks, all
registrations that have been or may hereafter be issued or applied for thereon
in the United States and any state thereof and in foreign countries (the
"REGISTRATIONS"), all common law and other rights in and to the Trademarks in
the United States and any state thereof and in foreign countries (the "TRADEMARK
RIGHTS"), all goodwill of Grantor's business symbolized by the
1
<PAGE>
Trademarks and associated therewith, including without limitation the documents
and things described in Section 1(b) (the "ASSOCIATED GOODWILL"), and all
proceeds of the Trademarks, the Registrations, the Trademark Rights and the
Associated Goodwill, and Grantor agrees to assign and grant to Secured Party a
secured and protected interest in the Trademarks, the Registrations, the
Trademark Rights, the Associated Goodwill and all the proceeds thereof as
provided herein.
F. Pursuant to the Subsidiary Security Agreement, Grantor has
assigned and granted to Secured Party a lien on and security interest in, among
other assets, all of Grantor's equipment, inventory, accounts and general
intangibles relating to the products and services sold or delivered under or in
connection with the Trademarks such that, upon the occurrence and during the
continuation of an Event of Default, Secured Party would be able to exercise its
remedies consistent with the Subsidiary Security Agreement, this Agreement and
applicable law to foreclose upon Grantor's business and use the Trademarks, the
Registrations and the Trademark Rights in conjunction with the continued
operation of such business, maintaining substantially the same product and
service specifications and quality as maintained by Grantor, and benefit from
the Associated Goodwill.
G. It is a condition precedent to the initial extensions of credit by
Lenders under the Credit Agreement that Grantor shall have assigned and granted
the security interests and undertaken the obligations contemplated by this
Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce
Lenders to make Loans and other extensions of credit under the Credit Agreement
and to induce Interest Rate Exchangers to enter into Lender Interest Rate
Agreements and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Grantor hereby agrees with Secured
Party as follows:
SECTION 1. ASSIGNMENT AND GRANT OF SECURITY. Grantor hereby assigns
--------------------------------
to Secured Party, and hereby grants to Secured Party a security interest in, all
of Grantor's right, title and interest in and to the following, in each case
whether now or hereafter existing or in which Grantor now has or hereafter
acquires an interest and wherever the same may be located (the "COLLATERAL"):
(a) each of the Trademarks and rights and interests in Trademarks that
are presently, or in the future may be, owned, held (whether pursuant to a
license or otherwise) or used by Grantor, in whole or in part (including,
without limitation, the Trademarks specifically identified in Schedule A annexed
----------
hereto, as the same may be amended pursuant hereto from time to time), and
including all Trademark Rights with respect thereto and all federal, state and
foreign Registrations therefor heretofore or hereafter granted or applied for,
the right (but not the obligation) to register claims under any state or federal
trademark law or regulation or any trademark law or regulation of any foreign
country and to apply for, renew and extend the Trademarks, Registrations and
Trademark Rights, the right (but not the obligation) to sue or bring opposition
or cancellation proceedings in the name of Grantor or in the name of Secured
Party or otherwise for past, present and future
2
<PAGE>
infringements of the Trademarks, Registrations or Trademark Rights and all
rights (but not obligations) corresponding thereto in the United States and any
foreign country, and the Associated Goodwill; it being understood that the
rights and interests included herein shall include, without limitation, all
rights and interests pursuant to licensing or other contracts in favor of
Grantor pertaining to any Trademarks, Registrations or Trademark Rights
presently or in the future owned, held or used by third parties but, in the case
of third parties which are not Affiliates of Grantor, only to the extent
permitted by such licensing or other contracts or otherwise permitted by
applicable law and, if not so permitted under any such contracts and applicable
law, only with the consent of such third parties;
(b) the following documents and things in Grantor's possession, or
subject to Grantor's right to possession, related to (Y) the production, sale
and delivery by Grantor, or by any Affiliate, licensee or subcontractor of
Grantor, of products or services sold or delivered by or under the authority of
Grantor in connection with the Trademarks, Registrations or Trademark Rights
(which products and services shall, for purposes of this Agreement, be deemed to
include, without limitation, products and services sold or delivered pursuant to
merchandising operations utilizing any Trademarks, Registrations or Trademark
Rights); or (Z) any retail or other merchandising operations conducted under the
name of or in connection with the Trademarks, Registrations or Trademark Rights
by Grantor or any Affiliate, licensee or subcontractor of Grantor:
(i) all lists and ancillary documents that identify and
describe any of Grantor's customers, or those of its Affiliates, licensees
or subcontractors, for products sold and services delivered under or in
connection with the Trademarks or Trademark Rights, including without
limitation any lists and ancillary documents that contain a customer's name
and address, the name and address of any of its warehouses, branches or
other places of business, the identity of the Person or Persons having the
principal responsibility on a customer's behalf for ordering products or
services of the kind supplied by Grantor, or the credit, payment, discount,
delivery or other sale terms applicable to such customer, together with
information setting forth the total purchases, by brand, product, service,
style, size or other criteria, and the patterns of such purchases;
(ii) all product and service specification documents and
production and quality control manuals used in the manufacture or delivery
of products and services sold or delivered under or in connection with the
Trademarks or Trademark Rights;
(iii) all documents which reveal the name and address of any
source of supply, and any terms of purchase and delivery, for any and all
materials, components and services used in the production of products and
services sold or delivered under or in connection with the Trademarks or
Trademark Rights; and
(iv) all documents constituting or concerning the then current
or proposed advertising and promotion by Grantor or its Affiliates,
licensees or
3
<PAGE>
subcontractors of products and services sold or delivered under or in
connection with the Trademarks or Trademark Rights including, without
limitation, all documents which reveal the media used or to be used and the
cost for all such advertising conducted within the described period or
planned for such products and services;
(c) all books, records, ledger cards, files, correspondence, computer
programs, tapes, disks and related data processing software that at any time
evidence or contain information relating to any of the Collateral or are
otherwise necessary or helpful in the collection thereof or realization
thereupon;
(d) to the extent not included in the foregoing clauses (a) - (c), all
general intangibles relating to the Collateral; and
(e) all proceeds, products, rents and profits (including without
limitation license royalties and proceeds of infringement suits) of or from any
and all of the foregoing Collateral and, to the extent not otherwise included,
all payments under insurance (whether or not Secured Party is the loss payee
thereof), or any indemnity, warranty or guaranty, payable by reason of loss or
damage to or otherwise with respect to any of the foregoing Collateral. For
purposes of this Agreement, the term "PROCEEDS" includes whatever is receivable
or received when Collateral or proceeds are sold, exchanged, collected or
otherwise disposed of, whether such disposition is voluntary or involuntary.
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures, and the
------------------------
Collateral is collateral security for, the prompt payment or performance in full
when due, whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise (including the payment of amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code, 11 U.S.C. (S)362(a)), of all obligations and liabilities of
every nature of Grantor now or hereafter existing under or arising out of or in
connection with the Subsidiary Guaranty, the other Loan Documents and the Lender
Interest Rate Agreements and all extensions or renewals thereof, whether for
principal, interest (including without limitation interest that, but for the
filing of a petition in bankruptcy with respect to Grantor, would accrue on such
obligations), reimbursement of amounts drawn under Letters of Credit, payments
for early termination of Lender Interest Rate Agreements, fees, expenses,
indemnities or otherwise, whether voluntary or involuntary, direct or indirect,
absolute or contingent, liquidated or unliquidated, whether or not jointly owed
with others, and whether or not from time to time decreased or extinguished and
later increased, created or incurred, and all or any portion of such obligations
or liabilities that are paid, to the extent all or any part of such payment is
avoided or recovered directly or indirectly from Secured Party or any Lender or
Interest Rate Exchanger as a preference, fraudulent transfer or otherwise (all
such obligations and liabilities being the "UNDERLYING DEBT"), and all
obligations of every nature of Grantor now or hereafter existing under this
Agreement (all such obligations of Grantor, together with the Underlying Debt,
being the "SECURED OBLIGATIONS").
4
<PAGE>
SECTION 3. GRANTOR REMAINS LIABLE. Anything contained herein to the
----------------------
contrary notwithstanding, (a) Grantor shall remain liable under any contracts
and agreements included in the Collateral, to the extent set forth therein, to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed, (b) the exercise by Secured Party of any
of its rights hereunder shall not release Grantor from any of its duties or
obligations under the contracts and agreements included in the Collateral, and
(c) Secured Party shall not have any obligation or liability under any contracts
and agreements included in the Collateral by reason of this Agreement, nor shall
Secured Party be obligated to perform any of the obligations or duties of
Grantor thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder.
SECTION 4. REPRESENTATIONS AND WARRANTIES. Grantor represents and
------------------------------
warrants as follows:
(a) Description of Collateral. A true and complete list of all
-------------------------
Trademarks, Registrations and Trademark Rights owned, held (whether pursuant to
a license or otherwise) or used by Grantor, in whole or in part, as of the date
of this Agreement is set forth in Schedule A annexed hereto. Each Trademark,
----------
Registration or Trademark Right designated on Schedule A annexed hereto as a
----------
Material Trademark Property, each other Trademark, Registration or Trademark
Right that uses or incorporates the name "Empire" or any other identifiers or
symbols derived from or associated with the name "Empire" hereafter arising or
otherwise owned, held or used by Grantor, and each other Trademark, Registration
or Trademark Right hereafter arising or otherwise owned, held or used by Grantor
is referred to herein as a "MATERIAL TRADEMARK PROPERTY".
(b) Validity and Enforceability of Collateral. Each Material
-----------------------------------------
Trademark Property is valid, subsisting and enforceable. As of the Closing Date,
Grantor is not aware of any pending or threatened claim by any third party that
any Material Trademark Property is invalid or unenforceable or that the use of
any Material Trademark Property violates the rights of any third person or of
any basis for any such claim, and there is no such pending or, to the knowledge
of Grantor, threatened claim that could reasonably be expected to have a
Material Adverse Effect.
(c) Ownership of Collateral. Except for the security interest
-----------------------
assigned and created by this Agreement, Grantor is the sole legal and beneficial
owner of the entire right, title and interest in and to each Material Trademark
Property, free and clear of any Lien other than Liens of mechanics, materialmen,
attorneys and other similar liens imposed by law in the ordinary course of
business in connection with the establishment, creation or application for
Registration of any Trademarks, Registrations or Trademark Rights for sums not
yet delinquent or being contested in good faith (such Liens being referred to
herein as "PERMITTED TRADEMARK LIENS"). Except such as may have been filed in
favor of Secured Party relating to this Agreement, no effective financing
statement or other instrument similar in effect covering all or any part of the
Collateral is on file in any filing or recording office, including the United
States Patent and Trademark Office.
5
<PAGE>
(d) Office Locations; Other Names. The chief place of business, the
-----------------------------
chief executive office and the office where Grantor keeps its records regarding
the Collateral is, and has been for the four month period preceding the date
hereof, located at 2925 Fairfax Trafficway, Kansas City, Kansas 66115. Grantor
has not in the past done, and does not now do, business under any other name
(including any trade-name or fictitious business name).
(e) Governmental Authorizations. No authorization, approval or other
---------------------------
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for either (i) the assignment and grant by Grantor
of the security interest created hereby, (ii) the execution, delivery or
performance of this Agreement by Grantor, or (iii) the perfection or exercise by
Secured Party of its rights and remedies hereunder (except as may have been
taken by or at the direction of Grantor).
(f) Perfection. This Agreement, together with the filing of a
----------
financing statement describing the Collateral with the Secretary of State of the
State of Kansas, Missouri and Nevada and the recording of this Agreement with
the United States Patent and Trademark Office, which will be made, assigns and
creates a valid, perfected and First Priority security interest in the
Collateral (subject only to Permitted Trademark Liens), securing the payment of
the Secured Obligations, and all filings and other actions necessary or
desirable to perfect and protect such security interest have been or will be
duly made or taken.
(g) Other Information. All information heretofore, herein or
-----------------
hereafter supplied to Secured Party by or on behalf of Grantor with respect to
the Collateral is accurate and complete in all material respects.
SECTION 5. FURTHER ASSURANCES; NEW TRADEMARKS, REGISTRATIONS AND
-----------------------------------------------------
TRADEMARK RIGHTS; CERTAIN INSPECTION RIGHTS.
- -------------------------------------------
(a) Grantor agrees that from time to time, at the expense of Grantor,
Grantor will promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or desirable, or that Secured
Party may request, in order to perfect and protect any security interest
assigned or granted or purported to be assigned or granted hereby or to enable
Secured Party to exercise and enforce its rights and remedies hereunder with
respect to any Collateral. Without limiting the generality of the foregoing,
Grantor will: (i) at the request of Secured Party, mark conspicuously each of
its records pertaining to the Collateral with a legend, in form and substance
satisfactory to Secured Party, indicating that such Collateral is subject to the
security interest granted hereby, (ii) execute and file such financing or
continuation statements, or amendments thereto, and such other instruments or
notices, as may be necessary or desirable, or as Secured Party may request, in
order to perfect and preserve the security interests granted or purported to be
granted hereby, (iii) use its best efforts to obtain any necessary consents of
third parties to the assignment and perfection of a security interest to Secured
Party with respect to any Collateral, (iv) subject to the terms of the Credit
Agreement, at any
6
<PAGE>
reasonable time and upon request by Secured Party, exhibit the Collateral to and
allow inspection of the Collateral by Secured Party, or persons designated by
Secured Party, and (v) at Secured Party's request, appear in and defend any
action or proceeding that may affect Grantor's title to or Secured Party's
security interest in all or any part of the Collateral.
(b) Grantor hereby authorizes Secured Party to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Collateral without the signature of Grantor. Grantor agrees
that a carbon, photographic or other reproduction of this Agreement or of a
financing statement signed by Grantor shall be sufficient as a financing
statement and may be filed as a financing statement in any and all
jurisdictions.
(c) Grantor hereby authorizes Secured Party to modify this Agreement
without obtaining Grantor's approval of or signature to such modification by
amending Schedule A annexed hereto to include reference to any right, title or
----------
interest in any existing Trademark, Registration or Trademark Right or any
Trademark, Registration or Trademark Right acquired or developed by Grantor
after the execution hereof or to delete any reference to any right, title or
interest in any Trademark, Registration or Trademark Right in which Grantor no
longer has or claims any right, title or interest.
(d) Grantor will furnish to Secured Party from time to time statements
and schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as Secured Party may reasonably
request, all in reasonable detail.
(e) If Grantor shall obtain rights to any new Trademarks,
Registrations or Trademark Rights, the provisions of this Agreement shall
automatically apply thereto. Grantor shall promptly notify Secured Party in
writing of any rights to any new Trademarks or Trademark Rights acquired by
Grantor after the date hereof and of any Registrations issued or applications
for Registration made after the date hereof, which notice shall state whether
such Trademark, Registration or Trademark Right constitutes a Material Trademark
Property. Concurrently with the filing of an application for Registration for
any Trademark, Grantor shall execute, deliver and record in all places where
this Agreement is recorded an appropriate Trademark Security Agreement,
substantially in the form hereof, with appropriate insertions, or an amendment
to this Agreement, in form and substance satisfactory to Secured Party, pursuant
to which Grantor shall assign and grant a security interest to the extent of its
interest in such Registration as provided herein to Secured Party unless so
doing would, in the reasonable judgment of Grantor, after due inquiry, result in
the grant of a Registration in the name of Secured Party, in which event Grantor
shall give written notice to Secured Party as soon as reasonably practicable and
the filing shall instead be undertaken as soon as practicable but in no case
later than immediately following the grant of the Registration.
7
<PAGE>
(f) Grantor hereby grants to Secured Party and its employees,
representatives and agents the right to visit Grantor's and any of its
Affiliate's or subcontractor's plants, facilities and other places of business
that are utilized in connection with the manufacture, production, inspection,
storage or sale of products and services sold or delivered under any of the
Trademarks, Registrations or Trademark Rights (or which were so utilized during
the prior six month period), and to inspect the quality control and all other
records relating thereto upon reasonable notice to Grantor and as often as may
be reasonably requested.
SECTION 6. CERTAIN COVENANTS OF GRANTOR. Grantor shall:
----------------------------
(a) not use or permit any Collateral to be used unlawfully or in
violation of any provision of this Agreement or any applicable statute,
regulation or ordinance or any policy of insurance covering the Collateral;
(b) notify Secured Party of any change in Grantor's name, identity or
corporate structure within 15 days of such change;
(c) give Secured Party 30 days' prior written notice of any change in
Grantor's chief place of business or chief executive office or the office where
Grantor keeps its records regarding the Collateral;
(d) pay promptly when due all property and other taxes, assessments
and governmental charges or levies imposed upon, and all claims (including
claims for labor, materials and supplies) against, the Collateral, except to the
extent permitted under the Credit Agreement;
(e) not sell, assign (by operation of law or otherwise) or otherwise
dispose of any of the Collateral, except as permitted by the Credit Agreement;
(f) except for Permitted Trademark Liens and the security interest
assigned and created by this Agreement, not create or suffer to exist any Lien
upon or with respect to any of the Collateral to secure the indebtedness or
other obligations of any Person;
(g) diligently keep reasonable records respecting the Collateral and
at all times keep at least one complete set of its records concerning
substantially all of the Trademarks, Registrations and Trademark Rights at its
chief executive office or principal place of business;
(h) not permit the inclusion in any contract to which it becomes a
party of any provision that could or might in any way conflict with this
Agreement or impair or prevent the assignment and creation of a security
interest in Grantor's rights and interests in any property included within the
definitions of any Trademarks, Registrations, Trademark Rights and Associated
Goodwill;
8
<PAGE>
(i) take all steps necessary to protect the secrecy of all trade
secrets relating to the products and services sold or delivered under or in
connection with the Trademarks and Trademark Rights, including without
limitation entering into confidentiality agreements with employees and labeling
and restricting access to secret information and documents;
(j) use proper statutory notice in connection with its use of each
Material Trademark Property to the extent reasonably necessary for the
protection of such Material Trademark Property;
(k) use consistent standards of high quality (which may be consistent
with Grantor's past practices) in the manufacture, sale and delivery of products
and services sold or delivered under or in connection with the Trademarks,
Registrations and Trademark Rights, including, to the extent applicable, in the
operation and maintenance of its merchandising operations; and
(l) upon any officer of Grantor obtaining knowledge thereof, promptly
notify Secured Party in writing of any event that may materially and adversely
affect the value of the Collateral or any portion thereof, the ability of
Grantor or Secured Party to dispose of the Collateral or any portion thereof, or
the rights and remedies of Secured Party in relation thereto, including without
limitation the levy of any legal process against the Collateral or any portion
thereof.
SECTION 7. AMOUNTS PAYABLE IN RESPECT OF THE COLLATERAL. Except as
--------------------------------------------
otherwise provided in this Section 7, Grantor shall continue to collect, at its
own expense, all amounts due or to become due to Grantor in respect of the
Collateral or any portion thereof. In connection with such collections, Grantor
may take (and, at Secured Party's direction, shall take) such action as Grantor
or Secured Party may deem necessary or advisable to enforce collection of such
amounts; provided, however, that Secured Party shall have the right at any time,
-------- -------
upon the occurrence and during the continuation of an Event of Default and upon
written notice to Grantor of its intention to do so, to notify the obligors with
respect to any such amounts of the existence of the security interest assigned
and created hereby, and to direct such obligors to make payment of all such
amounts directly to Secured Party, and, upon such notification and at the
expense of Grantor, to enforce collection of any such amounts and to adjust,
settle or compromise the amount or payment thereof, in the same manner and to
the same extent as Grantor might have done. After receipt by Grantor of the
notice from Secured Party referred to in the proviso to the preceding sentence,
-------
(i) all amounts and proceeds (including checks and other instruments) received
by Grantor in respect of amounts due to Grantor in respect of the Collateral or
any portion thereof shall be received in trust for the benefit of Secured Party
hereunder, shall be segregated from other funds of Grantor and shall be
forthwith paid over or delivered to Secured Party in the same form as so
received (with any necessary endorsement) to be held as cash Collateral and
applied as provided by Section 14, and (ii) Grantor shall not adjust, settle or
compromise the amount or payment of any such amount or release wholly or partly
any obligor with respect thereto or allow any credit or discount thereon.
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<PAGE>
SECTION 8. TRADEMARK APPLICATIONS AND LITIGATION.
-------------------------------------
(a) Grantor shall have the duty diligently to prosecute any trademark
application relating to any Material Trademark Property that is pending as of
the date of this Agreement, to make federal application on any existing or
future registerable but unregistered Material Trademark Property (whenever it is
commercially reasonable in the reasonable judgment of Grantor to do so), and to
file and prosecute opposition and cancellation proceedings, renew Registrations
and do any and all acts which are necessary or desirable to preserve and
maintain all rights in all Material Trademark Properties. Any expenses incurred
in connection therewith shall be borne solely by Grantor. Grantor shall not
abandon any Material Trademark Property.
(b) Except as provided in Section 8(d), Grantor shall have the right
to commence and prosecute in its own name, as real party in interest, for its
own benefit and at its own expense, such suits, proceedings or other actions for
infringement, unfair competition, dilution or other damage as are in its
reasonable business judgment necessary to protect the Collateral. Secured Party
shall provide, at Grantor's expense, all reasonable and necessary cooperation in
connection with any such suit, proceeding or action including, without
limitation, joining as a necessary party.
(c) Grantor shall promptly, following its becoming aware thereof,
notify Secured Party of the institution of, or of any adverse determination in,
any proceeding (whether in the United States Patent and Trademark Office or any
federal, state, local or foreign court) described in Section 8(a) or 8(b) or
regarding Grantor's claim of ownership in or right to use any material
Trademark, material Registration or material Trademark Right, its right to
register the same, or its right to keep and maintain such Registration. Grantor
shall provide to Secured Party any information with respect thereto requested by
Secured Party.
(d) Anything contained herein to the contrary notwithstanding, upon
the occurrence and during the continuation of an Event of Default, Secured Party
shall have the right (but not the obligation) to bring suit, in the name of
Grantor, Secured Party or otherwise, to enforce any Trademark, Registration,
Trademark Right, Associated Goodwill and any license thereunder, in which event
Grantor shall, at the request of Secured Party, do any and all lawful acts and
execute any and all documents required by Secured Party in aid of such
enforcement and Grantor shall promptly, upon demand, reimburse and indemnify
Secured Party as provided in Section 15 in connection with the exercise of its
rights under this Section 8. To the extent that Secured Party shall elect not to
bring suit to enforce any Trademark, Registration, Trademark Right, Associated
Goodwill or any license thereunder as provided in this Section 8(d), Grantor
agrees to use all reasonable measures, whether by action, suit, proceeding or
otherwise, to prevent the infringement of any of the Trademarks, Registrations,
Trademark Rights or Associated Goodwill by others and for that purpose agrees to
diligently maintain any action, suit or proceeding against any Person so
infringing necessary to prevent such infringement.
10
<PAGE>
SECTION 9. NON-DISTURBANCE AGREEMENTS, ETC. If and to the extent that
--------------------------------
Grantor is permitted to license the Collateral, Secured Party shall enter into a
non-disturbance agreement or other similar arrangement, at Grantor's request and
expense, with Grantor and any licensee of any Collateral permitted hereunder in
form and substance satisfactory to Secured Party pursuant to which (a) Secured
Party shall agree not to disturb or interfere with such licensee's rights under
its license agreement with Grantor so long as such licensee is not in default
thereunder and (b) such licensee shall acknowledge and agree that the Collateral
licensed to it is subject to the security interest assigned and created in favor
of Secured Party and the other terms of this Agreement.
SECTION 10. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Grantor hereby
----------------------------------------
irrevocably appoints Secured Party as Grantor's attorney-in-fact, with full
authority in the place and stead of Grantor and in the name of Grantor, Secured
Party or otherwise, from time to time in Secured Party's discretion to take any
action and to execute any instrument that Secured Party may deem necessary or
advisable to accomplish the purposes of this Agreement, including without
limitation:
(a) while an Event of Default exists, to endorse Grantor's name on all
applications, documents, papers and instruments necessary for Secured Party in
the use or maintenance of the Collateral;
(b) while an Event of Default exists, to ask for, demand, collect, sue
for, recover, compound, receive and give acquittance and receipts for moneys due
and to become due under or in respect of any of the Collateral;
(c) while an Event of Default exists, to receive, endorse and collect
any drafts or other instruments, documents and chattel paper in connection with
clause (b) above;
(d) while an Event of Default exists, to file any claims or take any
action or institute any proceedings that Secured Party may deem necessary or
desirable for the collection of any of the Collateral or otherwise to enforce
the rights of Secured Party with respect to any of the Collateral;
(e) while an Event of Default exists, to pay or discharge taxes or
Liens (other than Liens permitted under this Agreement or the Credit Agreement)
levied or placed upon or threatened against the Collateral, the legality or
validity thereof and the amounts necessary to discharge the same to be
determined by Secured Party in its sole discretion, any such payments made by
Secured Party to become obligations of Grantor to Secured Party, due and payable
immediately without demand; and
(f) upon the occurrence and during the continuation of an Event of
Default, (i) to execute and deliver any of the assignments or documents
requested by Secured Party pursuant to Section 13(b), (ii) to grant or issue an
exclusive or non-exclusive license to the Collateral or any portion thereof to
any Person, and (iii) otherwise generally
11
<PAGE>
to sell, transfer, pledge, make any agreement with respect to or otherwise deal
with any of the Collateral as fully and completely as though Secured Party were
the absolute owner thereof for all purposes, and to do, at Secured Party's
option and Grantor's expense, at any time or from time to time, all acts and
things that Secured Party deems necessary to protect, preserve or realize upon
the Collateral and Secured Party's security interest therein in order to effect
the intent of this Agreement, all as fully and effectively as Grantor might do.
SECTION 11. SECURED PARTY MAY PERFORM. If Grantor fails to perform
-------------------------
any agreement contained herein, Secured Party may itself perform, or cause
performance of, such agreement, and the expenses of Secured Party incurred in
connection therewith shall be payable by Grantor under Section 15.
SECTION 12. STANDARD OF CARE. The powers conferred on Secured Party
----------------
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the exercise of
reasonable care in the custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, Secured Party shall
have no duty as to any Collateral or as to the taking of any necessary steps to
preserve rights against prior parties or any other rights pertaining to any
Collateral. Secured Party shall be deemed to have exercised reasonable care in
the custody and preservation of Collateral in its possession if such Collateral
is accorded treatment substantially equal to that which Secured Party accords
its own property.
SECTION 13. REMEDIES. If any Event of Default shall have occurred and
--------
be continuing:
(a) Secured Party may exercise in respect of the Collateral, in
addition to all other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on default under
the Uniform Commercial Code as in effect in any relevant jurisdiction (the
"CODE") (whether or not the Code applies to the affected Collateral), and also
may (i) require Grantor to, and Grantor hereby agrees that it will at its
expense and upon request of Secured Party forthwith, assemble all or part of the
Collateral as directed by Secured Party and make it available to Secured Party
at a place to be designated by Secured Party that is reasonably convenient to
both parties, (ii) enter onto the property where any Collateral is located and
take possession thereof with or without judicial process, (iii) prior to the
disposition of the Collateral, store the Collateral or otherwise prepare the
Collateral for disposition in any manner to the extent Secured Party deems
appropriate, (iv) take possession of Grantor's premises or place custodians in
exclusive control thereof, remain on such premises and use the same for the
purpose of taking any actions described in the preceding clause (iii) and
collecting any Secured Obligation, (v) exercise any and all rights and remedies
of Grantor under or in connection with the contracts related to the Collateral
or otherwise in respect of the Collateral, including without limitation any and
all rights of Grantor to demand or otherwise require payment of any amount
under, or performance of any provision of, such contracts, and (vi) without
notice except as specified below, sell the Collateral or any part thereof in one
or more parcels at public or private sale, at any of Secured Party's offices or
elsewhere, for
12
<PAGE>
cash, on credit or for future delivery, at such time or times and at such price
or prices and upon such other terms as Secured Party may deem commercially
reasonable. Secured Party or any Lender or Interest Rate Exchanger may be the
purchaser of any or all of the Collateral at any such sale and Secured Party, as
administrative agent for and representative of Lenders (but not any Lender or
Lenders in its or their respective individual capacities unless Requisite
Lenders shall otherwise agree in writing), shall be entitled, for the purpose of
bidding and making settlement or payment of the purchase price for all or any
portion of the Collateral sold at any such public sale, to use and apply any of
the Secured Obligations as a credit on account of the purchase price for any
Collateral payable by Secured Party at such sale. Each purchaser at any such
sale shall hold the property sold absolutely free from any claim or right on the
part of Grantor, and Grantor hereby waives (to the extent permitted by
applicable law) all rights of redemption, stay and/or appraisal which it now has
or may at any time in the future have under any rule of law or statute now
existing or hereafter enacted. Grantor agrees that, to the extent notice of
sale shall be required by law, at least ten days' notice to Grantor of the time
and place of any public sale or the time after which any private sale is to be
made shall constitute reasonable notification. Secured Party shall not be
obligated to make any sale of Collateral regardless of notice of sale having
been given. Secured Party may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned. Grantor hereby waives any claims against Secured Party arising by
reason of the fact that the price at which any Collateral may have been sold at
such a private sale was less than the price which might have been obtained at a
public sale, even if Secured Party accepts the first offer received and does not
offer such Collateral to more than one offeree. If the proceeds of any sale or
other disposition of the Collateral are insufficient to pay all the Secured
Obligations, Grantor shall be liable for the deficiency and the fees of any
attorneys employed by Secured Party to collect such deficiency.
(b) Upon written demand from Secured Party, Grantor shall execute and
deliver to Secured Party an assignment or assignments of the Trademarks,
Registrations, Trademark Rights and the Associated Goodwill and such other
documents as are requested by Secured Party. Grantor agrees that such an
assignment and/or recording shall be applied to reduce the Secured Obligations
outstanding only to the extent that Secured Party (or any Lender or Interest
Rate Exchanger) receives cash proceeds in respect of the sale of, or other
realization upon, the Collateral.
(c) Within five Business Days after written notice from Secured Party,
Grantor shall make available to Secured Party, to the extent within Grantor's
power and authority, such personnel in Grantor's employ on the date of such
Event of Default as Secured Party may reasonably designate, by name, title or
job responsibility, to permit Grantor to continue, directly or indirectly, to
produce, advertise and sell the products and services sold or delivered by
Grantor under or in connection with the Trademarks, Registrations and Trademark
Rights, such persons to be available to perform their prior functions on Secured
Party's behalf and to be compensated by Secured Party at Grantor's
13
<PAGE>
expense on a per diem, pro-rata basis consistent with the salary and benefit
structure applicable to each as of the date of such Event of Default.
SECTION 14. APPLICATION OF PROCEEDS. All proceeds received by Secured
-----------------------
Party in respect of any sale of, collection from, or other realization upon all
or any part of the Collateral shall be applied as provided in subsection 2.4D of
the Credit Agreement.
SECTION 15. INDEMNITY AND EXPENSES.
----------------------
(a) Grantor agrees to indemnify Secured Party and each Lender and each
Interest Rate Exchanger from and against any and all claims, losses and
liabilities in any way relating to, growing out of or resulting from this
Agreement and the transactions contemplated hereby (including, without
limitation, enforcement of this Agreement), except to the extent such claims,
losses or liabilities result solely from Secured Party's or such Lender's or
such Interest Rate Exchanger's gross negligence or willful misconduct as finally
determined by a court of competent jurisdiction.
(b) Grantor shall pay to Secured Party upon demand the amount of any
and all reasonable out-of-pocket costs and expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents, that Secured
Party may incur in connection with (i) the administration of this Agreement,
(ii) the custody, preservation, use or operation of, or the sale of, collection
from, or other realization upon, any of the Collateral, (iii) the exercise or
enforcement of any of the rights of Secured Party hereunder, or (iv) the failure
by Grantor to perform or observe any of the provisions hereof.
SECTION 16. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS. This
-----------------------------------------------
Agreement shall assign and create a continuing security interest in the
Collateral and shall (a) remain in full force and effect until the payment in
full of the Secured Obligations, the cancellation or termination of the
Commitments and the cancellation or expiration of all outstanding Letters of
Credit, (b) be binding upon Grantor, its successors and assigns, and (c) inure,
together with the rights and remedies of Secured Party hereunder, to the benefit
of Secured Party and its successors, transferees and assigns. Without limiting
the generality of the foregoing clause (c), but subject to the provisions of
subsection 10.1 of the Credit Agreement, any Lender may assign or otherwise
transfer any Loans held by it to any other Person, and such other Person shall
thereupon become vested with all the benefits in respect thereof granted to
Lenders herein or otherwise. Upon the payment in full of all Secured
Obligations, the cancellation or termination of the Commitments and the
cancellation or expiration of all outstanding Letters of Credit, the security
interest assigned and granted hereby shall terminate and all rights to the
Collateral shall revert to Grantor. Upon any such termination Secured Party
will, at Grantor's expense, execute and deliver to Grantor such documents as
Grantor shall reasonably request to evidence such termination.
SECTION 17. SECURED PARTY AS ADMINISTRATIVE AGENT.
-------------------------------------
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(a) Secured Party has been appointed to act as Secured Party hereunder
by Lenders and, by their acceptance of the benefits hereof, Interest Rate
Exchangers. Secured Party shall be obligated, and shall have the right
hereunder, to make demands, to give notices, to exercise or refrain from
exercising any rights, and to take or refrain from taking any action (including
the release or substitution of Collateral), solely in accordance with this
Agreement and the Credit Agreement; provided that Secured Party shall exercise,
--------
or refrain from exercising, any remedies provided for in Section 11 in
accordance with the instructions of (i) Requisite Lenders or (ii) after payment
in full of all Obligations under the Credit Agreement and the other Loan
Documents, the holders of a majority of the aggregate notional amount (or, with
respect to any Lender Interest Rate Agreement that has been terminated in
accordance with its terms, the amount then due and payable (exclusive of
expenses and similar payments but including any early termination payments then
due) under such Lender Interest Rate Agreement) under all Lender Interest Rate
Agreements (Requisite Lenders or, if applicable, such holders being referred to
herein as "REQUISITE OBLIGEES"). In furtherance of the foregoing provisions of
this Section 17(a), each Interest Rate Exchanger, by its acceptance of the
benefits hereof, agrees that it shall have no right individually to realize upon
any of the Collateral hereunder, it being understood and agreed by such Interest
Rate Exchanger that all rights and remedies hereunder may be exercised solely by
Secured Party for the benefit of Lenders and Interest Rate Exchangers in
accordance with the terms of this Section 17(a).
(b) Secured Party shall at all times be the same Person that is
Administrative Agent under the Credit Agreement. Written notice of resignation
by Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall
also constitute notice of resignation as Secured Party under this Agreement;
removal of Administrative Agent pursuant to subsection 9.5 of the Credit
Agreement shall also constitute removal as Secured Party under this Agreement;
and appointment of a successor Administrative Agent pursuant to subsection 9.5
of the Credit Agreement shall also constitute appointment of a successor Secured
Party under this Agreement. Upon the acceptance of any appointment as
Administrative Agent under subsection 9.5 of the Credit Agreement by a successor
Administrative Agent, that successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring or removed Secured Party under this Agreement, and the retiring
or removed Secured Party under this Agreement shall promptly (i) transfer to
such successor Secured Party all sums, securities and other items of Collateral
held hereunder, together with all records and other documents necessary or
appropriate in connection with the performance of the duties of the successor
Secured Party under this Agreement, and (ii) execute and deliver to such
successor Secured Party such amendments to financing statements, and take such
other actions, as may be necessary or appropriate in connection with the
assignment to such successor Secured Party of the security interests created
hereunder, whereupon such retiring or removed Secured Party shall be discharged
from its duties and obligations under this Agreement. After any retiring or
removed Administrative Agent's resignation or removal hereunder as Secured
Party, the provisions of this Agreement shall inure to its benefit as to any
actions taken or omitted to be taken by it under this Agreement while it was
Secured Party hereunder.
15
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SECTION 18. AMENDMENTS; ETC. No amendment, modification, termination
---------------
or waiver of any provision of this Agreement, and no consent to any departure by
Grantor therefrom, shall in any event be effective unless the same shall be in
writing and signed by Secured Party and, in the case of any such amendment or
modification, by Grantor. Any such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which it was given.
SECTION 19. NOTICES. Any notice or other communication herein
-------
required or permitted to be given shall be given as provided in the Credit
Agreement. For the purposes hereof, the address of each party hereto shall be
as set forth under such party's name on the signature pages hereof or, as to
either party, such other address as shall be designated by such party in a
written notice delivered to the other party hereto.
SECTION 20. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
-----------------------------------------------------
failure or delay on the part of Secured Party in the exercise of any power,
right or privilege hereunder shall impair such power, right or privilege or be
construed to be a waiver of any default or acquiescence therein, nor shall any
single or partial exercise of any such power, right or privilege preclude any
other or further exercise thereof or of any other power, right or privilege.
All rights and remedies existing under this Agreement are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
SECTION 21. SEVERABILITY. In case any provision in or obligation
------------
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 22. HEADINGS. Section and subsection headings in this
--------
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given any
substantive effect.
SECTION 23. GOVERNING LAW; TERMS. THIS AGREEMENT AND THE RIGHTS AND
--------------------
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW
OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES,
EXCEPT TO THE EXTENT THAT THE CODE PROVIDES THAT THE PERFECTION OF THE SECURITY
INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR
COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF
NEW YORK. Unless otherwise defined herein or in the Credit Agreement, terms
used in Articles 8 and 9 of the Uniform Commercial Code in the State of New York
are used herein as therein defined.
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SECTION 24. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL
----------------------------------------------
JUDICIAL PROCEEDINGS BROUGHT AGAINST GRANTOR ARISING OUT OF OR RELATING TO THIS
AGREEMENT, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL
COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY
EXECUTING AND DELIVERING THIS AGREEMENT, GRANTOR, FOR ITSELF AND IN CONNECTION
WITH ITS PROPERTIES, IRREVOCABLY
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY
SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO GRANTOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 19;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER GRANTOR IN ANY SUCH
PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT;
(V) AGREES THAT SECURED PARTY RETAINS THE RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST GRANTOR IN
THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SECTION 24 RELATING TO
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR
OTHERWISE.
SECTION 25. WAIVER OF JURY TRIAL. GRANTOR AND SECURED PARTY HEREBY
--------------------
AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this waiver is
intended to be all-encompassing of any and all disputes that may be filed in any
court and that relate to the subject matter of this transaction, including
without limitation contract claims, tort claims, breach of duty claims, and all
other common law and statutory claims. Grantor and Secured Party each
acknowledge that this waiver is a material inducement for Grantor and Secured
Party to enter into a business relationship, that Grantor and Secured Party have
already relied on this waiver in entering into this Agreement and that each will
continue to rely on this waiver in their related future dealings. Grantor and
Secured Party further warrant and represent that
17
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each has reviewed this waiver with its legal counsel, and that each knowingly
and voluntarily waives its jury trial rights following consultation with legal
counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY
REFERRING TO THIS SECTION 25 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT. In the event of litigation, this Agreement may
be filed as a written consent to a trial by the court.
SECTION 26. COUNTERPARTS. This Agreement may be executed in one or
------------
more counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
[Remainder of page intentionally left blank]
18
<PAGE>
IN WITNESS WHEREOF, Grantor and Secured Party have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
EMPIRE CANDLE, INC.
By: __________________________
Name: __________________________
Title: __________________________
Notice Address:
1800 Cloquet Avenue
Cloquet, MN 55720-2141
Attention: Tom Knuesel
WELLS FARGO BANK, N.A.,
as Administrative Agent
By: __________________________
Name: __________________________
Title: __________________________
Notice Address:
555 Montgomery Street, 17th Floor
San Francisco, CA 94111
Attention: Alan Wray
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SCHEDULE A
TO
TRADEMARK SECURITY AGREEMENT
UNITED STATES
REGISTERED TRADEMARK REGISTRATION REGISTRATION
OWNER DESCRIPTION NUMBER DATE
---------- ------------- ------------ ------------
2
<PAGE>
STATE OF CALIFORNIA )
) SS.:
COUNTY OF ____________ )
On ___________, 19___, before me, ____________________, a Notary Public
in and for said State, personally appeared ____________________________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
Signature ________________________________ (Seal)
3
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SUBSIDIARY TRADEMARK SECURITY AGREEMENT
This SUBSIDIARY TRADEMARK SECURITY AGREEMENT (this "AGREEMENT") is
dated as of April 21, 1998 and entered into by and between FORSTER INC.a Maine
corporation ("GRANTOR"), and WELLS FARGO BANK, N.A., as administrative agent for
and representative of (in such capacity herein called "SECURED PARTY") the
financial institutions ("LENDERS") party to the Credit Agreement referred to
below and any Interest Rate Exchangers (as hereinafter defined).
PRELIMINARY STATEMENTS
A. Diamond Brands Operating Corp., a Delaware corporation
("COMPANY"), has entered into that certain Credit Agreement dated as of April
21, 1998 with DLJ Capital Funding, Inc., as Syndication Agent, Secured Party,
Morgan Stanley Senior Funding Inc., as Documentation Agent, and Lenders (said
Credit Agreement, as it may hereafter be amended, supplemented or otherwise
modified from time to time, being the "CREDIT AGREEMENT"; capitalized terms
defined therein and not otherwise defined herein being used herein as therein
defined).
B. Company may from time to time enter, or may from time to time
have entered, into one or more Interest Rate Agreements (collectively, the
"LENDER INTEREST RATE AGREEMENTS") with or one or more Lenders (in such
capacity, collectively, "INTEREST RATE EXCHANGERS").
C. Grantor has executed and delivered a Subsidiary Guaranty dated as
of April 21, 1998 (said Subsidiary Guaranty, as it may hereafter be amended,
supplemented or otherwise modified from time to time, being the "SUBSIDIARY
GUARANTY") in favor of Secured Party for the benefit of Lenders and Interest
Rate Exchangers, pursuant to which Grantor has guarantied the prompt payment and
performance when due of all obligations of Company under the Credit Agreement
and under any Lender Interest Rate Agreements.
D. Grantor owns and uses in its business, and will in the future
adopt and so use, various intangible assets, including trademarks, service
marks, designs, logos, indicia, tradenames, corporate names, company names,
business names, fictitious business names, trade styles and/or other source
and/or business identifiers and applications pertaining thereto (collectively,
the "TRADEMARKS").
E. Secured Party desires Grantor to assign and grant to it a lien on
and security interest in all of Grantor's existing and future Trademarks, all
registrations that have been or may hereafter be issued or applied for thereon
in the United States and any state thereof and in foreign countries (the
"REGISTRATIONS"), all common law and other rights in and to the Trademarks in
the United States and any state thereof and in foreign countries (the "TRADEMARK
RIGHTS"), all goodwill of Grantor's business symbolized by the
1
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Trademarks and associated therewith, including without limitation the documents
and things described in Section 1(b) (the "ASSOCIATED GOODWILL"), and all
proceeds of the Trademarks, the Registrations, the Trademark Rights and the
Associated Goodwill, and Grantor agrees to assign and grant to Secured Party a
secured and protected interest in the Trademarks, the Registrations, the
Trademark Rights, the Associated Goodwill and all the proceeds thereof as
provided herein.
F. Pursuant to the Subsidiary Security Agreement, Grantor has
assigned and granted to Secured Party a lien on and security interest in, among
other assets, all of Grantor's equipment, inventory, accounts and general
intangibles relating to the products and services sold or delivered under or in
connection with the Trademarks such that, upon the occurrence and during the
continuation of an Event of Default, Secured Party would be able to exercise its
remedies consistent with the Subsidiary Security Agreement, this Agreement and
applicable law to foreclose upon Grantor's business and use the Trademarks, the
Registrations and the Trademark Rights in conjunction with the continued
operation of such business, maintaining substantially the same product and
service specifications and quality as maintained by Grantor, and benefit from
the Associated Goodwill.
G. It is a condition precedent to the initial extensions of credit
by Lenders under the Credit Agreement that Grantor shall have assigned and
granted the security interests and undertaken the obligations contemplated by
this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to
induce Lenders to make Loans and other extensions of credit under the Credit
Agreement and to induce Interest Rate Exchangers to enter into Lender Interest
Rate Agreements and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Grantor hereby agrees with Secured
Party as follows:
SECTION 1. ASSIGNMENT AND GRANT OF SECURITY. Grantor hereby assigns
--------------------------------
to Secured Party, and hereby grants to Secured Party a security interest in, all
of Grantor's right, title and interest in and to the following, in each case
whether now or hereafter existing or in which Grantor now has or hereafter
acquires an interest and wherever the same may be located (the "COLLATERAL"):
(a) each of the Trademarks and rights and interests in Trademarks
that are presently, or in the future may be, owned, held (whether pursuant to a
license or otherwise) or used by Grantor, in whole or in part (including,
without limitation, the Trademarks specifically identified in Schedule A annexed
----------
hereto, as the same may be amended pursuant hereto from time to time), and
including all Trademark Rights with respect thereto and all federal, state and
foreign Registrations therefor heretofore or hereafter granted or applied for,
the right (but not the obligation) to register claims under any state or federal
trademark law or regulation or any trademark law or regulation of any foreign
country and to apply for, renew and extend the Trademarks, Registrations and
Trademark Rights, the right (but not the obligation) to sue or bring opposition
or cancellation proceedings in the name of Grantor or in the name of Secured
Party or otherwise for past, present and future
2
<PAGE>
infringements of the Trademarks, Registrations or Trademark Rights and all
rights (but not obligations) corresponding thereto in the United States and any
foreign country, and the Associated Goodwill; it being understood that the
rights and interests included herein shall include, without limitation, all
rights and interests pursuant to licensing or other contracts in favor of
Grantor pertaining to any Trademarks, Registrations or Trademark Rights
presently or in the future owned, held or used by third parties but, in the case
of third parties which are not Affiliates of Grantor, only to the extent
permitted by such licensing or other contracts or otherwise permitted by
applicable law and, if not so permitted under any such contracts and applicable
law, only with the consent of such third parties;
(b) the following documents and things in Grantor's possession, or
subject to Grantor's right to possession, related to (Y) the production, sale
and delivery by Grantor, or by any Affiliate, licensee or subcontractor of
Grantor, of products or services sold or delivered by or under the authority of
Grantor in connection with the Trademarks, Registrations or Trademark Rights
(which products and services shall, for purposes of this Agreement, be deemed to
include, without limitation, products and services sold or delivered pursuant to
merchandising operations utilizing any Trademarks, Registrations or Trademark
Rights); or (Z) any retail or other merchandising operations conducted under the
name of or in connection with the Trademarks, Registrations or Trademark Rights
by Grantor or any Affiliate, licensee or subcontractor of Grantor:
(i) all lists and ancillary documents that identify and
describe any of Grantor's customers, or those of its Affiliates, licensees
or subcontractors, for products sold and services delivered under or in
connection with the Trademarks or Trademark Rights, including without
limitation any lists and ancillary documents that contain a customer's name
and address, the name and address of any of its warehouses, branches or
other places of business, the identity of the Person or Persons having the
principal responsibility on a customer's behalf for ordering products or
services of the kind supplied by Grantor, or the credit, payment, discount,
delivery or other sale terms applicable to such customer, together with
information setting forth the total purchases, by brand, product, service,
style, size or other criteria, and the patterns of such purchases;
(ii) all product and service specification documents and
production and quality control manuals used in the manufacture or delivery
of products and services sold or delivered under or in connection with the
Trademarks or Trademark Rights;
(iii) all documents which reveal the name and address of any
source of supply, and any terms of purchase and delivery, for any and all
materials, components and services used in the production of products and
services sold or delivered under or in connection with the Trademarks or
Trademark Rights; and
(iv) all documents constituting or concerning the then current
or proposed advertising and promotion by Grantor or its Affiliates,
licensees or
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<PAGE>
subcontractors of products and services sold or delivered under or in
connection with the Trademarks or Trademark Rights including, without
limitation, all documents which reveal the media used or to be used and the
cost for all such advertising conducted within the described period or
planned for such products and services;
(c) all books, records, ledger cards, files, correspondence, computer
programs, tapes, disks and related data processing software that at any time
evidence or contain information relating to any of the Collateral or are
otherwise necessary or helpful in the collection thereof or realization
thereupon;
(d) to the extent not included in the foregoing clauses (a) - (c),
all general intangibles relating to the Collateral; and
(e) all proceeds, products, rents and profits (including without
limitation license royalties and proceeds of infringement suits) of or from any
and all of the foregoing Collateral and, to the extent not otherwise included,
all payments under insurance (whether or not Secured Party is the loss payee
thereof), or any indemnity, warranty or guaranty, payable by reason of loss or
damage to or otherwise with respect to any of the foregoing Collateral. For
purposes of this Agreement, the term "PROCEEDS" includes whatever is receivable
or received when Collateral or proceeds are sold, exchanged, collected or
otherwise disposed of, whether such disposition is voluntary or involuntary.
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures, and
------------------------
the Collateral is collateral security for, the prompt payment or performance in
full when due, whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise (including the payment of amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code, 11 U.S.C. (S)362(a)), of all obligations and liabilities of
every nature of Grantor now or hereafter existing under or arising out of or in
connection with the Subsidiary Guaranty, the other Loan Documents and the Lender
Interest Rate Agreements and all extensions or renewals thereof, whether for
principal, interest (including without limitation interest that, but for the
filing of a petition in bankruptcy with respect to Grantor, would accrue on such
obligations), reimbursement of amounts drawn under Letters of Credit, payments
for early termination of Lender Interest Rate Agreements, fees, expenses,
indemnities or otherwise, whether voluntary or involuntary, direct or indirect,
absolute or contingent, liquidated or unliquidated, whether or not jointly owed
with others, and whether or not from time to time decreased or extinguished and
later increased, created or incurred, and all or any portion of such obligations
or liabilities that are paid, to the extent all or any part of such payment is
avoided or recovered directly or indirectly from Secured Party or any Lender or
Interest Rate Exchanger as a preference, fraudulent transfer or otherwise (all
such obligations and liabilities being the "UNDERLYING DEBT"), and all
obligations of every nature of Grantor now or hereafter existing under this
Agreement (all such obligations of Grantor, together with the Underlying Debt,
being the "SECURED OBLIGATIONS").
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<PAGE>
SECTION 3. GRANTOR REMAINS LIABLE. Anything contained herein to the
----------------------
contrary notwithstanding, (a) Grantor shall remain liable under any contracts
and agreements included in the Collateral, to the extent set forth therein, to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed, (b) the exercise by Secured Party of any
of its rights hereunder shall not release Grantor from any of its duties or
obligations under the contracts and agreements included in the Collateral, and
(c) Secured Party shall not have any obligation or liability under any contracts
and agreements included in the Collateral by reason of this Agreement, nor shall
Secured Party be obligated to perform any of the obligations or duties of
Grantor thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder.
SECTION 4. REPRESENTATIONS AND WARRANTIES. Grantor represents and
------------------------------
warrants as follows:
(a) Description of Collateral. A true and complete list of all
-------------------------
Trademarks, Registrations and Trademark Rights owned, held (whether pursuant to
a license or otherwise) or used by Grantor, in whole or in part, as of the date
of this Agreement is set forth in Schedule A annexed hereto. Each Trademark,
----------
Registration or Trademark Right designated on Schedule A annexed hereto as a
----------
Material Trademark Property, each other Trademark, Registration or Trademark
Right that uses or incorporates the name "Empire" or any other identifiers or
symbols derived from or associated with the name "Empire" hereafter arising or
otherwise owned, held or used by Grantor, and each other Trademark, Registration
or Trademark Right hereafter arising or otherwise owned, held or used by Grantor
is referred to herein as a "MATERIAL TRADEMARK PROPERTY".
(b) Validity and Enforceability of Collateral. Each Material
-----------------------------------------
Trademark Property is valid, subsisting and enforceable. As of the Closing Date,
Grantor is not aware of any pending or threatened claim by any third party that
any Material Trademark Property is invalid or unenforceable or that the use of
any Material Trademark Property violates the rights of any third person or of
any basis for any such claim, and there is no such pending or, to the knowledge
of Grantor, threatened claim that could reasonably be expected to have a
Material Adverse Effect.
(c) Ownership of Collateral. Except for the security interest
-----------------------
assigned and created by this Agreement, Grantor is the sole legal and beneficial
owner of the entire right, title and interest in and to each Material Trademark
Property, free and clear of any Lien other than Liens of mechanics, materialmen,
attorneys and other similar liens imposed by law in the ordinary course of
business in connection with the establishment, creation or application for
Registration of any Trademarks, Registrations or Trademark Rights for sums not
yet delinquent or being contested in good faith (such Liens being referred to
herein as "PERMITTED TRADEMARK LIENS"). Except such as may have been filed in
favor of Secured Party relating to this Agreement, no effective financing
statement or other instrument similar in effect covering all or any part of the
Collateral is on file in any filing or recording office, including the United
States Patent and Trademark Office.
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(d) Office Locations; Other Names. The chief place of business, the
-----------------------------
chief executive office and the office where Grantor keeps its records regarding
the Collateral is, and has been for the four month period preceding the date
hereof, located at Mill Street, East Wilton, Maine 04234. Grantor has not in the
past done, and does not now do, business under any other name (including any
trade-name or fictitious business name).
(e) Governmental Authorizations. No authorization, approval or other
---------------------------
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for either (i) the assignment and grant by Grantor
of the security interest created hereby, (ii) the execution, delivery or
performance of this Agreement by Grantor, or (iii) the perfection or exercise by
Secured Party of its rights and remedies hereunder (except as may have been
taken by or at the direction of Grantor).
(f) Perfection. This Agreement, together with the filing of a
----------
financing statement describing the Collateral with the Secretary of State of the
State of Maine and the recording of this Agreement with the United States Patent
and Trademark Office, which will be made, assigns and creates a valid, perfected
and First Priority security interest in the Collateral (subject only to
Permitted Trademark Liens), securing the payment of the Secured Obligations, and
all filings and other actions necessary or desirable to perfect and protect such
security interest have been or will be duly made or taken.
(g) Other Information. All information heretofore, herein or
-----------------
hereafter supplied to Secured Party by or on behalf of Grantor with respect to
the Collateral is accurate and complete in all material respects.
SECTION 5. FURTHER ASSURANCES; NEW TRADEMARKS, REGISTRATIONS AND
-----------------------------------------------------
TRADEMARK RIGHTS; CERTAIN INSPECTION RIGHTS.
- -------------------------------------------
(a) Grantor agrees that from time to time, at the expense of Grantor,
Grantor will promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or desirable, or that Secured
Party may request, in order to perfect and protect any security interest
assigned or granted or purported to be assigned or granted hereby or to enable
Secured Party to exercise and enforce its rights and remedies hereunder with
respect to any Collateral. Without limiting the generality of the foregoing,
Grantor will: (i) at the request of Secured Party, mark conspicuously each of
its records pertaining to the Collateral with a legend, in form and substance
satisfactory to Secured Party, indicating that such Collateral is subject to the
security interest granted hereby, (ii) execute and file such financing or
continuation statements, or amendments thereto, and such other instruments or
notices, as may be necessary or desirable, or as Secured Party may request, in
order to perfect and preserve the security interests granted or purported to be
granted hereby, (iii) use its best efforts to obtain any necessary consents of
third parties to the assignment and perfection of a security interest to Secured
Party with respect to any Collateral, (iv) subject to the terms of the Credit
Agreement, at any reasonable time and upon request by Secured Party, exhibit the
Collateral to and allow inspection of the Collateral by Secured Party, or
persons designated by Secured Party, and
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(v) at Secured Party's request, appear in and defend any action or proceeding
that may affect Grantor's title to or Secured Party's security interest in all
or any part of the Collateral.
(b) Grantor hereby authorizes Secured Party to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Collateral without the signature of Grantor. Grantor agrees that
a carbon, photographic or other reproduction of this Agreement or of a financing
statement signed by Grantor shall be sufficient as a financing statement and may
be filed as a financing statement in any and all jurisdictions.
(c) Grantor hereby authorizes Secured Party to modify this Agreement
without obtaining Grantor's approval of or signature to such modification by
amending Schedule A annexed hereto to include reference to any right, title or
----------
interest in any existing Trademark, Registration or Trademark Right or any
Trademark, Registration or Trademark Right acquired or developed by Grantor
after the execution hereof or to delete any reference to any right, title or
interest in any Trademark, Registration or Trademark Right in which Grantor no
longer has or claims any right, title or interest.
(d) Grantor will furnish to Secured Party from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as Secured Party may
reasonably request, all in reasonable detail.
(e) If Grantor shall obtain rights to any new Trademarks,
Registrations or Trademark Rights, the provisions of this Agreement shall
automatically apply thereto. Grantor shall promptly notify Secured Party in
writing of any rights to any new Trademarks or Trademark Rights acquired by
Grantor after the date hereof and of any Registrations issued or applications
for Registration made after the date hereof, which notice shall state whether
such Trademark, Registration or Trademark Right constitutes a Material Trademark
Property. Concurrently with the filing of an application for Registration for
any Trademark, Grantor shall execute, deliver and record in all places where
this Agreement is recorded an appropriate Trademark Security Agreement,
substantially in the form hereof, with appropriate insertions, or an amendment
to this Agreement, in form and substance satisfactory to Secured Party, pursuant
to which Grantor shall assign and grant a security interest to the extent of its
interest in such Registration as provided herein to Secured Party unless so
doing would, in the reasonable judgment of Grantor, after due inquiry, result in
the grant of a Registration in the name of Secured Party, in which event Grantor
shall give written notice to Secured Party as soon as reasonably practicable and
the filing shall instead be undertaken as soon as practicable but in no case
later than immediately following the grant of the Registration.
(f) Grantor hereby grants to Secured Party and its employees,
representatives and agents the right to visit Grantor's and any of its
Affiliate's or subcontractor's plants, facilities and other places of business
that are utilized in connection
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with the manufacture, production, inspection, storage or sale of products and
services sold or delivered under any of the Trademarks, Registrations or
Trademark Rights (or which were so utilized during the prior six month period),
and to inspect the quality control and all other records relating thereto upon
reasonable notice to Grantor and as often as may be reasonably requested.
SECTION 6. CERTAIN COVENANTS OF GRANTOR. Grantor shall:
----------------------------
(a) not use or permit any Collateral to be used unlawfully or in
violation of any provision of this Agreement or any applicable statute,
regulation or ordinance or any policy of insurance covering the Collateral;
(b) notify Secured Party of any change in Grantor's name, identity or
corporate structure within 15 days of such change;
(c) give Secured Party 30 days' prior written notice of any change in
Grantor's chief place of business or chief executive office or the office where
Grantor keeps its records regarding the Collateral;
(d) pay promptly when due all property and other taxes, assessments
and governmental charges or levies imposed upon, and all claims (including
claims for labor, materials and supplies) against, the Collateral, except to the
extent permitted under the Credit Agreement;
(e) not sell, assign (by operation of law or otherwise) or otherwise
dispose of any of the Collateral, except as permitted by the Credit Agreement;
(f) except for Permitted Trademark Liens and the security interest
assigned and created by this Agreement, not create or suffer to exist any Lien
upon or with respect to any of the Collateral to secure the indebtedness or
other obligations of any Person;
(g) diligently keep reasonable records respecting the Collateral and
at all times keep at least one complete set of its records concerning
substantially all of the Trademarks, Registrations and Trademark Rights at its
chief executive office or principal place of business;
(h) not permit the inclusion in any contract to which it becomes a
party of any provision that could or might in any way conflict with this
Agreement or impair or prevent the assignment and creation of a security
interest in Grantor's rights and interests in any property included within the
definitions of any Trademarks, Registrations, Trademark Rights and Associated
Goodwill;
(i) take all steps necessary to protect the secrecy of all trade
secrets relating to the products and services sold or delivered under or in
connection with the Trademarks and Trademark Rights, including without
limitation entering into confidentiality
8
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agreements with employees and labeling and restricting access to secret
information and documents;
(j) use proper statutory notice in connection with its use of each
Material Trademark Property to the extent reasonably necessary for the
protection of such Material Trademark Property;
(k) use consistent standards of high quality (which may be consistent
with Grantor's past practices) in the manufacture, sale and delivery of products
and services sold or delivered under or in connection with the Trademarks,
Registrations and Trademark Rights, including, to the extent applicable, in the
operation and maintenance of its merchandising operations; and
(l) upon any officer of Grantor obtaining knowledge thereof, promptly
notify Secured Party in writing of any event that may materially and adversely
affect the value of the Collateral or any portion thereof, the ability of
Grantor or Secured Party to dispose of the Collateral or any portion thereof, or
the rights and remedies of Secured Party in relation thereto, including without
limitation the levy of any legal process against the Collateral or any portion
thereof.
SECTION 7. AMOUNTS PAYABLE IN RESPECT OF THE COLLATERAL. Except as
--------------------------------------------
otherwise provided in this Section 7, Grantor shall continue to collect, at its
own expense, all amounts due or to become due to Grantor in respect of the
Collateral or any portion thereof. In connection with such collections, Grantor
may take (and, at Secured Party's direction, shall take) such action as Grantor
or Secured Party may deem necessary or advisable to enforce collection of such
amounts; provided, however, that Secured Party shall have the right at any time,
-------- -------
upon the occurrence and during the continuation of an Event of Default and upon
written notice to Grantor of its intention to do so, to notify the obligors with
respect to any such amounts of the existence of the security interest assigned
and created hereby, and to direct such obligors to make payment of all such
amounts directly to Secured Party, and, upon such notification and at the
expense of Grantor, to enforce collection of any such amounts and to adjust,
settle or compromise the amount or payment thereof, in the same manner and to
the same extent as Grantor might have done. After receipt by Grantor of the
notice from Secured Party referred to in the proviso to the preceding sentence,
-------
(i) all amounts and proceeds (including checks and other instruments) received
by Grantor in respect of amounts due to Grantor in respect of the Collateral or
any portion thereof shall be received in trust for the benefit of Secured Party
hereunder, shall be segregated from other funds of Grantor and shall be
forthwith paid over or delivered to Secured Party in the same form as so
received (with any necessary endorsement) to be held as cash Collateral and
applied as provided by Section 14, and (ii) Grantor shall not adjust, settle or
compromise the amount or payment of any such amount or release wholly or partly
any obligor with respect thereto or allow any credit or discount thereon.
SECTION 8. TRADEMARK APPLICATIONS AND LITIGATION.
-------------------------------------
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(a) Grantor shall have the duty diligently to prosecute any trademark
application relating to any Material Trademark Property that is pending as of
the date of this Agreement, to make federal application on any existing or
future registerable but unregistered Material Trademark Property (whenever it is
commercially reasonable in the reasonable judgment of Grantor to do so), and to
file and prosecute opposition and cancellation proceedings, renew Registrations
and do any and all acts which are necessary or desirable to preserve and
maintain all rights in all Material Trademark Properties. Any expenses incurred
in connection therewith shall be borne solely by Grantor. Grantor shall not
abandon any Material Trademark Property.
(b) Except as provided in Section 8(d), Grantor shall have the right
to commence and prosecute in its own name, as real party in interest, for its
own benefit and at its own expense, such suits, proceedings or other actions for
infringement, unfair competition, dilution or other damage as are in its
reasonable business judgment necessary to protect the Collateral. Secured Party
shall provide, at Grantor's expense, all reasonable and necessary cooperation in
connection with any such suit, proceeding or action including, without
limitation, joining as a necessary party.
(c) Grantor shall promptly, following its becoming aware thereof,
notify Secured Party of the institution of, or of any adverse determination in,
any proceeding (whether in the United States Patent and Trademark Office or any
federal, state, local or foreign court) described in Section 8(a) or 8(b) or
regarding Grantor's claim of ownership in or right to use any material
Trademark, material Registration or material Trademark Right, its right to
register the same, or its right to keep and maintain such Registration. Grantor
shall provide to Secured Party any information with respect thereto requested by
Secured Party.
(d) Anything contained herein to the contrary notwithstanding, upon
the occurrence and during the continuation of an Event of Default, Secured Party
shall have the right (but not the obligation) to bring suit, in the name of
Grantor, Secured Party or otherwise, to enforce any Trademark, Registration,
Trademark Right, Associated Goodwill and any license thereunder, in which event
Grantor shall, at the request of Secured Party, do any and all lawful acts and
execute any and all documents required by Secured Party in aid of such
enforcement and Grantor shall promptly, upon demand, reimburse and indemnify
Secured Party as provided in Section 15 in connection with the exercise of its
rights under this Section 8. To the extent that Secured Party shall elect not to
bring suit to enforce any Trademark, Registration, Trademark Right, Associated
Goodwill or any license thereunder as provided in this Section 8(d), Grantor
agrees to use all reasonable measures, whether by action, suit, proceeding or
otherwise, to prevent the infringement of any of the Trademarks, Registrations,
Trademark Rights or Associated Goodwill by others and for that purpose agrees to
diligently maintain any action, suit or proceeding against any Person so
infringing necessary to prevent such infringement.
SECTION 9. NON-DISTURBANCE AGREEMENTS, ETC. If and to the extent
--------------------------------
that Grantor is permitted to license the Collateral, Secured Party shall enter
into a
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<PAGE>
non-disturbance agreement or other similar arrangement, at Grantor's request and
expense, with Grantor and any licensee of any Collateral permitted hereunder in
form and substance satisfactory to Secured Party pursuant to which (a) Secured
Party shall agree not to disturb or interfere with such licensee's rights under
its license agreement with Grantor so long as such licensee is not in default
thereunder and (b) such licensee shall acknowledge and agree that the Collateral
licensed to it is subject to the security interest assigned and created in favor
of Secured Party and the other terms of this Agreement.
SECTION 10. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Grantor hereby
----------------------------------------
irrevocably appoints Secured Party as Grantor's attorney-in-fact, with full
authority in the place and stead of Grantor and in the name of Grantor, Secured
Party or otherwise, from time to time in Secured Party's discretion to take any
action and to execute any instrument that Secured Party may deem necessary or
advisable to accomplish the purposes of this Agreement, including without
limitation:
(a) while an Event of Default exists, to endorse Grantor's name on
all applications, documents, papers and instruments necessary for Secured Party
in the use or maintenance of the Collateral;
(b) while an Event of Default exists, to ask for, demand, collect,
sue for, recover, compound, receive and give acquittance and receipts for moneys
due and to become due under or in respect of any of the Collateral;
(c) while an Event of Default exists, to receive, endorse and collect
any drafts or other instruments, documents and chattel paper in connection with
clause (b) above;
(d) while an Event of Default exists, to file any claims or take any
action or institute any proceedings that Secured Party may deem necessary or
desirable for the collection of any of the Collateral or otherwise to enforce
the rights of Secured Party with respect to any of the Collateral;
(e) while an Event of Default exists, to pay or discharge taxes or
Liens (other than Liens permitted under this Agreement or the Credit Agreement)
levied or placed upon or threatened against the Collateral, the legality or
validity thereof and the amounts necessary to discharge the same to be
determined by Secured Party in its sole discretion, any such payments made by
Secured Party to become obligations of Grantor to Secured Party, due and payable
immediately without demand; and
(f) upon the occurrence and during the continuation of an Event of
Default, (i) to execute and deliver any of the assignments or documents
requested by Secured Party pursuant to Section 13(b), (ii) to grant or issue an
exclusive or non-exclusive license to the Collateral or any portion thereof to
any Person, and (iii) otherwise generally to sell, transfer, pledge, make any
agreement with respect to or otherwise deal with any of the Collateral as fully
and completely as though Secured Party were the absolute owner
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<PAGE>
thereof for all purposes, and to do, at Secured Party's option and Grantor's
expense, at any time or from time to time, all acts and things that Secured
Party deems necessary to protect, preserve or realize upon the Collateral and
Secured Party's security interest therein in order to effect the intent of this
Agreement, all as fully and effectively as Grantor might do.
SECTION 11. SECURED PARTY MAY PERFORM. If Grantor fails to perform
-------------------------
any agreement contained herein, Secured Party may itself perform, or cause
performance of, such agreement, and the expenses of Secured Party incurred in
connection therewith shall be payable by Grantor under Section 15.
SECTION 12. STANDARD OF CARE. The powers conferred on Secured Party
----------------
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the exercise of
reasonable care in the custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, Secured Party shall
have no duty as to any Collateral or as to the taking of any necessary steps to
preserve rights against prior parties or any other rights pertaining to any
Collateral. Secured Party shall be deemed to have exercised reasonable care in
the custody and preservation of Collateral in its possession if such Collateral
is accorded treatment substantially equal to that which Secured Party accords
its own property.
SECTION 13. REMEDIES. If any Event of Default shall have occurred
--------
and be continuing:
(a) Secured Party may exercise in respect of the Collateral, in
addition to all other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on default under
the Uniform Commercial Code as in effect in any relevant jurisdiction (the
"CODE") (whether or not the Code applies to the affected Collateral), and also
may (i) require Grantor to, and Grantor hereby agrees that it will at its
expense and upon request of Secured Party forthwith, assemble all or part of the
Collateral as directed by Secured Party and make it available to Secured Party
at a place to be designated by Secured Party that is reasonably convenient to
both parties, (ii) enter onto the property where any Collateral is located and
take possession thereof with or without judicial process, (iii) prior to the
disposition of the Collateral, store the Collateral or otherwise prepare the
Collateral for disposition in any manner to the extent Secured Party deems
appropriate, (iv) take possession of Grantor's premises or place custodians in
exclusive control thereof, remain on such premises and use the same for the
purpose of taking any actions described in the preceding clause (iii) and
collecting any Secured Obligation, (v) exercise any and all rights and remedies
of Grantor under or in connection with the contracts related to the Collateral
or otherwise in respect of the Collateral, including without limitation any and
all rights of Grantor to demand or otherwise require payment of any amount
under, or performance of any provision of, such contracts, and (vi) without
notice except as specified below, sell the Collateral or any part thereof in one
or more parcels at public or private sale, at any of Secured Party's offices or
elsewhere, for cash, on credit or for future delivery, at such time or times and
at such price or prices and upon such other terms as Secured Party may deem
commercially reasonable. Secured Party
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<PAGE>
or any Lender or Interest Rate Exchanger may be the purchaser of any or all of
the Collateral at any such sale and Secured Party, as administrative agent for
and representative of Lenders (but not any Lender or Lenders in its or their
respective individual capacities unless Requisite Lenders shall otherwise agree
in writing), shall be entitled, for the purpose of bidding and making settlement
or payment of the purchase price for all or any portion of the Collateral sold
at any such public sale, to use and apply any of the Secured Obligations as a
credit on account of the purchase price for any Collateral payable by Secured
Party at such sale. Each purchaser at any such sale shall hold the property sold
absolutely free from any claim or right on the part of Grantor, and Grantor
hereby waives (to the extent permitted by applicable law) all rights of
redemption, stay and/or appraisal which it now has or may at any time in the
future have under any rule of law or statute now existing or hereafter enacted.
Grantor agrees that, to the extent notice of sale shall be required by law, at
least ten days' notice to Grantor of the time and place of any public sale or
the time after which any private sale is to be made shall constitute reasonable
notification. Secured Party shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. Secured Party may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. Grantor hereby waives any
claims against Secured Party arising by reason of the fact that the price at
which any Collateral may have been sold at such a private sale was less than the
price which might have been obtained at a public sale, even if Secured Party
accepts the first offer received and does not offer such Collateral to more than
one offeree. If the proceeds of any sale or other disposition of the Collateral
are insufficient to pay all the Secured Obligations, Grantor shall be liable for
the deficiency and the fees of any attorneys employed by Secured Party to
collect such deficiency.
(b) Upon written demand from Secured Party, Grantor shall execute and
deliver to Secured Party an assignment or assignments of the Trademarks,
Registrations, Trademark Rights and the Associated Goodwill and such other
documents as are requested by Secured Party. Grantor agrees that such an
assignment and/or recording shall be applied to reduce the Secured Obligations
outstanding only to the extent that Secured Party (or any Lender or Interest
Rate Exchanger) receives cash proceeds in respect of the sale of, or other
realization upon, the Collateral.
(c) Within five Business Days after written notice from Secured
Party, Grantor shall make available to Secured Party, to the extent within
Grantor's power and authority, such personnel in Grantor's employ on the date of
such Event of Default as Secured Party may reasonably designate, by name, title
or job responsibility, to permit Grantor to continue, directly or indirectly, to
produce, advertise and sell the products and services sold or delivered by
Grantor under or in connection with the Trademarks, Registrations and Trademark
Rights, such persons to be available to perform their prior functions on Secured
Party's behalf and to be compensated by Secured Party at Grantor's expense on a
per diem, pro-rata basis consistent with the salary and benefit structure
applicable to each as of the date of such Event of Default.
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SECTION 14. APPLICATION OF PROCEEDS. All proceeds received by
-----------------------
Secured Party in respect of any sale of, collection from, or other realization
upon all or any part of the Collateral shall be applied as provided in
subsection 2.4D of the Credit Agreement.
SECTION 15. INDEMNITY AND EXPENSES.
----------------------
(a) Grantor agrees to indemnify Secured Party and each Lender and
each Interest Rate Exchanger from and against any and all claims, losses and
liabilities in any way relating to, growing out of or resulting from this
Agreement and the transactions contemplated hereby (including, without
limitation, enforcement of this Agreement), except to the extent such claims,
losses or liabilities result solely from Secured Party's or such Lender's or
such Interest Rate Exchanger's gross negligence or willful misconduct as finally
determined by a court of competent jurisdiction.
(b) Grantor shall pay to Secured Party upon demand the amount of any
and all reasonable out-of-pocket costs and expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents, that Secured
Party may incur in connection with (i) the administration of this Agreement,
(ii) the custody, preservation, use or operation of, or the sale of, collection
from, or other realization upon, any of the Collateral, (iii) the exercise or
enforcement of any of the rights of Secured Party hereunder, or (iv) the failure
by Grantor to perform or observe any of the provisions hereof.
SECTION 16. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS. This
-----------------------------------------------
Agreement shall assign and create a continuing security interest in the
Collateral and shall (a) remain in full force and effect until the payment in
full of the Secured Obligations, the cancellation or termination of the
Commitments and the cancellation or expiration of all outstanding Letters of
Credit, (b) be binding upon Grantor, its successors and assigns, and (c) inure,
together with the rights and remedies of Secured Party hereunder, to the benefit
of Secured Party and its successors, transferees and assigns. Without limiting
the generality of the foregoing clause (c), but subject to the provisions of
subsection 10.1 of the Credit Agreement, any Lender may assign or otherwise
transfer any Loans held by it to any other Person, and such other Person shall
thereupon become vested with all the benefits in respect thereof granted to
Lenders herein or otherwise. Upon the payment in full of all Secured
Obligations, the cancellation or termination of the Commitments and the
cancellation or expiration of all outstanding Letters of Credit, the security
interest assigned and granted hereby shall terminate and all rights to the
Collateral shall revert to Grantor. Upon any such termination Secured Party
will, at Grantor's expense, execute and deliver to Grantor such documents as
Grantor shall reasonably request to evidence such termination.
SECTION 17. SECURED PARTY AS ADMINISTRATIVE AGENT.
-------------------------------------
(a) Secured Party has been appointed to act as Secured Party
hereunder by Lenders and, by their acceptance of the benefits hereof, Interest
Rate Exchangers. Secured Party shall be obligated, and shall have the right
hereunder, to make demands, to give notices, to exercise or refrain from
exercising any rights, and to take or refrain from
14
<PAGE>
taking any action (including the release or substitution of Collateral), solely
in accordance with this Agreement and the Credit Agreement; provided that
--------
Secured Party shall exercise, or refrain from exercising, any remedies provided
for in Section 11 in accordance with the instructions of (i) Requisite Lenders
or (ii) after payment in full of all Obligations under the Credit Agreement and
the other Loan Documents, the holders of a majority of the aggregate notional
amount (or, with respect to any Lender Interest Rate Agreement that has been
terminated in accordance with its terms, the amount then due and payable
(exclusive of expenses and similar payments but including any early termination
payments then due) under such Lender Interest Rate Agreement) under all Lender
Interest Rate Agreements (Requisite Lenders or, if applicable, such holders
being referred to herein as "REQUISITE OBLIGEES"). In furtherance of the
foregoing provisions of this Section 17(a), each Interest Rate Exchanger, by its
acceptance of the benefits hereof, agrees that it shall have no right
individually to realize upon any of the Collateral hereunder, it being
understood and agreed by such Interest Rate Exchanger that all rights and
remedies hereunder may be exercised solely by Secured Party for the benefit of
Lenders and Interest Rate Exchangers in accordance with the terms of this
Section 17(a).
(b) Secured Party shall at all times be the same Person that is
Administrative Agent under the Credit Agreement. Written notice of resignation
by Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall
also constitute notice of resignation as Secured Party under this Agreement;
removal of Administrative Agent pursuant to subsection 9.5 of the Credit
Agreement shall also constitute removal as Secured Party under this Agreement;
and appointment of a successor Administrative Agent pursuant to subsection 9.5
of the Credit Agreement shall also constitute appointment of a successor Secured
Party under this Agreement. Upon the acceptance of any appointment as
Administrative Agent under subsection 9.5 of the Credit Agreement by a successor
Administrative Agent, that successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring or removed Secured Party under this Agreement, and the retiring
or removed Secured Party under this Agreement shall promptly (i) transfer to
such successor Secured Party all sums, securities and other items of Collateral
held hereunder, together with all records and other documents necessary or
appropriate in connection with the performance of the duties of the successor
Secured Party under this Agreement, and (ii) execute and deliver to such
successor Secured Party such amendments to financing statements, and take such
other actions, as may be necessary or appropriate in connection with the
assignment to such successor Secured Party of the security interests created
hereunder, whereupon such retiring or removed Secured Party shall be discharged
from its duties and obligations under this Agreement. After any retiring or
removed Administrative Agent's resignation or removal hereunder as Secured
Party, the provisions of this Agreement shall inure to its benefit as to any
actions taken or omitted to be taken by it under this Agreement while it was
Secured Party hereunder.
SECTION 18. AMENDMENTS; ETC. No amendment, modification, termination
---------------
or waiver of any provision of this Agreement, and no consent to any departure by
Grantor therefrom, shall in any event be effective unless the same shall be in
writing and
15
<PAGE>
signed by Secured Party and, in the case of any such amendment or modification,
by Grantor. Any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which it was given.
SECTION 19. NOTICES. Any notice or other communication herein
-------
required or permitted to be given shall be given as provided in the Credit
Agreement. For the purposes hereof, the address of each party hereto shall be as
set forth under such party's name on the signature pages hereof or, as to either
party, such other address as shall be designated by such party in a written
notice delivered to the other party hereto.
SECTION 20. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
-----------------------------------------------------
failure or delay on the part of Secured Party in the exercise of any power,
right or privilege hereunder shall impair such power, right or privilege or be
construed to be a waiver of any default or acquiescence therein, nor shall any
single or partial exercise of any such power, right or privilege preclude any
other or further exercise thereof or of any other power, right or privilege. All
rights and remedies existing under this Agreement are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
SECTION 21. SEVERABILITY. In case any provision in or obligation
------------
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 22. HEADINGS. Section and subsection headings in this
--------
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given any
substantive effect.
SECTION 23. GOVERNING LAW; TERMS. THIS AGREEMENT AND THE RIGHTS AND
--------------------
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW
OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES,
EXCEPT TO THE EXTENT THAT THE CODE PROVIDES THAT THE PERFECTION OF THE SECURITY
INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR
COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF
NEW YORK. Unless otherwise defined herein or in the Credit Agreement, terms used
in Articles 8 and 9 of the Uniform Commercial Code in the State of New York are
used herein as therein defined.
SECTION 24. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL
----------------------------------------------
JUDICIAL PROCEEDINGS BROUGHT AGAINST GRANTOR ARISING OUT OF OR RELATING TO THIS
AGREEMENT, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL
COURT OF COMPETENT
16
<PAGE>
JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND
DELIVERING THIS AGREEMENT, GRANTOR, FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, IRREVOCABLY
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN
ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO GRANTOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION
19;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER GRANTOR IN ANY SUCH
PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT;
(V) AGREES THAT SECURED PARTY RETAINS THE RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST GRANTOR
IN THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SECTION 24 RELATING TO
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR
OTHERWISE.
SECTION 25. WAIVER OF JURY TRIAL. GRANTOR AND SECURED PARTY HEREBY
--------------------
AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this waiver is
intended to be all-encompassing of any and all disputes that may be filed in any
court and that relate to the subject matter of this transaction, including
without limitation contract claims, tort claims, breach of duty claims, and all
other common law and statutory claims. Grantor and Secured Party each
acknowledge that this waiver is a material inducement for Grantor and Secured
Party to enter into a business relationship, that Grantor and Secured Party have
already relied on this waiver in entering into this Agreement and that each will
continue to rely on this waiver in their related future dealings. Grantor and
Secured Party further warrant and represent that each has reviewed this waiver
with its legal counsel, and that each knowingly and voluntarily waives its jury
trial rights following consultation with legal counsel. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING
(OTHER THAN BY A MUTUAL WRITTEN
17
<PAGE>
WAIVER SPECIFICALLY REFERRING TO THIS SECTION 25 AND EXECUTED BY EACH OF THE
PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. In the event of
litigation, this Agreement may be filed as a written consent to a trial by the
court.
SECTION 26. COUNTERPARTS. This Agreement may be executed in one or
------------
more counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
[Remainder of page intentionally left blank]
18
<PAGE>
IN WITNESS WHEREOF, Grantor and Secured Party have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
FORSTER INC.
By: __________________________
Name: __________________________
Title: __________________________
Notice Address:
1800 Cloquet Avenue
Cloquet, MN 55720-2141
Attention: Tom Knuesel
WELLS FARGO BANK, N.A.,
as Administrative Agent
By: __________________________
Name: __________________________
Title: __________________________
Notice Address:
555 Montgomery Street, 17th Floor
San Francisco, CA 94111
Attention: Alan Wray
1
<PAGE>
SCHEDULE A
TO
TRADEMARK SECURITY AGREEMENT
UNITED STATES
REGISTERED TRADEMARK REGISTRATION REGISTRATION
OWNER DESCRIPTION NUMBER DATE
---------- ------------- ------------ ------------
2
<PAGE>
STATE OF CALIFORNIA )
) SS.:
COUNTY OF ____________ )
On ___________, 19___, before me, ____________________, a Notary Public
in and for said State, personally appeared ___________________________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
Signature ________________________________ (Seal)
3
<PAGE>
SUBSIDIARY PATENT COLLATERAL ASSIGNMENT
AND SECURITY AGREEMENT
This SUBSIDIARY PATENT COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT
(this "AGREEMENT") is dated as of April 21, 1998 and entered into by and between
[SUBSIDIARY], a ____________________ corporation ("ASSIGNOR"), and WELLS FARGO
BANK, N.A., as administrative agent for and representative of (in such capacity
herein called "ASSIGNEE") the financial institutions ("LENDERS") party to the
Credit Agreement referred to below and any Interest Rate Exchangers (as
hereinafter defined).
PRELIMINARY STATEMENTS
A. Assignee and Lenders have entered into a Credit Agreement dated as
of April 21, 1998 with Diamond Brands Operating Corp., a Delaware corporation
("COMPANY"), DLJ Capital Funding, Inc., as Syndication Agent, and Morgan Stanley
Senior Funding Inc., as Documentation Agent (said Credit Agreement, as it may
hereafter be amended, supplemented or otherwise modified from time to time,
being the "CREDIT AGREEMENT", the terms defined therein and not otherwise
defined herein being used herein as therein defined), pursuant to which Lenders
have made certain commitments, subject to the terms and conditions set forth in
the Credit Agreement, to extend certain credit facilities to Company.
B. Company may from time to time enter, or may from time to time have
entered, into one or more Interest Rate Agreements (collectively, the "LENDER
INTEREST RATE AGREEMENTS") with one or more Lenders (in such capacity,
collectively, "INTEREST RATE EXCHANGERS").
C. Assignor has executed and delivered the Subsidiary Guaranty dated
as of April 21, 1998 (said Subsidiary Guaranty, as it may hereafter be amended,
supplemented or otherwise modified from time to time, being the "SUBSIDIARY
GUARANTY") in favor of Assignee for the benefit of Lenders and Interest Rate
Exchangers pursuant to which Assignor has guarantied the prompt payment and
performance when due of all Obligations of the Company under the Credit
Agreement and under any Lender Interest Rate Agreements.
D. Assignor has and may in the future have rights, title and
interests in and to various Patents and other related Collateral (as such terms
are hereinafter defined).
E. Assignor is willing to grant to Assignee (i) a security interest
in all such Collateral for the purpose of securing the complete and timely
satisfaction of all of the Secured Obligations (as hereinafter defined) and (ii)
effective upon the occurrence and during
1
<PAGE>
the continuation of an Event of Default, an assignment of Assignor's entire
rights, title and interest in and to all such Collateral.
F. It is a condition precedent to the initial extensions of credit by
Lenders under the Credit Agreement that Assignor shall have granted the security
interests and made the conditional assignment and undertaken the obligations
contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce
Lenders to make Loans and other extensions of credit under the Credit Agreement
and to induce Interest Rate Exchangers to enter into Lender Interest Rate
Agreements and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Assignor hereby agrees with Assignee
as follows:
SECTION 1. GRANT OF SECURITY. Assignor hereby assigns to Assignee,
-----------------
and hereby grants to Assignee a security interest in, all of Assignor's right,
title and interest in and to the following, in each case whether now or
hereafter existing or in which Assignor now has or hereafter acquires an
interest and wherever the same may be located (the "COLLATERAL"):
(a) all patents and patent applications and rights and interests in
patents and patent applications under any domestic law that are presently, or in
the future may be, owned by Assignor and all patents and patent applications and
rights and interests in patents and patent applications under any domestic law
that are presently, or in the future may be, held or used by Assignor in whole
or in part (including, without limitation, the patents and patent applications
listed in Schedule A annexed hereto, as the same may be amended pursuant hereto
----------
from time to time), all rights (but not obligations) corresponding thereto
(including without limitation the right (but not the obligation) to sue for
past, present and future infringements in the name of Assignor or in the name of
Assignee or Lenders or Interest Rate Exchangers), and all re-issues, divisions,
continuations, renewals, extensions and continuations-in-part thereof (all of
the foregoing being collectively referred to as the "PATENTS"); it being
understood that the rights and interest assigned hereby shall include, without
limitation, all rights and interests pursuant to licensing or other contracts in
favor of Assignor pertaining to patent applications and patents presently or in
the future owned or used by third parties but, in the case of third parties
which are not Affiliates of Assignor, only to the extent permitted by such
licensing or other contracts and, if not so permitted, only with the consent of
such third parties;
(b) all general intangibles relating to the Patents;
(c) all books, records, ledger cards, files, correspondence, computer
programs, tapes, disks and related data processing software that at any time
evidence or contain information relating to any of the Collateral or are
otherwise necessary or helpful in the collection thereof or realization
thereupon; and
(d) all proceeds, products, rents and profits (including without
limitation license royalties and proceeds of infringement suits) of or from any
and all of the foregoing
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Collateral and, to the extent not otherwise included, all payments under
insurance (whether or not Assignee is the loss payee thereof), or any indemnity,
warranty or guaranty, payable by reason of loss or damage to or otherwise with
respect to any of the foregoing Collateral. For purposes of this Agreement, the
term "PROCEEDS" includes whatever is receivable or received when Collateral or
proceeds are sold, exchanged, collected or otherwise disposed of, whether such
disposition is voluntary or involuntary.
SECTION 2. CONDITIONAL ASSIGNMENT. In addition to, and not by way of
----------------------
limitation of, the granting of a security interest in the Collateral pursuant to
Section 1, Assignor hereby, effective upon the occurrence of an Event of Default
and upon written notice from Assignee, grants, sells, conveys, transfers,
assigns and sets over to Assignee, for its benefit and the ratable benefit of
Lenders and Interest Rate Exchangers, all of Assignor's right, title and
interest in and to the Collateral, including without limitation Assignor's
right, title and interest in and to the Patents identified in Schedule A annexed
----------
hereto.
SECTION 3. SECURITY FOR OBLIGATIONS. This Agreement secures, and the
------------------------
Collateral is collateral security for, the prompt payment or performance in full
when due, whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise (including the payment of amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code, 11 U.S.C. (S)362(a)), of all obligations and liabilities of
every nature of Assignor now or hereafter existing under or arising out of or in
connection with the Subsidiary Guaranty, the other Loan Documents and the Lender
Interest Rate Agreements and all extensions or renewals thereof, whether for
principal, interest (including without limitation interest that, but for the
filing of a petition in bankruptcy with respect to Assignor, would accrue on
such obligations), reimbursement of amounts drawn under Letters of Credit,
payments for early termination of Lender Interest Rate Agreements, fees,
expenses, indemnities or otherwise, whether voluntary or involuntary, direct or
indirect, absolute or contingent, liquidated or unliquidated, whether or not
jointly owed with others, and whether or not from time to time decreased or
extinguished and later increased, created or incurred, and all or any portion of
such obligations or liabilities that are paid, to the extent all or any part of
such payment is avoided or recovered directly or indirectly from Assignee or any
Lender or Interest Rate Exchanger as a preference, fraudulent transfer or
otherwise (all such obligations and liabilities being the "UNDERLYING DEBT"),
and all obligations of every nature of Assignor now or hereafter existing under
this Agreement (all such obligations of Assignor, together with the Underlying
Debt, being the "SECURED OBLIGATIONS").
SECTION 4. ASSIGNOR REMAINS LIABLE. Anything contained herein to the
-----------------------
contrary notwithstanding, (a) Assignor shall remain liable under any contracts
and agreements included in the Collateral, to the extent set forth therein, to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed, (b) the exercise by Assignee of any of its
rights hereunder shall not release Assignor from any of its duties or
obligations under the contracts and agreements included in the Collateral, and
(c) Assignee shall not have any obligation or liability under any contracts and
agreements included in the Collateral by reason of this Agreement, nor shall
Assignee be obligated to
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perform any of the obligations or duties of Assignor thereunder or to take any
action to collect or enforce any claim for payment assigned hereunder.
SECTION 5. REPRESENTATIONS AND WARRANTIES. Assignor represents and
------------------------------
warrants as follows:
(a) Description of Collateral. A true and complete list of all Patents
-------------------------
owned, held (whether pursuant to a license or otherwise) or used by Assignor, in
whole or in part, as of the date of this Agreement is set forth in Schedule A
----------
annexed hereto.
(b) Validity and Enforceability of Collateral. Each Patent that is
-----------------------------------------
material to Assignor's business is valid, subsisting and enforceable and
Assignor is not aware of any pending or threatened claim by any third party that
any such material Patent is invalid or unenforceable or that the use of any such
material Patent violates the rights of any third person or of any basis for any
such claim.
(c) Ownership of Collateral. Except for the security interest and
-----------------------
conditional assignment created by this Agreement, Assignor owns each material
Patent free and clear of any Lien. Except such as may have been filed in favor
of Assignee relating to this Agreement and of Foothill Capital Corporation (a
release of which has been delivered to Administrative Agent), (i) no effective
financing statement or other instrument similar in effect covering all or any
part of the Collateral is on file in any filing or recording office and (ii) no
effective filing covering all or any part of the Collateral is on file in the
United States Patent and Trademark Office.
(d) Office Locations; Other Names. The chief place of business, the
-----------------------------
chief executive office and the office where Assignor keeps its records regarding
the Collateral is, and has been for the four month period preceding the date
hereof, located at ___________________________________. Assignor has not in
the past done, and does not now do, business under any other name (including any
trade-name or fictitious business name).
(e) Governmental Authorizations. No authorization, approval or other
---------------------------
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for either (i) the grant by Assignor of the security
interest and conditional assignment granted hereby, (ii) the execution, delivery
or performance of this Agreement by Assignor, or (iii) the perfection of or the
exercise by Assignee of its rights and remedies hereunder (except as may have
been taken by or at the direction of Assignor).
(f) Perfection. This Agreement, together with the filing of a
----------
financing statement describing the Collateral with the Secretary of State of the
State of ______________ and the recording of this Agreement with the United
States Patent and Trademark Office, which will be made, creates a valid,
perfected and first priority security interest in the Collateral, securing the
payment of the Secured Obligations, and all filings and other actions necessary
or desirable to perfect and protect such security interest have been or will be
duly made or taken.
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(g) Other Information. All information heretofore, herein or hereafter
-----------------
supplied to Assignee by or on behalf of Assignor with respect to the Collateral
is accurate and complete in all material respects.
SECTION 6. FURTHER ASSURANCES; NEW PATENTS AND PATENT APPLICATIONS.
-------------------------------------------------------
(a) Assignor agrees that from time to time, at the expense of Assignor,
Assignor will promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or desirable, or
that Assignee may request, in order to perfect and protect any security interest
or conditional assignment granted or purported to be granted hereby or to enable
Assignee to exercise and enforce its rights and remedies hereunder with respect
to any Collateral. Without limiting the generality of the foregoing, Assignor
will: (i) at the request of Assignee, mark conspicuously each of its records
pertaining to the Collateral with a legend, in form and substance satisfactory
to Assignee, indicating that such Collateral is subject to the security interest
granted hereby, (ii) execute and file such financing or continuation statements,
or amendments thereto, and such other instruments or notices, as may be
necessary or desirable, or as Assignee may request, in order to perfect and
preserve the security interests granted or purported to be granted hereby, (iii)
use its best efforts to obtain any necessary consents of third parties to the
grant and perfection of a security interest and assignment to Assignee with
respect to any Collateral, (iv) subject to the terms of the Credit Agreement, at
any reasonable time and upon request by Assignee, exhibit the Collateral to and
allow inspection of the Collateral by Assignee, or persons designated by
Assignee, and (v) at Assignee's request, appear in and defend any action or
proceeding that may affect Assignor's title to or Assignee's security interest
in all or any part of the Collateral.
(b) Assignor hereby authorizes Assignee to file one or more financing
or continuation statements, and amendments thereto, relative to all or any part
of the Collateral without the signature of Assignor. Assignor agrees that a
carbon, photographic or other reproduction of this Agreement or of a financing
statement signed by Assignor shall be sufficient as a financing statement and
may be filed as a financing statement in any and all jurisdictions.
(c) Assignor hereby authorizes Assignee to modify this Agreement
without obtaining Assignor's approval of or signature to such modification by
amending Schedule A annexed hereto to include reference to any right, title or
----------
interest in any existing Patent or any Patent acquired or developed by Assignor
after the execution hereof or to delete any reference to any right, title or
interest in any Patent in which Assignor no longer has or claims any right,
title or interest.
(d) Assignor will furnish to Assignee from time to time statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as Assignee may reasonably request,
all in reasonable detail.
(e) If Assignor shall hereafter obtain rights to any patentable
inventions, or become entitled to the benefit of any patent application or
patent or any reissue, division,
5
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continuation, renewal, extension, or continuation-in-part of any Patent or any
improvement on any Patent, the provisions of this Agreement shall automatically
apply thereto. Assignor shall promptly notify Assignee in writing of any of
the foregoing rights or benefits acquired by Assignor after the date hereof.
Concurrently with the filing of an application for any Patent, Assignor shall
execute, deliver and record in all places where this Agreement is recorded an
appropriate Subsidiary Patent Collateral Assignment and Security Agreement,
substantially in the form hereof, with appropriate insertions, or an amendment
to this Agreement, in form and substance satisfactory to Assignee, pursuant to
which Assignor shall grant a security interest and conditional assignment to the
extent of its interest in such Patent as provided herein to Assignee unless so
doing would, in the reasonable judgment of Assignor, after due inquiry, result
in the grant of a patent in the name of Assignee, in which event Assignor shall
give written notice to Assignee as soon as reasonably practicable and the filing
shall instead be undertaken as soon as practicable but in no case later than
immediately following the grant of the Patent.
SECTION 7. CERTAIN COVENANTS OF ASSIGNOR. Assignor shall:
-----------------------------
(a) not use or permit any Collateral to be used unlawfully or in
violation of any provision of this Agreement or any applicable statute,
regulation or ordinance or any policy of insurance covering the Collateral;
(b) notify Assignee of any change in Assignor's name, identity or
corporate structure within 15 days of such change;
(c) give Assignee 30 days' prior written notice of any change in
Assignor's chief place of business or chief executive office or the office where
Assignor keeps its records regarding the Collateral;
(d) pay promptly when due all property and other taxes, assessments and
governmental charges or levies imposed upon, and all claims (including claims
for labor, materials and supplies) against, the Collateral, except to the extent
permitted under the Credit Agreement;
(e) not sell, assign (by operation of law or otherwise) or otherwise
dispose of any of the Collateral, except as permitted by the Credit Agreement;
(f) except for the security interest and conditional assignment created
by this Agreement, not create or suffer to exist any Lien upon or with respect
to any of the Collateral to secure the indebtedness or other obligations of any
Person;
(g) diligently keep reasonable records respecting the Collateral and at
all times keep at least one complete set of its records concerning substantially
all of the Patents at its chief executive office or principal place of business;
(h) not permit the inclusion in any contract to which it becomes a
party of any provision that could or might in any way impair or prevent the
creation of a security
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<PAGE>
interest in, or the assignment of, Assignor's rights and interests in any
property included within the definition of any Patents acquired under such
contracts;
(i) take all steps necessary to protect the secrecy of all trade
secrets relating to the products and services sold or delivered under or in
connection with the Patents, including without limitation entering into
confidentiality agreements with employees and labeling and restricting access to
secret information and documents;
(j) use proper statutory notice in connection with its use of each
material Patent;
(k) use consistent standards of high quality (which may be consistent
with Assignor's past practices) in the manufacture, sale and delivery of
products and services sold or delivered under or in connection with the Patents,
including, to the extent applicable, in the operation and maintenance of its
retail stores and other merchandising operations; and
(l) upon any officer of Assignor obtaining knowledge thereof, promptly
notify Assignee in writing of any event that may materially and adversely affect
the value of the Collateral or any portion thereof, the ability of Assignor or
Assignee to dispose of the Collateral or any portion thereof, or the rights and
remedies of Assignee in relation thereto, including without limitation the levy
of any legal process against the Collateral or any portion thereof.
SECTION 8. CERTAIN INSPECTION RIGHTS. Subject to the terms of the
-------------------------
Credit Agreement, Assignor hereby grants to Assignee and any and all of its
employees, representatives and agents the right to visit Assignor's and any of
its Affiliate's or subcontractor's plants, facilities and other places of
business that are utilized in connection with the manufacture, production,
inspection, storage or sale of products and services sold or delivered under any
of the Patents (or which were so utilized during the prior six month period),
and to inspect the quality control and all other records relating thereto upon
reasonable notice to Assignor and as often as may be reasonably requested.
SECTION 9. AMOUNTS PAYABLE IN RESPECT OF THE COLLATERAL. Except as
--------------------------------------------
otherwise provided in this Section 9, Assignor shall continue to collect, at its
own expense, all amounts due or to become due to Assignor in respect of the
Collateral or any portion thereof. In connection with such collections,
Assignor may take (and, at Assignee's direction, shall take) such action as
Assignor or Assignee may deem necessary or advisable to enforce collection of
such amounts; provided, however, that Assignee shall have the right at any time,
-------- -------
upon the occurrence and during the continuation of an Event of Default and upon
written notice to Assignor of its intention to do so, to notify the obligors
with respect to any such amounts of the existence of the security interest
created, and the conditional assignment effected hereby, and to direct such
obligors to make payment of all such amounts directly to Assignee, and, upon
such notification and at the expense of Assignor, to enforce collection of any
such amounts and to adjust, settle or compromise the amount or payment thereof,
in the same manner and to the same extent as Assignor might have done. After
receipt by Assignor of the notice from Assignee referred to in the proviso to
-------
the preceding sentence,
7
<PAGE>
(i) all amounts and proceeds (including checks and other instruments) received
by Assignor in respect of amounts due to Assignor in respect of the Collateral
or any portion thereof shall be received in trust for the benefit of Assignee
hereunder, shall be segregated from other funds of Assignor and shall be
forthwith paid over or delivered to Assignee in the same form as so received
(with any necessary endorsement) to be held as cash Collateral and applied as
provided by Section 17, and (ii) Assignor shall not adjust, settle or compromise
the amount or payment of any such amount or release wholly or partly any obligor
with respect thereto or allow any credit or discount thereon.
SECTION 10. PATENT APPLICATIONS AND LITIGATION.
----------------------------------
(a) Assignor shall have the duty diligently to prosecute any patent
application relating to any of the Patents specifically identified in Schedule A
----------
annexed hereto that is pending as of the date of this Agreement, to make
application on any existing or future unpatented but patentable invention that
is material to Assignor's business, and to do any and all acts which are
necessary or desirable to preserve and maintain all rights in all material
Patents. Any expenses incurred in connection therewith shall be borne solely by
Assignor. Assignor shall not abandon any right to file a patent application or
any pending patent application or any material Patent without the prior written
consent of Assignee.
(b) Except as provided in Section 10(d) and notwithstanding Section 2,
Assignor shall have the right to commence and prosecute in its own name, as real
party in interest, for its own benefit and at its own expense, such suits,
proceedings or other actions for infringement, unfair competition, or other
damage or reexamination or reissue proceedings as are in its reasonable business
judgment necessary to protect the Collateral. Assignee shall provide, at
Assignor's expense, all reasonable and necessary cooperation in connection with
any such suit, proceeding or action including, without limitation, joining as a
necessary party.
(c) Assignor shall promptly, following its becoming aware thereof,
notify Assignee of the institution of, or of any adverse determination in, any
proceeding (whether in the United States Patent and Trademark Office or any
federal, state, local or foreign court) described in Section 10(a) or 10(b) or
regarding Assignor's interests in any material Collateral. Assignor shall
provide to Assignee any information with respect thereto requested by Assignee.
(d) Anything contained herein to the contrary notwithstanding, upon the
occurrence and during the continuation of an Event of Default, Assignee shall
have the right (but not the obligation) to bring suit, in the name of Assignor,
Assignee or otherwise, to enforce any Patent and any license thereunder, in
which event Assignor shall, at the request of Assignee, do any and all lawful
acts and execute any and all documents required by Assignee in aid of such
enforcement and Assignor shall promptly, upon demand, reimburse and indemnify
Assignee as provided in Section 18 in connection with the exercise of its rights
under this Section 10. To the extent that Assignee shall elect not to bring
suit to enforce any Patent or any license thereunder as provided in this Section
10(d), Assignor agrees to use all reasonable measures, whether by action, suit,
proceeding or otherwise, to prevent the
8
<PAGE>
infringement of any of the Patents by others and for that purpose agrees to
diligently maintain any action, suit or proceeding against any Person so
infringing necessary to prevent such infringement.
SECTION 11. NON-DISTURBANCE AGREEMENTS, ETC. If and to the extent
--------------------------------
that Assignor is permitted to license the Collateral, Assignee shall enter into
a non-disturbance agreement or other similar arrangement, at Assignor's request
and expense, with Assignor and any licensee of any Collateral permitted
hereunder in form and substance satisfactory to Assignee pursuant to which (a)
Assignee shall agree not to disturb or interfere with such licensee's rights
under its license agreement with Assignor so long as such licensee is not in
default thereunder and (b) such licensee shall acknowledge and agree that the
Collateral licensed to it is subject to the security interest and conditional
assignment created in favor of Assignee and the other terms of this Agreement.
SECTION 12. REASSIGNMENT OF COLLATERAL. If (a) an Event of Default
--------------------------
shall have occurred and, by reason of cure, waiver, modification, amendment or
otherwise, no longer be continuing, (b) no other Event of Default shall have
occurred and be continuing, (c) an assignment to Assignee of any rights, title
and interests in and to the Collateral shall have been previously made and shall
have become absolute and effective pursuant to Section 2, Section 13(f) or
Section 16(b), and (d) the Secured Obligations shall not have become immediately
due and payable, upon the written request of Assignor and the written consent of
Assignee, Assignee shall promptly execute and deliver to Assignor such
assignments as may be necessary to reassign to Assignor any such rights, title
and interests as may have been assigned to Assignee as aforesaid, subject to any
disposition thereof that may have been made by Assignee pursuant hereto;
provided that, after giving effect to such reassignment, Assignee's security
- --------
interest and conditional assignment granted pursuant to Section 1 and Section 2,
as well as all other rights and remedies of Assignee granted hereunder, shall
continue to be in full force and effect; and provided, further that the rights,
-------- -------
title and interests so reassigned shall be free and clear of all Liens other
than Liens (if any) encumbering such rights, title and interest at the time of
their assignment to Assignee and Permitted Liens.
SECTION 13. ASSIGNEE APPOINTED ATTORNEY-IN-FACT. Assignor hereby
-----------------------------------
irrevocably appoints Assignee as Assignor's attorney-in-fact, with full
authority in the place and stead of Assignor and in the name of Assignor,
Assignee or otherwise, from time to time in Assignee's discretion to take any
action and to execute any instrument that Assignee may deem necessary or
advisable to accomplish the purposes of this Agreement, including without
limitation:
(a) while an Event of Default exists, to endorse Assignor's name on all
applications, documents, papers and instruments necessary for Assignee in the
use or maintenance of the Collateral;
(b) while an Event of Default exists, to ask for, demand, collect, sue
for, recover, compound, receive and give acquittance and receipts for moneys due
and to become due under or in respect of any of the Collateral;
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<PAGE>
(c) while an Event of Default exists, to receive, endorse and collect
any drafts or other instruments, documents and chattel paper in connection with
clause (b) above;
(d) while an Event of Default exists, to file any claims or take any
action or institute any proceedings that Assignee may deem necessary or
desirable for the collection of any of the Collateral or otherwise to enforce
the rights of Assignee with respect to any of the Collateral;
(e) while an Event of Default exists, to pay or discharge taxes or
Liens (other than Liens permitted under this Agreement or the Credit Agreement)
levied or placed upon or threatened against the Collateral, the legality or
validity thereof and the amounts necessary to discharge the same to be
determined by Assignee in its sole discretion, any such payments made by
Assignee to become obligations of Assignor to Assignee, due and payable
immediately without demand; and
(f) upon the occurrence and during the continuation of an Event of
Default, (i) to execute and deliver any of the assignments or documents
requested by Assignee pursuant to Section 16(b), (ii) to grant or issue an
exclusive or non-exclusive license to the Collateral or any portion thereof to
any Person, and (iii) otherwise generally to sell, transfer, pledge, make any
agreement with respect to or otherwise deal with any of the Collateral as fully
and completely as though Assignee were the absolute owner thereof for all
purposes, and to do, at Assignee's option and Assignor's expense, at any time or
from time to time, all acts and things that Assignee deems necessary to protect,
preserve or realize upon the Collateral and Assignee's security interest therein
in order to effect the intent of this Agreement, all as fully and effectively as
Assignor might do.
SECTION 14. ASSIGNEE MAY PERFORM. If Assignor fails to perform any
--------------------
agreement contained herein, Assignee may itself perform, or cause performance
of, such agreement, and the expenses of Assignee incurred in connection
therewith shall be payable by Assignor under Section 18.
SECTION 15. STANDARD OF CARE. The powers conferred on Assignee
----------------
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the exercise of
reasonable care in the custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, Assignee shall have no
duty as to any Collateral or as to the taking of any necessary steps to preserve
rights against prior parties or any other rights pertaining to any Collateral.
Assignee shall be deemed to have exercised reasonable care in the custody and
preservation of Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which Assignee accords its own property.
SECTION 16. REMEDIES. If any Event of Default shall have occurred and
--------
be continuing:
(a) Assignee may exercise in respect of the Collateral, in addition to
all other rights and remedies provided for herein or otherwise available to it,
all the rights and
10
<PAGE>
remedies of a secured party on default under the Uniform Commercial Code as in
effect in any relevant jurisdiction (the "CODE") (whether or not the Code
applies to the affected Collateral), and also may (i) require Assignor to, and
Assignor hereby agrees that it will at its expense and upon request of Assignee
forthwith, assemble all or part of the Collateral as directed by Assignee and
make it available to Assignee at a place to be designated by Assignee that is
reasonably convenient to both parties, (ii) enter onto the property where any
Collateral is located and take possession thereof with or without judicial
process, (iii) prior to the disposition of the Collateral, store the Collateral
or otherwise prepare the Collateral for disposition in any manner to the extent
Assignee deems appropriate, (iv) take possession of Assignor's premises or place
custodians in exclusive control thereof, remain on such premises and use the
same for the purpose of taking any actions described in the preceding clause
(iii) and collecting any Secured Obligation, (v) exercise any and all rights and
remedies of Assignor under or in connection with the contracts related to the
Collateral or otherwise in respect of the Collateral, including without
limitation any and all rights of Assignor to demand or otherwise require payment
of any amount under, or performance of any provision of, such contracts, and
(vi) without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of Assignee's
offices or elsewhere, for cash, on credit or for future delivery, at such time
or times and at such price or prices and upon such other terms as Assignee may
deem commercially reasonable. Assignee or any Lender or any Interest Rate
Exchanger may be the purchaser of any or all of the Collateral at any such sale
and Assignee, as administrative agent for and representative of Lenders (but not
any Lender or Lenders in its or their respective individual capacities unless
Requisite Lenders shall otherwise agree in writing), shall be entitled, for the
purpose of bidding and making settlement or payment of the purchase price for
all or any portion of the Collateral sold at any such public sale, to use and
apply any of the Secured Obligations as a credit on account of the purchase
price for any Collateral payable by Assignee at such sale. Each purchaser at
any such sale shall hold the property sold absolutely free from any claim or
right on the part of Assignor, and Assignor hereby waives (to the extent
permitted by applicable law) all rights of redemption, stay and/or appraisal
which it now has or may at any time in the future have under any rule of law or
statute now existing or hereafter enacted. Assignor agrees that, to the extent
notice of sale shall be required by law, at least ten days' notice to Assignor
of the time and place of any public sale or the time after which any private
sale is to be made shall constitute reasonable notification. Assignee shall not
be obligated to make any sale of Collateral regardless of notice of sale having
been given. Assignee may adjourn any public or private sale from time to time
by announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned.
Assignor hereby waives any claims against Assignee arising by reason of the fact
that the price at which any Collateral may have been sold at such a private sale
was less than the price which might have been obtained at a public sale, even if
Assignee accepts the first offer received and does not offer such Collateral to
more than one offeree. If the proceeds of any sale or other disposition of the
Collateral are insufficient to pay all the Secured Obligations, Assignor shall
be liable for the deficiency and the fees of any attorneys employed by Assignee
to collect such deficiency.
11
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(b) Upon written demand from Assignee, Assignor shall execute and
deliver to Assignee an assignment or assignments of the Patents and such other
documents as are necessary or appropriate to carry out the intent and purposes
of this Agreement; provided that the failure of Assignor to comply with such
--------
demand will not impair or affect the validity of the conditional assignment
effected by Section 2 or its effectiveness upon notice by Assignee as specified
in Section 2. Assignor agrees that such an assignment (including without
limitation the conditional assignment effected by Section 2) and/or recording
shall be applied to reduce the Secured Obligations outstanding only to the
extent that Assignee (or any Lender or any Interest Rate Exchanger) receives
cash proceeds in respect of the sale of, or other realization upon, the
Collateral.
SECTION 17. APPLICATION OF PROCEEDS. All proceeds received by
-----------------------
Assignee in respect of any sale of, collection from, or other realization upon
all or any part of the Collateral shall be applied as provided in subsection
2.4D of the Credit Agreement.
SECTION 18. INDEMNITY AND EXPENSES.
----------------------
(a) Assignor agrees to indemnify Assignee and each Lender and Interest
Rate Exchanger from and against any and all claims, losses and liabilities in
any way relating to, growing out of or resulting from this Agreement and the
transactions contemplated hereby (including, without limitation, enforcement of
this Agreement), except to the extent such claims, losses or liabilities result
solely from Assignee's or such Lender's or such Interest Rate Exchanger's gross
negligence or willful misconduct as finally determined by a court of competent
jurisdiction.
(b) Assignor shall pay to Assignee upon demand the amount of any and
all reasonable out-of-pocket costs and expenses, including the reasonable fees
and expenses of its counsel and of any experts and agents, that Assignee may
incur in connection with (i) the administration of this Agreement, (ii) the
custody, preservation, use or operation of, or the sale of, collection from, or
other realization upon, any of the Collateral, (iii) the exercise or enforcement
of any of the rights of Assignee hereunder, or (iv) the failure by Assignor to
perform or observe any of the provisions hereof.
SECTION 19. CONTINUING ASSIGNMENT AND SECURITY INTEREST; TRANSFER OF
--------------------------------------------------------
LOANS. This Agreement shall create a continuing security interest in, and
- -----
conditional assignment of, the Collateral and shall (a) remain in full force and
effect until the payment in full of the Secured Obligations, the cancellation or
termination of the Commitments and the cancellation or expiration of all
outstanding Letters of Credit, (b) be binding upon Assignor, its successors and
assigns, and (c) inure, together with the rights and remedies of Assignee
hereunder, to the benefit of Assignee and its successors, transferees and
assigns. Without limiting the generality of the foregoing clause (c), but
subject to the provisions of subsection 10.1 of the Credit Agreement, any Lender
may assign or otherwise transfer any Loans held by it to any other Person, and
such other Person shall thereupon become vested with all the benefits in respect
thereof granted to Lenders herein or otherwise. Upon the payment in full of all
Secured Obligations, the cancellation or termination of the Commitments and the
cancellation or expiration of all outstanding Letters of Credit, the
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security interest and conditional assignment granted hereby shall terminate and
all rights to the Collateral shall revert to Assignor. Upon any such
termination Assignee will, at Assignor's expense, execute and deliver to
Assignor such documents as Assignor shall reasonably request to evidence such
termination.
SECTION 20. ASSIGNEE AS ADMINISTRATIVE AGENT.
--------------------------------
(a) Assignee has been appointed to act as Assignee hereunder by Lenders
and, by their acceptance of the benefits hereof, Interest Rate Exchangers.
Assignee shall be obligated, and shall have the right hereunder, to make
demands, to give notices, to exercise or refrain from exercising any rights, and
to take or refrain from taking any action (including the release or substitution
of Collateral), solely in accordance with this Agreement and the Credit
Agreement; provided that Assignee shall exercise, or refrain from exercising,
--------
any remedies provided for in Section 16 in accordance with the instructions of
(i) Requisite Lenders or (ii) after payment in full of all Obligations under the
Credit Agreement and the other Loan Documents, the holders of a majority of the
aggregate notional amount (or, with respect to any Lender Interest Rate
Agreement that has been terminated in accordance with its terms, the amount then
due and payable (exclusive of expenses and similar payments but including any
early termination payments then due) under such Lender Interest Rate Agreement)
under all Lender Interest Rate Agreements (Requisite Lenders or, if applicable,
such holders being referred to herein as "REQUISITE OBLIGEES"). In furtherance
of the foregoing provisions of this Section 20(a), each Interest Rate Exchanger,
by its acceptance of the benefits hereof, agrees that it shall have no right
individually to realize upon any of the Collateral hereunder, it being
understood and agreed by such Interest Rate Exchanger that all rights and
remedies hereunder may be exercised solely by Assignee for the benefit of
Lenders and Interest Rate Exchangers in accordance with the terms of this
Section 20(a).
(b) Assignee shall at all times be the same Person that is
Administrative Agent under the Credit Agreement. Written notice of resignation
by Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall
also constitute notice of resignation as Assignee under this Agreement; removal
of Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall
also constitute removal as Assignee under this Agreement; and appointment of a
successor Administrative Agent pursuant to subsection 9.5 of the Credit
Agreement shall also constitute appointment of a successor Assignee under this
Agreement. Upon the acceptance of any appointment as Administrative Agent under
subsection 9.5 of the Credit Agreement by a successor Administrative Agent, that
successor Administrative Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring or removed
Assignee under this Agreement, and the retiring or removed Assignee under this
Agreement shall promptly (i) transfer to such successor Assignee all sums,
securities and other items of Collateral held hereunder, together with all
records and other documents necessary or appropriate in connection with the
performance of the duties of the successor Assignee under this Agreement, and
(ii) execute and deliver to such successor Assignee such amendments to financing
statements, and take such other actions, as may be necessary or appropriate in
connection with the assignment to such successor Assignee of the security
interests created hereunder, whereupon such retiring or removed Assignee shall
be discharged from its duties and obligations under this Agreement. After any
13
<PAGE>
retiring or removed Administrative Agent's resignation or removal hereunder as
Assignee, the provisions of this Agreement shall inure to its benefit as to any
actions taken or omitted to be taken by it under this Agreement while it was
Assignee hereunder.
SECTION 21. AMENDMENTS; ETC. No amendment, modification, termination
---------------
or waiver of any provision of this Agreement, and no consent to any departure by
Assignor therefrom, shall in any event be effective unless the same shall be in
writing and signed by Assignee and, in the case of any such amendment or
modification, by Assignor. Any such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which it was given.
SECTION 22. NOTICES. Any notice or other communication herein
-------
required or permitted to be given shall be given as provided in the Credit
Agreement. For the purposes hereof, the address of each party hereto shall be
as set forth under such party's name on the signature pages hereof or, as to
either party, such other address as shall be designated by such party in a
written notice delivered to the other party hereto.
SECTION 23. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
-----------------------------------------------------
failure or delay on the part of Assignee in the exercise of any power, right or
privilege hereunder shall impair such power, right or privilege or be construed
to be a waiver of any default or acquiescence therein, nor shall any single or
partial exercise of any such power, right or privilege preclude any other or
further exercise thereof or of any other power, right or privilege. All rights
and remedies existing under this Agreement are cumulative to, and not exclusive
of, any rights or remedies otherwise available.
SECTION 24. SEVERABILITY. In case any provision in or obligation
------------
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 25. HEADINGS. Section and subsection headings in this
--------
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given any
substantive effect.
SECTION 26. GOVERNING LAW; TERMS. THIS AGREEMENT AND THE RIGHTS AND
--------------------
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW
OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES,
EXCEPT TO THE EXTENT THAT THE CODE PROVIDES THAT THE VALIDITY OR PERFECTION OF
THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY
PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
STATE OF NEW YORK. Unless otherwise
14
<PAGE>
defined herein or in the Credit Agreement, terms used in Articles 8 and 9 of the
Uniform Commercial Code in the State of New York are used herein as therein
defined.
SECTION 27. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL
----------------------------------------------
JUDICIAL PROCEEDINGS BROUGHT AGAINST ASSIGNOR ARISING OUT OF OR RELATING TO THIS
AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION
IN THE STATE OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT
ASSIGNOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY
ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. Assignor
hereby agrees that service of all process in any such proceeding in any such
court may be made by registered or certified mail, return receipt requested, to
Assignor at its address provided in Section 22, such service being hereby
acknowledged by Assignor to be sufficient for personal jurisdiction in any
action against Assignor in any such court and to be otherwise effective and
binding service in every respect. Nothing herein shall affect the right to
serve process in any other manner permitted by law or shall limit the right of
Assignee to bring proceedings against Assignor in the courts of any other
jurisdiction.
SECTION 28. WAIVER OF JURY TRIAL. ASSIGNOR AND ASSIGNEE HEREBY AGREE
--------------------
TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this waiver is
intended to be all-encompassing of any and all disputes that may be filed in any
court and that relate to the subject matter of this transaction, including
without limitation contract claims, tort claims, breach of duty claims, and all
other common law and statutory claims. Assignor and Assignee each acknowledge
that this waiver is a material inducement for Assignor and Assignee to enter
into a business relationship, that Assignor and Assignee have already relied on
this waiver in entering into this Agreement and that each will continue to rely
on this waiver in their related future dealings. Assignor and Assignee further
warrant and represent that each has reviewed this waiver with its legal counsel,
and that each knowingly and voluntarily waives its jury trial rights following
consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT
MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO
ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT. In the event of litigation, this Agreement may be filed as a written
consent to a trial by the court.
SECTION 29. COUNTERPARTS. This Agreement may be executed in one or
------------
more counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
15
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[Remainder of page intentionally left blank]
16
<PAGE>
IN WITNESS WHEREOF, Assignor and Assignee have caused this Agreement
to be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
[NAME OF SUBSIDIARY],
as Assignor
By: __________________________
Name: __________________________
Title: __________________________
Notice Address:
1800 Cloquet Avenue
Cloquet, MN 55720-2141
Attention: Tom Knuesel
WELLS FARGO BANK, N.A.,
as Administrative Agent
By: __________________________
Name: __________________________
Title: __________________________
Notice Address:
Attention:
S-1
<PAGE>
SCHEDULE A
TO PATENT COLLATERAL ASSIGNMENT
AND SECURITY AGREEMENT
PATENTS ISSUED
--------------
Patent No. Issue Date Invention Inventor
- ---------- ---------- --------- --------
PATENTS PENDING
---------------
Applicant's Date Application
Name Filed No. Invention Inventor
----------- ----- ----------- --------- --------
<PAGE>
STATE OF CALIFORNIA )
) SS.:
COUNTY OF ____________ )
On ___________, 19___, before me, ____________________, a Notary Public
in and for said State, personally appeared ____________________________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
Signature ________________________________ (Seal)
<PAGE>
SUBSIDIARY PATENT COLLATERAL ASSIGNMENT
AND SECURITY AGREEMENT
This SUBSIDIARY PATENT COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT
(this "AGREEMENT") is dated as of April 21, 1998 and entered into by and between
EMPIRE CANDLE, INC., a Kansas corporation ("ASSIGNOR"), and WELLS FARGO
BANK, N.A., as administrative agent for and representative of (in such capacity
herein called "ASSIGNEE") the financial institutions ("LENDERS") party to the
Credit Agreement referred to below and any Interest Rate Exchangers (as
hereinafter defined).
PRELIMINARY STATEMENTS
A. Assignee and Lenders have entered into a Credit Agreement dated as
of April 21, 1998 with Diamond Brands Operating Corp., a Delaware corporation
("COMPANY"), DLJ Capital Funding, Inc., as Syndication Agent, and Morgan Stanley
Senior Funding Inc., as Documentation Agent (said Credit Agreement, as it may
hereafter be amended, supplemented or otherwise modified from time to time,
being the "CREDIT AGREEMENT", the terms defined therein and not otherwise
defined herein being used herein as therein defined), pursuant to which Lenders
have made certain commitments, subject to the terms and conditions set forth in
the Credit Agreement, to extend certain credit facilities to Company.
B. Company may from time to time enter, or may from time to time have
entered, into one or more Interest Rate Agreements (collectively, the "LENDER
INTEREST RATE AGREEMENTS") with one or more Lenders (in such capacity,
collectively, "INTEREST RATE EXCHANGERS").
C. Assignor has executed and delivered the Subsidiary Guaranty dated
as of April 21, 1998 (said Subsidiary Guaranty, as it may hereafter be amended,
supplemented or otherwise modified from time to time, being the "SUBSIDIARY
GUARANTY") in favor of Assignee for the benefit of Lenders and Interest Rate
Exchangers pursuant to which Assignor has guarantied the prompt payment and
performance when due of all Obligations of the Company under the Credit
Agreement and under any Lender Interest Rate Agreements.
D. Assignor has and may in the future have rights, title and
interests in and to various Patents and other related Collateral (as such terms
are hereinafter defined).
E. Assignor is willing to grant to Assignee (i) a security interest
in all such Collateral for the purpose of securing the complete and timely
satisfaction of all of the Secured Obligations (as hereinafter defined) and (ii)
effective upon the occurrence and during the continuation of an Event of
Default, an assignment of Assignor's entire rights, title and interest in and to
all such Collateral.
1
<PAGE>
F. It is a condition precedent to the initial extensions of credit by
Lenders under the Credit Agreement that Assignor shall have granted the security
interests and made the conditional assignment and undertaken the obligations
contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce
Lenders to make Loans and other extensions of credit under the Credit Agreement
and to induce Interest Rate Exchangers to enter into Lender Interest Rate
Agreements and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Assignor hereby agrees with Assignee
as follows:
SECTION 1. GRANT OF SECURITY. Assignor hereby assigns to Assignee,
-----------------
and hereby grants to Assignee a security interest in, all of Assignor's right,
title and interest in and to the following, in each case whether now or
hereafter existing or in which Assignor now has or hereafter acquires an
interest and wherever the same may be located (the "COLLATERAL"):
(a) all patents and patent applications and rights and interests in
patents and patent applications under any domestic law that are presently, or in
the future may be, owned by Assignor and all patents and patent applications and
rights and interests in patents and patent applications under any domestic law
that are presently, or in the future may be, held or used by Assignor in whole
or in part (including, without limitation, the patents and patent applications
listed in Schedule A annexed hereto, as the same may be amended pursuant hereto
----------
from time to time), all rights (but not obligations) corresponding thereto
(including without limitation the right (but not the obligation) to sue for
past, present and future infringements in the name of Assignor or in the name of
Assignee or Lenders or Interest Rate Exchangers), and all re-issues, divisions,
continuations, renewals, extensions and continuations-in-part thereof (all of
the foregoing being collectively referred to as the "PATENTS"); it being
understood that the rights and interest assigned hereby shall include, without
limitation, all rights and interests pursuant to licensing or other contracts in
favor of Assignor pertaining to patent applications and patents presently or in
the future owned or used by third parties but, in the case of third parties
which are not Affiliates of Assignor, only to the extent permitted by such
licensing or other contracts and, if not so permitted, only with the consent of
such third parties;
(b) all general intangibles relating to the Patents;
(c) all books, records, ledger cards, files, correspondence, computer
programs, tapes, disks and related data processing software that at any time
evidence or contain information relating to any of the Collateral or are
otherwise necessary or helpful in the collection thereof or realization
thereupon; and
(d) all proceeds, products, rents and profits (including without
limitation license royalties and proceeds of infringement suits) of or from any
and all of the foregoing Collateral and, to the extent not otherwise included,
all payments under insurance (whether or not Assignee is the loss payee
thereof), or any indemnity, warranty or guaranty, payable by reason of loss or
damage to or otherwise with respect to any of the foregoing Collateral.
2
<PAGE>
For purposes of this Agreement, the term "PROCEEDS" includes whatever is
receivable or received when Collateral or proceeds are sold, exchanged,
collected or otherwise disposed of, whether such disposition is voluntary or
involuntary.
SECTION 2. CONDITIONAL ASSIGNMENT. In addition to, and not by way of
----------------------
limitation of, the granting of a security interest in the Collateral pursuant to
Section 1, Assignor hereby, effective upon the occurrence of an Event of Default
and upon written notice from Assignee, grants, sells, conveys, transfers,
assigns and sets over to Assignee, for its benefit and the ratable benefit of
Lenders and Interest Rate Exchangers, all of Assignor's right, title and
interest in and to the Collateral, including without limitation Assignor's
right, title and interest in and to the Patents identified in Schedule A annexed
----------
hereto.
SECTION 3. SECURITY FOR OBLIGATIONS. This Agreement secures, and the
------------------------
Collateral is collateral security for, the prompt payment or performance in full
when due, whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise (including the payment of amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code, 11 U.S.C. (S)362(a)), of all obligations and liabilities of
every nature of Assignor now or hereafter existing under or arising out of or in
connection with the Subsidiary Guaranty, the other Loan Documents and the Lender
Interest Rate Agreements and all extensions or renewals thereof, whether for
principal, interest (including without limitation interest that, but for the
filing of a petition in bankruptcy with respect to Assignor, would accrue on
such obligations), reimbursement of amounts drawn under Letters of Credit,
payments for early termination of Lender Interest Rate Agreements, fees,
expenses, indemnities or otherwise, whether voluntary or involuntary, direct or
indirect, absolute or contingent, liquidated or unliquidated, whether or not
jointly owed with others, and whether or not from time to time decreased or
extinguished and later increased, created or incurred, and all or any portion of
such obligations or liabilities that are paid, to the extent all or any part of
such payment is avoided or recovered directly or indirectly from Assignee or any
Lender or Interest Rate Exchanger as a preference, fraudulent transfer or
otherwise (all such obligations and liabilities being the "UNDERLYING DEBT"),
and all obligations of every nature of Assignor now or hereafter existing under
this Agreement (all such obligations of Assignor, together with the Underlying
Debt, being the "SECURED OBLIGATIONS").
SECTION 4. ASSIGNOR REMAINS LIABLE. Anything contained herein to the
-----------------------
contrary notwithstanding, (a) Assignor shall remain liable under any contracts
and agreements included in the Collateral, to the extent set forth therein, to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed, (b) the exercise by Assignee of any of its
rights hereunder shall not release Assignor from any of its duties or
obligations under the contracts and agreements included in the Collateral, and
(c) Assignee shall not have any obligation or liability under any contracts and
agreements included in the Collateral by reason of this Agreement, nor shall
Assignee be obligated to perform any of the obligations or duties of Assignor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.
3
<PAGE>
SECTION 5. REPRESENTATIONS AND WARRANTIES. Assignor represents and
------------------------------
warrants as follows:
(a) Description of Collateral. A true and complete list of all
-------------------------
Patents owned, held (whether pursuant to a license or otherwise) or used by
Assignor, in whole or in part, as of the date of this Agreement is set forth in
Schedule A annexed hereto.
- ----------
(b) Validity and Enforceability of Collateral. Each Patent that is
-----------------------------------------
material to Assignor's business is valid, subsisting and enforceable and
Assignor is not aware of any pending or threatened claim by any third party that
any such material Patent is invalid or unenforceable or that the use of any such
material Patent violates the rights of any third person or of any basis for any
such claim.
(c) Ownership of Collateral. Except for the security interest and
-----------------------
conditional assignment created by this Agreement, Assignor owns each material
Patent free and clear of any Lien. Except such as may have been filed in favor
of Assignee relating to this Agreement and of Foothill Capital Corporation (a
release of which has been delivered to Administrative Agent), (i) no effective
financing statement or other instrument similar in effect covering all or any
part of the Collateral is on file in any filing or recording office and (ii) no
effective filing covering all or any part of the Collateral is on file in the
United States Patent and Trademark Office.
(d) Office Locations; Other Names. The chief place of business, the
-----------------------------
chief executive office and the office where Assignor keeps its records regarding
the Collateral is, and has been for the four month period preceding the date
hereof, located at 2925 Fairfax Trafficway, Kansas City, Kansas 66115. Assignor
has not in the past done, and does not now do, business under any other name
(including any trade-name or fictitious business name).
(e) Governmental Authorizations. No authorization, approval or other
---------------------------
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for either (i) the grant by Assignor of the security
interest and conditional assignment granted hereby, (ii) the execution, delivery
or performance of this Agreement by Assignor, or (iii) the perfection of or the
exercise by Assignee of its rights and remedies hereunder (except as may have
been taken by or at the direction of Assignor).
(f) Perfection. This Agreement, together with the filing of a
----------
financing statement describing the Collateral with the Secretary of State of the
State of Kansas, Missouri and Nevada and the recording of this Agreement with
the United States Patent and Trademark Office, which will be made, creates a
valid, perfected and first priority security interest in the Collateral,
securing the payment of the Secured Obligations, and all filings and other
actions necessary or desirable to perfect and protect such security interest
have been or will be duly made or taken.
4
<PAGE>
(g) Other Information. All information heretofore, herein or
-----------------
hereafter supplied to Assignee by or on behalf of Assignor with respect to the
Collateral is accurate and complete in all material respects.
SECTION 6. FURTHER ASSURANCES; NEW PATENTS AND PATENT APPLICATIONS.
-------------------------------------------------------
(a) Assignor agrees that from time to time, at the expense of
Assignor, Assignor will promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or desirable, or
that Assignee may request, in order to perfect and protect any security interest
or conditional assignment granted or purported to be granted hereby or to enable
Assignee to exercise and enforce its rights and remedies hereunder with respect
to any Collateral. Without limiting the generality of the foregoing, Assignor
will: (i) at the request of Assignee, mark conspicuously each of its records
pertaining to the Collateral with a legend, in form and substance satisfactory
to Assignee, indicating that such Collateral is subject to the security interest
granted hereby, (ii) execute and file such financing or continuation statements,
or amendments thereto, and such other instruments or notices, as may be
necessary or desirable, or as Assignee may request, in order to perfect and
preserve the security interests granted or purported to be granted hereby, (iii)
use its best efforts to obtain any necessary consents of third parties to the
grant and perfection of a security interest and assignment to Assignee with
respect to any Collateral, (iv) subject to the terms of the Credit Agreement, at
any reasonable time and upon request by Assignee, exhibit the Collateral to and
allow inspection of the Collateral by Assignee, or persons designated by
Assignee, and (v) at Assignee's request, appear in and defend any action or
proceeding that may affect Assignor's title to or Assignee's security interest
in all or any part of the Collateral.
(b) Assignor hereby authorizes Assignee to file one or more financing
or continuation statements, and amendments thereto, relative to all or any part
of the Collateral without the signature of Assignor. Assignor agrees that a
carbon, photographic or other reproduction of this Agreement or of a financing
statement signed by Assignor shall be sufficient as a financing statement and
may be filed as a financing statement in any and all jurisdictions.
(c) Assignor hereby authorizes Assignee to modify this Agreement
without obtaining Assignor's approval of or signature to such modification by
amending Schedule A annexed hereto to include reference to any right, title or
----------
interest in any existing Patent or any Patent acquired or developed by Assignor
after the execution hereof or to delete any reference to any right, title or
interest in any Patent in which Assignor no longer has or claims any right,
title or interest.
(d) Assignor will furnish to Assignee from time to time statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as Assignee may reasonably request,
all in reasonable detail.
(e) If Assignor shall hereafter obtain rights to any patentable
inventions, or become entitled to the benefit of any patent application or
patent or any reissue, division,
5
<PAGE>
continuation, renewal, extension, or continuation-in-part of any Patent or any
improvement on any Patent, the provisions of this Agreement shall automatically
apply thereto. Assignor shall promptly notify Assignee in writing of any of
the foregoing rights or benefits acquired by Assignor after the date hereof.
Concurrently with the filing of an application for any Patent, Assignor shall
execute, deliver and record in all places where this Agreement is recorded an
appropriate Subsidiary Patent Collateral Assignment and Security Agreement,
substantially in the form hereof, with appropriate insertions, or an amendment
to this Agreement, in form and substance satisfactory to Assignee, pursuant to
which Assignor shall grant a security interest and conditional assignment to the
extent of its interest in such Patent as provided herein to Assignee unless so
doing would, in the reasonable judgment of Assignor, after due inquiry, result
in the grant of a patent in the name of Assignee, in which event Assignor shall
give written notice to Assignee as soon as reasonably practicable and the filing
shall instead be undertaken as soon as practicable but in no case later than
immediately following the grant of the Patent.
SECTION 7. CERTAIN COVENANTS OF ASSIGNOR. Assignor shall:
-----------------------------
(a) not use or permit any Collateral to be used unlawfully or in
violation of any provision of this Agreement or any applicable statute,
regulation or ordinance or any policy of insurance covering the Collateral;
(b) notify Assignee of any change in Assignor's name, identity or
corporate structure within 15 days of such change;
(c) give Assignee 30 days' prior written notice of any change in
Assignor's chief place of business or chief executive office or the office where
Assignor keeps its records regarding the Collateral;
(d) pay promptly when due all property and other taxes, assessments
and governmental charges or levies imposed upon, and all claims (including
claims for labor, materials and supplies) against, the Collateral, except to the
extent permitted under the Credit Agreement;
(e) not sell, assign (by operation of law or otherwise) or otherwise
dispose of any of the Collateral, except as permitted by the Credit Agreement;
(f) except for the security interest and conditional assignment
created by this Agreement, not create or suffer to exist any Lien upon or with
respect to any of the Collateral to secure the indebtedness or other obligations
of any Person;
(g) diligently keep reasonable records respecting the Collateral and
at all times keep at least one complete set of its records concerning
substantially all of the Patents at its chief executive office or principal
place of business;
(h) not permit the inclusion in any contract to which it becomes a
party of any provision that could or might in any way impair or prevent the
creation of a security
6
<PAGE>
interest in, or the assignment of, Assignor's rights and interests in any
property included within the definition of any Patents acquired under such
contracts;
(i) take all steps necessary to protect the secrecy of all trade
secrets relating to the products and services sold or delivered under or in
connection with the Patents, including without limitation entering into
confidentiality agreements with employees and labeling and restricting access to
secret information and documents;
(j) use proper statutory notice in connection with its use of each
material Patent;
(k) use consistent standards of high quality (which may be consistent
with Assignor's past practices) in the manufacture, sale and delivery of
products and services sold or delivered under or in connection with the Patents,
including, to the extent applicable, in the operation and maintenance of its
retail stores and other merchandising operations; and
(l) upon any officer of Assignor obtaining knowledge thereof, promptly
notify Assignee in writing of any event that may materially and adversely affect
the value of the Collateral or any portion thereof, the ability of Assignor or
Assignee to dispose of the Collateral or any portion thereof, or the rights and
remedies of Assignee in relation thereto, including without limitation the levy
of any legal process against the Collateral or any portion thereof.
SECTION 8. CERTAIN INSPECTION RIGHTS. Subject to the terms of the
-------------------------
Credit Agreement, Assignor hereby grants to Assignee and any and all of its
employees, representatives and agents the right to visit Assignor's and any of
its Affiliate's or subcontractor's plants, facilities and other places of
business that are utilized in connection with the manufacture, production,
inspection, storage or sale of products and services sold or delivered under any
of the Patents (or which were so utilized during the prior six month period),
and to inspect the quality control and all other records relating thereto upon
reasonable notice to Assignor and as often as may be reasonably requested.
SECTION 9. AMOUNTS PAYABLE IN RESPECT OF THE COLLATERAL. Except as
--------------------------------------------
otherwise provided in this Section 9, Assignor shall continue to collect, at its
own expense, all amounts due or to become due to Assignor in respect of the
Collateral or any portion thereof. In connection with such collections,
Assignor may take (and, at Assignee's direction, shall take) such action as
Assignor or Assignee may deem necessary or advisable to enforce collection of
such amounts; provided, however, that Assignee shall have the right at any time,
-------- -------
upon the occurrence and during the continuation of an Event of Default and upon
written notice to Assignor of its intention to do so, to notify the obligors
with respect to any such amounts of the existence of the security interest
created, and the conditional assignment effected hereby, and to direct such
obligors to make payment of all such amounts directly to Assignee, and, upon
such notification and at the expense of Assignor, to enforce collection of any
such amounts and to adjust, settle or compromise the amount or payment thereof,
in the same manner and to the same extent as Assignor might have done. After
receipt by Assignor of the notice from Assignee referred to in the proviso to
-------
the preceding sentence,
7
<PAGE>
(i) all amounts and proceeds (including checks and other instruments) received
by Assignor in respect of amounts due to Assignor in respect of the Collateral
or any portion thereof shall be received in trust for the benefit of Assignee
hereunder, shall be segregated from other funds of Assignor and shall be
forthwith paid over or delivered to Assignee in the same form as so received
(with any necessary endorsement) to be held as cash Collateral and applied as
provided by Section 17, and (ii) Assignor shall not adjust, settle or compromise
the amount or payment of any such amount or release wholly or partly any obligor
with respect thereto or allow any credit or discount thereon.
SECTION 10. PATENT APPLICATIONS AND LITIGATION.
----------------------------------
(a) Assignor shall have the duty diligently to prosecute any patent
application relating to any of the Patents specifically identified in Schedule A
----------
annexed hereto that is pending as of the date of this Agreement, to make
application on any existing or future unpatented but patentable invention that
is material to Assignor's business, and to do any and all acts which are
necessary or desirable to preserve and maintain all rights in all material
Patents. Any expenses incurred in connection therewith shall be borne solely by
Assignor. Assignor shall not abandon any right to file a patent application or
any pending patent application or any material Patent without the prior written
consent of Assignee.
(b) Except as provided in Section 10(d) and notwithstanding Section 2,
Assignor shall have the right to commence and prosecute in its own name, as real
party in interest, for its own benefit and at its own expense, such suits,
proceedings or other actions for infringement, unfair competition, or other
damage or reexamination or reissue proceedings as are in its reasonable business
judgment necessary to protect the Collateral. Assignee shall provide, at
Assignor's expense, all reasonable and necessary cooperation in connection with
any such suit, proceeding or action including, without limitation, joining as a
necessary party.
(c) Assignor shall promptly, following its becoming aware thereof,
notify Assignee of the institution of, or of any adverse determination in, any
proceeding (whether in the United States Patent and Trademark Office or any
federal, state, local or foreign court) described in Section 10(a) or 10(b) or
regarding Assignor's interests in any material Collateral. Assignor shall
provide to Assignee any information with respect thereto requested by Assignee.
(d) Anything contained herein to the contrary notwithstanding, upon
the occurrence and during the continuation of an Event of Default, Assignee
shall have the right (but not the obligation) to bring suit, in the name of
Assignor, Assignee or otherwise, to enforce any Patent and any license
thereunder, in which event Assignor shall, at the request of Assignee, do any
and all lawful acts and execute any and all documents required by Assignee in
aid of such enforcement and Assignor shall promptly, upon demand, reimburse and
indemnify Assignee as provided in Section 18 in connection with the exercise of
its rights under this Section 10. To the extent that Assignee shall elect not to
bring suit to enforce any Patent or any license thereunder as provided in this
Section 10(d), Assignor agrees to use all reasonable measures, whether by
action, suit, proceeding or otherwise, to prevent the
8
<PAGE>
infringement of any of the Patents by others and for that purpose agrees to
diligently maintain any action, suit or proceeding against any Person so
infringing necessary to prevent such infringement.
SECTION 11. NON-DISTURBANCE AGREEMENTS, ETC. If and to the extent
--------------------------------
that Assignor is permitted to license the Collateral, Assignee shall enter into
a non-disturbance agreement or other similar arrangement, at Assignor's request
and expense, with Assignor and any licensee of any Collateral permitted
hereunder in form and substance satisfactory to Assignee pursuant to which (a)
Assignee shall agree not to disturb or interfere with such licensee's rights
under its license agreement with Assignor so long as such licensee is not in
default thereunder and (b) such licensee shall acknowledge and agree that the
Collateral licensed to it is subject to the security interest and conditional
assignment created in favor of Assignee and the other terms of this Agreement.
SECTION 12. REASSIGNMENT OF COLLATERAL. If (a) an Event of Default
--------------------------
shall have occurred and, by reason of cure, waiver, modification, amendment or
otherwise, no longer be continuing, (b) no other Event of Default shall have
occurred and be continuing, (c) an assignment to Assignee of any rights, title
and interests in and to the Collateral shall have been previously made and shall
have become absolute and effective pursuant to Section 2, Section 13(f) or
Section 16(b), and (d) the Secured Obligations shall not have become immediately
due and payable, upon the written request of Assignor and the written consent of
Assignee, Assignee shall promptly execute and deliver to Assignor such
assignments as may be necessary to reassign to Assignor any such rights, title
and interests as may have been assigned to Assignee as aforesaid, subject to any
disposition thereof that may have been made by Assignee pursuant hereto;
provided that, after giving effect to such reassignment, Assignee's security
- --------
interest and conditional assignment granted pursuant to Section 1 and Section 2,
as well as all other rights and remedies of Assignee granted hereunder, shall
continue to be in full force and effect; and provided, further that the rights,
-------- -------
title and interests so reassigned shall be free and clear of all Liens other
than Liens (if any) encumbering such rights, title and interest at the time of
their assignment to Assignee and Permitted Liens.
SECTION 13. ASSIGNEE APPOINTED ATTORNEY-IN-FACT. Assignor hereby
-----------------------------------
irrevocably appoints Assignee as Assignor's attorney-in-fact, with full
authority in the place and stead of Assignor and in the name of Assignor,
Assignee or otherwise, from time to time in Assignee's discretion to take any
action and to execute any instrument that Assignee may deem necessary or
advisable to accomplish the purposes of this Agreement, including without
limitation:
(a) while an Event of Default exists, to endorse Assignor's name on
all applications, documents, papers and instruments necessary for Assignee in
the use or maintenance of the Collateral;
(b) while an Event of Default exists, to ask for, demand, collect, sue
for, recover, compound, receive and give acquittance and receipts for moneys due
and to become due under or in respect of any of the Collateral;
9
<PAGE>
(c) while an Event of Default exists, to receive, endorse and collect
any drafts or other instruments, documents and chattel paper in connection with
clause (b) above;
(d) while an Event of Default exists, to file any claims or take any
action or institute any proceedings that Assignee may deem necessary or
desirable for the collection of any of the Collateral or otherwise to enforce
the rights of Assignee with respect to any of the Collateral;
(e) while an Event of Default exists, to pay or discharge taxes or
Liens (other than Liens permitted under this Agreement or the Credit Agreement)
levied or placed upon or threatened against the Collateral, the legality or
validity thereof and the amounts necessary to discharge the same to be
determined by Assignee in its sole discretion, any such payments made by
Assignee to become obligations of Assignor to Assignee, due and payable
immediately without demand; and
(f) upon the occurrence and during the continuation of an Event of
Default, (i) to execute and deliver any of the assignments or documents
requested by Assignee pursuant to Section 16(b), (ii) to grant or issue an
exclusive or non-exclusive license to the Collateral or any portion thereof to
any Person, and (iii) otherwise generally to sell, transfer, pledge, make any
agreement with respect to or otherwise deal with any of the Collateral as fully
and completely as though Assignee were the absolute owner thereof for all
purposes, and to do, at Assignee's option and Assignor's expense, at any time or
from time to time, all acts and things that Assignee deems necessary to protect,
preserve or realize upon the Collateral and Assignee's security interest therein
in order to effect the intent of this Agreement, all as fully and effectively as
Assignor might do.
SECTION 14. ASSIGNEE MAY PERFORM. If Assignor fails to perform any
--------------------
agreement contained herein, Assignee may itself perform, or cause performance
of, such agreement, and the expenses of Assignee incurred in connection
therewith shall be payable by Assignor under Section 18.
SECTION 15. STANDARD OF CARE. The powers conferred on Assignee
----------------
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the exercise of
reasonable care in the custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, Assignee shall have no
duty as to any Collateral or as to the taking of any necessary steps to preserve
rights against prior parties or any other rights pertaining to any Collateral.
Assignee shall be deemed to have exercised reasonable care in the custody and
preservation of Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which Assignee accords its own property.
SECTION 16. REMEDIES. If any Event of Default shall have occurred and
--------
be continuing:
(a) Assignee may exercise in respect of the Collateral, in addition to
all other rights and remedies provided for herein or otherwise available to it,
all the rights and
10
<PAGE>
remedies of a secured party on default under the Uniform Commercial Code as in
effect in any relevant jurisdiction (the "CODE") (whether or not the Code
applies to the affected Collateral), and also may (i) require Assignor to, and
Assignor hereby agrees that it will at its expense and upon request of Assignee
forthwith, assemble all or part of the Collateral as directed by Assignee and
make it available to Assignee at a place to be designated by Assignee that is
reasonably convenient to both parties, (ii) enter onto the property where any
Collateral is located and take possession thereof with or without judicial
process, (iii) prior to the disposition of the Collateral, store the Collateral
or otherwise prepare the Collateral for disposition in any manner to the extent
Assignee deems appropriate, (iv) take possession of Assignor's premises or place
custodians in exclusive control thereof, remain on such premises and use the
same for the purpose of taking any actions described in the preceding clause
(iii) and collecting any Secured Obligation, (v) exercise any and all rights and
remedies of Assignor under or in connection with the contracts related to the
Collateral or otherwise in respect of the Collateral, including without
limitation any and all rights of Assignor to demand or otherwise require payment
of any amount under, or performance of any provision of, such contracts, and
(vi) without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of Assignee's
offices or elsewhere, for cash, on credit or for future delivery, at such time
or times and at such price or prices and upon such other terms as Assignee may
deem commercially reasonable. Assignee or any Lender or any Interest Rate
Exchanger may be the purchaser of any or all of the Collateral at any such sale
and Assignee, as administrative agent for and representative of Lenders (but not
any Lender or Lenders in its or their respective individual capacities unless
Requisite Lenders shall otherwise agree in writing), shall be entitled, for the
purpose of bidding and making settlement or payment of the purchase price for
all or any portion of the Collateral sold at any such public sale, to use and
apply any of the Secured Obligations as a credit on account of the purchase
price for any Collateral payable by Assignee at such sale. Each purchaser at
any such sale shall hold the property sold absolutely free from any claim or
right on the part of Assignor, and Assignor hereby waives (to the extent
permitted by applicable law) all rights of redemption, stay and/or appraisal
which it now has or may at any time in the future have under any rule of law or
statute now existing or hereafter enacted. Assignor agrees that, to the extent
notice of sale shall be required by law, at least ten days' notice to Assignor
of the time and place of any public sale or the time after which any private
sale is to be made shall constitute reasonable notification. Assignee shall not
be obligated to make any sale of Collateral regardless of notice of sale having
been given. Assignee may adjourn any public or private sale from time to time
by announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned.
Assignor hereby waives any claims against Assignee arising by reason of the fact
that the price at which any Collateral may have been sold at such a private sale
was less than the price which might have been obtained at a public sale, even if
Assignee accepts the first offer received and does not offer such Collateral to
more than one offeree. If the proceeds of any sale or other disposition of the
Collateral are insufficient to pay all the Secured Obligations, Assignor shall
be liable for the deficiency and the fees of any attorneys employed by Assignee
to collect such deficiency.
11
<PAGE>
(b) Upon written demand from Assignee, Assignor shall execute and
deliver to Assignee an assignment or assignments of the Patents and such other
documents as are necessary or appropriate to carry out the intent and purposes
of this Agreement; provided that the failure of Assignor to comply with such
--------
demand will not impair or affect the validity of the conditional assignment
effected by Section 2 or its effectiveness upon notice by Assignee as specified
in Section 2. Assignor agrees that such an assignment (including without
limitation the conditional assignment effected by Section 2) and/or recording
shall be applied to reduce the Secured Obligations outstanding only to the
extent that Assignee (or any Lender or any Interest Rate Exchanger) receives
cash proceeds in respect of the sale of, or other realization upon, the
Collateral.
SECTION 17. APPLICATION OF PROCEEDS. All proceeds received by
-----------------------
Assignee in respect of any sale of, collection from, or other realization upon
all or any part of the Collateral shall be applied as provided in subsection
2.4D of the Credit Agreement.
SECTION 18. INDEMNITY AND EXPENSES.
----------------------
(a) Assignor agrees to indemnify Assignee and each Lender and Interest
Rate Exchanger from and against any and all claims, losses and liabilities in
any way relating to, growing out of or resulting from this Agreement and the
transactions contemplated hereby (including, without limitation, enforcement of
this Agreement), except to the extent such claims, losses or liabilities result
solely from Assignee's or such Lender's or such Interest Rate Exchanger's gross
negligence or willful misconduct as finally determined by a court of competent
jurisdiction.
(b) Assignor shall pay to Assignee upon demand the amount of any and
all reasonable out-of-pocket costs and expenses, including the reasonable fees
and expenses of its counsel and of any experts and agents, that Assignee may
incur in connection with (i) the administration of this Agreement, (ii) the
custody, preservation, use or operation of, or the sale of, collection from, or
other realization upon, any of the Collateral, (iii) the exercise or enforcement
of any of the rights of Assignee hereunder, or (iv) the failure by Assignor to
perform or observe any of the provisions hereof.
SECTION 19. CONTINUING ASSIGNMENT AND SECURITY INTEREST; TRANSFER OF
--------------------------------------------------------
LOANS. This Agreement shall create a continuing security interest in, and
- -----
conditional assignment of, the Collateral and shall (a) remain in full force and
effect until the payment in full of the Secured Obligations, the cancellation or
termination of the Commitments and the cancellation or expiration of all
outstanding Letters of Credit, (b) be binding upon Assignor, its successors and
assigns, and (c) inure, together with the rights and remedies of Assignee
hereunder, to the benefit of Assignee and its successors, transferees and
assigns. Without limiting the generality of the foregoing clause (c), but
subject to the provisions of subsection 10.1 of the Credit Agreement, any Lender
may assign or otherwise transfer any Loans held by it to any other Person, and
such other Person shall thereupon become vested with all the benefits in respect
thereof granted to Lenders herein or otherwise. Upon the payment in full of all
Secured Obligations, the cancellation or termination of the Commitments and the
cancellation or expiration of all outstanding Letters of Credit, the
12
<PAGE>
security interest and conditional assignment granted hereby shall terminate and
all rights to the Collateral shall revert to Assignor. Upon any such
termination Assignee will, at Assignor's expense, execute and deliver to
Assignor such documents as Assignor shall reasonably request to evidence such
termination.
SECTION 20. ASSIGNEE AS ADMINISTRATIVE AGENT.
--------------------------------
(a) Assignee has been appointed to act as Assignee hereunder by
Lenders and, by their acceptance of the benefits hereof, Interest Rate
Exchangers. Assignee shall be obligated, and shall have the right hereunder, to
make demands, to give notices, to exercise or refrain from exercising any
rights, and to take or refrain from taking any action (including the release or
substitution of Collateral), solely in accordance with this Agreement and the
Credit Agreement; provided that Assignee shall exercise, or refrain from
--------
exercising, any remedies provided for in Section 16 in accordance with the
instructions of (i) Requisite Lenders or (ii) after payment in full of all
Obligations under the Credit Agreement and the other Loan Documents, the holders
of a majority of the aggregate notional amount (or, with respect to any Lender
Interest Rate Agreement that has been terminated in accordance with its terms,
the amount then due and payable (exclusive of expenses and similar payments but
including any early termination payments then due) under such Lender Interest
Rate Agreement) under all Lender Interest Rate Agreements (Requisite Lenders or,
if applicable, such holders being referred to herein as "REQUISITE OBLIGEES").
In furtherance of the foregoing provisions of this Section 20(a), each Interest
Rate Exchanger, by its acceptance of the benefits hereof, agrees that it shall
have no right individually to realize upon any of the Collateral hereunder, it
being understood and agreed by such Interest Rate Exchanger that all rights and
remedies hereunder may be exercised solely by Assignee for the benefit of
Lenders and Interest Rate Exchangers in accordance with the terms of this
Section 20(a).
(b) Assignee shall at all times be the same Person that is
Administrative Agent under the Credit Agreement. Written notice of resignation
by Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall
also constitute notice of resignation as Assignee under this Agreement; removal
of Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall
also constitute removal as Assignee under this Agreement; and appointment of a
successor Administrative Agent pursuant to subsection 9.5 of the Credit
Agreement shall also constitute appointment of a successor Assignee under this
Agreement. Upon the acceptance of any appointment as Administrative Agent under
subsection 9.5 of the Credit Agreement by a successor Administrative Agent, that
successor Administrative Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring or removed
Assignee under this Agreement, and the retiring or removed Assignee under this
Agreement shall promptly (i) transfer to such successor Assignee all sums,
securities and other items of Collateral held hereunder, together with all
records and other documents necessary or appropriate in connection with the
performance of the duties of the successor Assignee under this Agreement, and
(ii) execute and deliver to such successor Assignee such amendments to financing
statements, and take such other actions, as may be necessary or appropriate in
connection with the assignment to such successor Assignee of the security
interests created hereunder, whereupon such retiring or removed Assignee shall
be discharged from its duties and obligations under this Agreement. After any
13
<PAGE>
retiring or removed Administrative Agent's resignation or removal hereunder as
Assignee, the provisions of this Agreement shall inure to its benefit as to any
actions taken or omitted to be taken by it under this Agreement while it was
Assignee hereunder.
SECTION 21. AMENDMENTS; ETC. No amendment, modification, termination
---------------
or waiver of any provision of this Agreement, and no consent to any departure by
Assignor therefrom, shall in any event be effective unless the same shall be in
writing and signed by Assignee and, in the case of any such amendment or
modification, by Assignor. Any such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which it was given.
SECTION 22. NOTICES. Any notice or other communication herein
-------
required or permitted to be given shall be given as provided in the Credit
Agreement. For the purposes hereof, the address of each party hereto shall be
as set forth under such party's name on the signature pages hereof or, as to
either party, such other address as shall be designated by such party in a
written notice delivered to the other party hereto.
SECTION 23. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
-----------------------------------------------------
failure or delay on the part of Assignee in the exercise of any power, right or
privilege hereunder shall impair such power, right or privilege or be construed
to be a waiver of any default or acquiescence therein, nor shall any single or
partial exercise of any such power, right or privilege preclude any other or
further exercise thereof or of any other power, right or privilege. All rights
and remedies existing under this Agreement are cumulative to, and not exclusive
of, any rights or remedies otherwise available.
SECTION 24. SEVERABILITY. In case any provision in or obligation
------------
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 25. HEADINGS. Section and subsection headings in this
--------
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given any
substantive effect.
SECTION 26. GOVERNING LAW; TERMS. THIS AGREEMENT AND THE RIGHTS AND
--------------------
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW
OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES,
EXCEPT TO THE EXTENT THAT THE CODE PROVIDES THAT THE VALIDITY OR PERFECTION OF
THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY
PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
STATE OF NEW YORK. Unless otherwise
14
<PAGE>
defined herein or in the Credit Agreement, terms used in Articles 8 and 9 of the
Uniform Commercial Code in the State of New York are used herein as therein
defined.
SECTION 27. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL
----------------------------------------------
JUDICIAL PROCEEDINGS BROUGHT AGAINST ASSIGNOR ARISING OUT OF OR RELATING TO THIS
AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION
IN THE STATE OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT
ASSIGNOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY
ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. Assignor
hereby agrees that service of all process in any such proceeding in any such
court may be made by registered or certified mail, return receipt requested, to
Assignor at its address provided in Section 22, such service being hereby
acknowledged by Assignor to be sufficient for personal jurisdiction in any
action against Assignor in any such court and to be otherwise effective and
binding service in every respect. Nothing herein shall affect the right to
serve process in any other manner permitted by law or shall limit the right of
Assignee to bring proceedings against Assignor in the courts of any other
jurisdiction.
SECTION 28. WAIVER OF JURY TRIAL. ASSIGNOR AND ASSIGNEE HEREBY AGREE
--------------------
TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this waiver is
intended to be all-encompassing of any and all disputes that may be filed in any
court and that relate to the subject matter of this transaction, including
without limitation contract claims, tort claims, breach of duty claims, and all
other common law and statutory claims. Assignor and Assignee each acknowledge
that this waiver is a material inducement for Assignor and Assignee to enter
into a business relationship, that Assignor and Assignee have already relied on
this waiver in entering into this Agreement and that each will continue to rely
on this waiver in their related future dealings. Assignor and Assignee further
warrant and represent that each has reviewed this waiver with its legal counsel,
and that each knowingly and voluntarily waives its jury trial rights following
consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT
MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO
ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT. In the event of litigation, this Agreement may be filed as a written
consent to a trial by the court.
SECTION 29. COUNTERPARTS. This Agreement may be executed in one or
------------
more counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
15
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[Remainder of page intentionally left blank]
16
<PAGE>
IN WITNESS WHEREOF, Assignor and Assignee have caused this Agreement
to be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
EMPIRE CANDLE, INC.,
as Assignor
By: __________________________
Name: __________________________
Title: __________________________
Notice Address:
1800 Cloquet Avenue
Cloquet, MN 55720-2141
Attention: Tom Knuesel
WELLS FARGO BANK, N.A.,
as Administrative Agent
By: __________________________
Name: __________________________
Title: __________________________
Notice Address:
555 Montgomery Street, 17th Floor
San Francisco, CA 94111
Attention: Alan Wray
S-1
<PAGE>
SCHEDULE A
TO PATENT COLLATERAL ASSIGNMENT
AND SECURITY AGREEMENT
PATENTS ISSUED
--------------
Patent No. Issue Date Invention Inventor
- ---------- ---------- --------- --------
PATENTS PENDING
---------------
Applicant's Date Application
Name Filed No. Invention Inventor
----------- ----- ----------- --------- --------
<PAGE>
STATE OF CALIFORNIA )
) SS.:
COUNTY OF ____________ )
On ___________, 19___, before me, ____________________, a Notary Public
in and for said State, personally appeared __________________________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
Signature ________________________________ (Seal)
<PAGE>
SUBSIDIARY PATENT COLLATERAL ASSIGNMENT
AND SECURITY AGREEMENT
This SUBSIDIARY PATENT COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT
(this "AGREEMENT") is dated as of April 21, 1998 and entered into by and between
FORSTER INC., a Maine corporation ("ASSIGNOR"), and WELLS FARGO BANK, N.A., as
administrative agent for and representative of (in such capacity herein called
"ASSIGNEE") the financial institutions ("LENDERS") party to the Credit Agreement
referred to below and any Interest Rate Exchangers (as hereinafter defined).
PRELIMINARY STATEMENTS
A. Assignee and Lenders have entered into a Credit Agreement dated
as of April 21, 1998 with Diamond Brands Operating Corp., a Delaware corporation
("COMPANY"), DLJ Capital Funding, Inc., as Syndication Agent, and Morgan Stanley
Senior Funding Inc., as Documentation Agent (said Credit Agreement, as it may
hereafter be amended, supplemented or otherwise modified from time to time,
being the "CREDIT AGREEMENT", the terms defined therein and not otherwise
defined herein being used herein as therein defined), pursuant to which Lenders
have made certain commitments, subject to the terms and conditions set forth in
the Credit Agreement, to extend certain credit facilities to Company.
B. Company may from time to time enter, or may from time to time
have entered, into one or more Interest Rate Agreements (collectively, the
"LENDER INTEREST RATE AGREEMENTS") with one or more Lenders (in such capacity,
collectively, "INTEREST RATE EXCHANGERS").
C. Assignor has executed and delivered the Subsidiary Guaranty dated
as of April 21, 1998 (said Subsidiary Guaranty, as it may hereafter be amended,
supplemented or otherwise modified from time to time, being the "SUBSIDIARY
GUARANTY") in favor of Assignee for the benefit of Lenders and Interest Rate
Exchangers pursuant to which Assignor has guarantied the prompt payment and
performance when due of all Obligations of the Company under the Credit
Agreement and under any Lender Interest Rate Agreements.
D. Assignor has and may in the future have rights, title and
interests in and to various Patents and other related Collateral (as such terms
are hereinafter defined).
E. Assignor is willing to grant to Assignee (i) a security interest
in all such Collateral for the purpose of securing the complete and timely
satisfaction of all of the Secured Obligations (as hereinafter defined) and (ii)
effective upon the occurrence and during the continuation of an Event of
Default, an assignment of Assignor's entire rights, title and interest in and to
all such Collateral.
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<PAGE>
F. It is a condition precedent to the initial extensions of credit
by Lenders under the Credit Agreement that Assignor shall have granted the
security interests and made the conditional assignment and undertaken the
obligations contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to
induce Lenders to make Loans and other extensions of credit under the Credit
Agreement and to induce Interest Rate Exchangers to enter into Lender Interest
Rate Agreements and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Assignor hereby agrees with Assignee
as follows:
SECTION 1. GRANT OF SECURITY. Assignor hereby assigns to Assignee,
-----------------
and hereby grants to Assignee a security interest in, all of Assignor's right,
title and interest in and to the following, in each case whether now or
hereafter existing or in which Assignor now has or hereafter acquires an
interest and wherever the same may be located (the "COLLATERAL"):
(a) all patents and patent applications and rights and interests in
patents and patent applications under any domestic law that are presently, or in
the future may be, owned by Assignor and all patents and patent applications and
rights and interests in patents and patent applications under any domestic law
that are presently, or in the future may be, held or used by Assignor in whole
or in part (including, without limitation, the patents and patent applications
listed in Schedule A annexed hereto, as the same may be amended pursuant hereto
----------
from time to time), all rights (but not obligations) corresponding thereto
(including without limitation the right (but not the obligation) to sue for
past, present and future infringements in the name of Assignor or in the name of
Assignee or Lenders or Interest Rate Exchangers), and all re-issues, divisions,
continuations, renewals, extensions and continuations-in-part thereof (all of
the foregoing being collectively referred to as the "PATENTS"); it being
understood that the rights and interest assigned hereby shall include, without
limitation, all rights and interests pursuant to licensing or other contracts in
favor of Assignor pertaining to patent applications and patents presently or in
the future owned or used by third parties but, in the case of third parties
which are not Affiliates of Assignor, only to the extent permitted by such
licensing or other contracts and, if not so permitted, only with the consent of
such third parties;
(b) all general intangibles relating to the Patents;
(c) all books, records, ledger cards, files, correspondence, computer
programs, tapes, disks and related data processing software that at any time
evidence or contain information relating to any of the Collateral or are
otherwise necessary or helpful in the collection thereof or realization
thereupon; and
(d) all proceeds, products, rents and profits (including without
limitation license royalties and proceeds of infringement suits) of or from any
and all of the foregoing Collateral and, to the extent not otherwise included,
all payments under insurance (whether or not Assignee is the loss payee
thereof), or any indemnity, warranty or guaranty, payable by reason of loss or
damage to or otherwise with respect to any of the foregoing Collateral.
2
<PAGE>
For purposes of this Agreement, the term "PROCEEDS" includes whatever is
receivable or received when Collateral or proceeds are sold, exchanged,
collected or otherwise disposed of, whether such disposition is voluntary or
involuntary.
SECTION 2. CONDITIONAL ASSIGNMENT. In addition to, and not by way
----------------------
of limitation of, the granting of a security interest in the Collateral pursuant
to Section 1, Assignor hereby, effective upon the occurrence of an Event of
Default and upon written notice from Assignee, grants, sells, conveys,
transfers, assigns and sets over to Assignee, for its benefit and the ratable
benefit of Lenders and Interest Rate Exchangers, all of Assignor's right, title
and interest in and to the Collateral, including without limitation Assignor's
right, title and interest in and to the Patents identified in Schedule A annexed
----------
hereto.
SECTION 3. SECURITY FOR OBLIGATIONS. This Agreement secures, and
------------------------
the Collateral is collateral security for, the prompt payment or performance in
full when due, whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise (including the payment of amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code, 11 U.S.C. (S)362(a)), of all obligations and liabilities of
every nature of Assignor now or hereafter existing under or arising out of or in
connection with the Subsidiary Guaranty, the other Loan Documents and the Lender
Interest Rate Agreements and all extensions or renewals thereof, whether for
principal, interest (including without limitation interest that, but for the
filing of a petition in bankruptcy with respect to Assignor, would accrue on
such obligations), reimbursement of amounts drawn under Letters of Credit,
payments for early termination of Lender Interest Rate Agreements, fees,
expenses, indemnities or otherwise, whether voluntary or involuntary, direct or
indirect, absolute or contingent, liquidated or unliquidated, whether or not
jointly owed with others, and whether or not from time to time decreased or
extinguished and later increased, created or incurred, and all or any portion of
such obligations or liabilities that are paid, to the extent all or any part of
such payment is avoided or recovered directly or indirectly from Assignee or any
Lender or Interest Rate Exchanger as a preference, fraudulent transfer or
otherwise (all such obligations and liabilities being the "UNDERLYING DEBT"),
and all obligations of every nature of Assignor now or hereafter existing under
this Agreement (all such obligations of Assignor, together with the Underlying
Debt, being the "SECURED OBLIGATIONS").
SECTION 4. ASSIGNOR REMAINS LIABLE. Anything contained herein to
-----------------------
the contrary notwithstanding, (a) Assignor shall remain liable under any
contracts and agreements included in the Collateral, to the extent set forth
therein, to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by Assignee
of any of its rights hereunder shall not release Assignor from any of its duties
or obligations under the contracts and agreements included in the Collateral,
and (c) Assignee shall not have any obligation or liability under any contracts
and agreements included in the Collateral by reason of this Agreement, nor shall
Assignee be obligated to perform any of the obligations or duties of Assignor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.
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<PAGE>
SECTION 5. REPRESENTATIONS AND WARRANTIES. Assignor represents and
------------------------------
warrants as follows:
(a) Description of Collateral. A true and complete list of all
-------------------------
Patents owned, held (whether pursuant to a license or otherwise) or used by
Assignor, in whole or in part, as of the date of this Agreement is set forth in
Schedule A annexed hereto.
- ----------
(b) Validity and Enforceability of Collateral. Each Patent that is
-----------------------------------------
material to Assignor's business is valid, subsisting and enforceable and
Assignor is not aware of any pending or threatened claim by any third party that
any such material Patent is invalid or unenforceable or that the use of any such
material Patent violates the rights of any third person or of any basis for any
such claim.
(c) Ownership of Collateral. Except for the security interest and
-----------------------
conditional assignment created by this Agreement, Assignor owns each material
Patent free and clear of any Lien. Except such as may have been filed in favor
of Assignee relating to this Agreement and of Foothill Capital Corporation (a
release of which has been delivered to Administrative Agent), (i) no effective
financing statement or other instrument similar in effect covering all or any
part of the Collateral is on file in any filing or recording office and (ii) no
effective filing covering all or any part of the Collateral is on file in the
United States Patent and Trademark Office.
(d) Office Locations; Other Names. The chief place of business, the
-----------------------------
chief executive office and the office where Assignor keeps its records regarding
the Collateral is, and has been for the four month period preceding the date
hereof, located at Mill Street, East Wilton, Maine 04234. Assignor has not in
the past done, and does not now do, business under any other name (including any
trade-name or fictitious business name).
(e) Governmental Authorizations. No authorization, approval or other
---------------------------
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for either (i) the grant by Assignor of the security
interest and conditional assignment granted hereby, (ii) the execution, delivery
or performance of this Agreement by Assignor, or (iii) the perfection of or the
exercise by Assignee of its rights and remedies hereunder (except as may have
been taken by or at the direction of Assignor).
(f) Perfection. This Agreement, together with the filing of a
----------
financing statement describing the Collateral with the Secretary of State of the
State of Maine and Nevada and the recording of this Agreement with the United
States Patent and Trademark Office, which will be made, creates a valid,
perfected and first priority security interest in the Collateral, securing the
payment of the Secured Obligations, and all filings and other actions necessary
or desirable to perfect and protect such security interest have been or will be
duly made or taken.
(g) Other Information. All information heretofore, herein or
-----------------
hereafter supplied to Assignee by or on behalf of Assignor with respect to the
Collateral is accurate and complete in all material respects.
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<PAGE>
SECTION 6. FURTHER ASSURANCES; NEW PATENTS AND PATENT APPLICATIONS.
-------------------------------------------------------
(a) Assignor agrees that from time to time, at the expense of
Assignor, Assignor will promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or desirable, or
that Assignee may request, in order to perfect and protect any security interest
or conditional assignment granted or purported to be granted hereby or to enable
Assignee to exercise and enforce its rights and remedies hereunder with respect
to any Collateral. Without limiting the generality of the foregoing, Assignor
will: (i) at the request of Assignee, mark conspicuously each of its records
pertaining to the Collateral with a legend, in form and substance satisfactory
to Assignee, indicating that such Collateral is subject to the security interest
granted hereby, (ii) execute and file such financing or continuation statements,
or amendments thereto, and such other instruments or notices, as may be
necessary or desirable, or as Assignee may request, in order to perfect and
preserve the security interests granted or purported to be granted hereby, (iii)
use its best efforts to obtain any necessary consents of third parties to the
grant and perfection of a security interest and assignment to Assignee with
respect to any Collateral, (iv) subject to the terms of the Credit Agreement, at
any reasonable time and upon request by Assignee, exhibit the Collateral to and
allow inspection of the Collateral by Assignee, or persons designated by
Assignee, and (v) at Assignee's request, appear in and defend any action or
proceeding that may affect Assignor's title to or Assignee's security interest
in all or any part of the Collateral.
(b) Assignor hereby authorizes Assignee to file one or more financing
or continuation statements, and amendments thereto, relative to all or any part
of the Collateral without the signature of Assignor. Assignor agrees that a
carbon, photographic or other reproduction of this Agreement or of a financing
statement signed by Assignor shall be sufficient as a financing statement and
may be filed as a financing statement in any and all jurisdictions.
(c) Assignor hereby authorizes Assignee to modify this Agreement
without obtaining Assignor's approval of or signature to such modification by
amending Schedule A annexed hereto to include reference to any right, title or
----------
interest in any existing Patent or any Patent acquired or developed by Assignor
after the execution hereof or to delete any refer ence to any right, title or
interest in any Patent in which Assignor no longer has or claims any right,
title or interest.
(d) Assignor will furnish to Assignee from time to time statements
and schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as Assignee may reasonably request,
all in reasonable detail.
(e) If Assignor shall hereafter obtain rights to any patentable
inventions, or become entitled to the benefit of any patent application or
patent or any reissue, division, continuation, renewal, extension, or
continuation-in-part of any Patent or any improvement on any Patent, the
provisions of this Agreement shall automatically apply thereto. Assignor shall
promptly notify Assignee in writing of any of the foregoing rights or benefits
acquired by Assignor after the date hereof. Concurrently with the filing of an
application for any
5
<PAGE>
Patent, Assignor shall execute, deliver and record in all places where this
Agreement is recorded an appropriate Subsidiary Patent Collateral Assignment and
Security Agreement, substantially in the form hereof, with appropriate
insertions, or an amendment to this Agreement, in form and substance
satisfactory to Assignee, pursuant to which Assignor shall grant a security
interest and conditional assignment to the extent of its interest in such Patent
as provided herein to Assignee unless so doing would, in the reasonable judgment
of Assignor, after due inquiry, result in the grant of a patent in the name of
Assignee, in which event Assignor shall give written notice to Assignee as soon
as reasonably practicable and the filing shall instead be undertaken as soon as
practicable but in no case later than immediately following the grant of the
Patent.
SECTION 7. CERTAIN COVENANTS OF ASSIGNOR. Assignor shall:
-----------------------------
(a) not use or permit any Collateral to be used unlawfully or in
violation of any provision of this Agreement or any applicable statute,
regulation or ordinance or any policy of insurance covering the Collateral;
(b) notify Assignee of any change in Assignor's name, identity or
corporate structure within 15 days of such change;
(c) give Assignee 30 days' prior written notice of any change in
Assignor's chief place of business or chief executive office or the office where
Assignor keeps its records regarding the Collateral;
(d) pay promptly when due all property and other taxes, assessments
and governmental charges or levies imposed upon, and all claims (including
claims for labor, materials and supplies) against, the Collateral, except to the
extent permitted under the Credit Agreement;
(e) not sell, assign (by operation of law or otherwise) or otherwise
dispose of any of the Collateral, except as permitted by the Credit Agreement;
(f) except for the security interest and conditional assignment
created by this Agreement, not create or suffer to exist any Lien upon or with
respect to any of the Collateral to secure the indebtedness or other obligations
of any Person;
(g) diligently keep reasonable records respecting the Collateral and
at all times keep at least one complete set of its records concerning
substantially all of the Patents at its chief executive office or principal
place of business;
(h) not permit the inclusion in any contract to which it becomes a
party of any provision that could or might in any way impair or prevent the
creation of a security interest in, or the assignment of, Assignor's rights and
interests in any property included within the definition of any Patents acquired
under such contracts;
6
<PAGE>
(i) take all steps necessary to protect the secrecy of all trade
secrets relating to the products and services sold or delivered under or in
connection with the Patents, including without limitation entering into
confidentiality agreements with employees and labeling and restricting access to
secret information and documents;
(j) use proper statutory notice in connection with its use of each
material Patent;
(k) use consistent standards of high quality (which may be consistent
with Assignor's past practices) in the manufacture, sale and delivery of
products and services sold or delivered under or in connection with the Patents,
including, to the extent applicable, in the operation and maintenance of its
retail stores and other merchandising operations; and
(l) upon any officer of Assignor obtaining knowledge thereof,
promptly notify Assignee in writing of any event that may materially and
adversely affect the value of the Collateral or any portion thereof, the ability
of Assignor or Assignee to dispose of the Collateral or any portion thereof, or
the rights and remedies of Assignee in relation thereto, including without
limitation the levy of any legal process against the Collateral or any portion
thereof.
SECTION 8. CERTAIN INSPECTION RIGHTS. Subject to the terms of the
-------------------------
Credit Agreement, Assignor hereby grants to Assignee and any and all of its
employees, representatives and agents the right to visit Assignor's and any of
its Affiliate's or subcontractor's plants, facilities and other places of
business that are utilized in connection with the manufacture, production,
inspection, storage or sale of products and services sold or delivered under any
of the Patents (or which were so utilized during the prior six month period),
and to inspect the quality control and all other records relating thereto upon
reasonable notice to Assignor and as often as may be reasonably requested.
SECTION 9. AMOUNTS PAYABLE IN RESPECT OF THE COLLATERAL. Except as
--------------------------------------------
otherwise provided in this Section 9, Assignor shall continue to collect, at its
own expense, all amounts due or to become due to Assignor in respect of the
Collateral or any portion thereof. In connection with such collections, Assignor
may take (and, at Assignee's direction, shall take) such action as Assignor or
Assignee may deem necessary or advisable to enforce collection of such amounts;
provided, however, that Assignee shall have the right at any time, upon the
- -------- -------
occurrence and during the continuation of an Event of Default and upon written
notice to Assignor of its intention to do so, to notify the obligors with
respect to any such amounts of the existence of the security interest created,
and the conditional assignment effected hereby, and to direct such obligors to
make payment of all such amounts directly to Assignee, and, upon such
notification and at the expense of Assignor, to enforce collection of any such
amounts and to adjust, settle or compromise the amount or payment thereof, in
the same manner and to the same extent as Assignor might have done. After
receipt by Assignor of the notice from Assignee referred to in the proviso to
-------
the preceding sentence, (i) all amounts and proceeds (including checks and other
instruments) received by Assignor in respect of amounts due to Assignor in
respect of the Collateral or any portion thereof shall be received in trust for
the benefit of Assignee hereunder, shall be segregated from other
7
<PAGE>
funds of Assignor and shall be forthwith paid over or delivered to Assignee in
the same form as so received (with any necessary endorsement) to be held as cash
Collateral and applied as provided by Section 17, and (ii) Assignor shall not
adjust, settle or compromise the amount or payment of any such amount or release
wholly or partly any obligor with respect thereto or allow any credit or
discount thereon.
SECTION 10. PATENT APPLICATIONS AND LITIGATION.
----------------------------------
(a) Assignor shall have the duty diligently to prosecute any patent
application relating to any of the Patents specifically identified in Schedule A
----------
annexed hereto that is pending as of the date of this Agreement, to make
application on any existing or future unpatented but patentable invention that
is material to Assignor's business, and to do any and all acts which are
necessary or desirable to preserve and maintain all rights in all material
Patents. Any expenses incurred in connection therewith shall be borne solely by
Assignor. Assignor shall not abandon any right to file a patent application or
any pending patent application or any material Patent without the prior written
consent of Assignee.
(b) Except as provided in Section 10(d) and notwithstanding Section
2, Assignor shall have the right to commence and prosecute in its own name, as
real party in interest, for its own benefit and at its own expense, such suits,
proceedings or other actions for infringement, unfair competition, or other
damage or reexamination or reissue proceedings as are in its reasonable business
judgment necessary to protect the Collateral. Assignee shall provide, at
Assignor's expense, all reasonable and necessary cooperation in connection with
any such suit, proceeding or action including, without limitation, joining as a
necessary party.
(c) Assignor shall promptly, following its becoming aware thereof,
notify Assignee of the institution of, or of any adverse determination in, any
proceeding (whether in the United States Patent and Trademark Office or any
federal, state, local or foreign court) described in Section 10(a) or 10(b) or
regarding Assignor's interests in any material Collateral. Assignor shall
provide to Assignee any information with respect thereto requested by Assignee.
(d) Anything contained herein to the contrary notwithstanding, upon
the occurrence and during the continuation of an Event of Default, Assignee
shall have the right (but not the obligation) to bring suit, in the name of
Assignor, Assignee or otherwise, to enforce any Patent and any license
thereunder, in which event Assignor shall, at the request of Assignee, do any
and all lawful acts and execute any and all documents required by Assignee in
aid of such enforcement and Assignor shall promptly, upon demand, reimburse and
indemnify Assignee as provided in Section 18 in connection with the exercise of
its rights under this Section 10. To the extent that Assignee shall elect not to
bring suit to enforce any Patent or any license thereunder as provided in this
Section 10(d), Assignor agrees to use all reasonable measures, whether by
action, suit, proceeding or otherwise, to prevent the infringement of any of the
Patents by others and for that purpose agrees to diligently maintain any action,
suit or proceeding against any Person so infringing necessary to prevent such
infringement.
8
<PAGE>
SECTION 11. NON-DISTURBANCE AGREEMENTS, ETC. If and to the extent
-------------------------------
that Assignor is permitted to license the Collateral, Assignee shall enter into
a non-disturbance agreement or other similar arrangement, at Assignor's request
and expense, with Assignor and any licensee of any Collateral permitted
hereunder in form and substance satisfactory to Assignee pursuant to which (a)
Assignee shall agree not to disturb or interfere with such licensee's rights
under its license agreement with Assignor so long as such licensee is not in
default thereunder and (b) such licensee shall acknowledge and agree that the
Collateral licensed to it is subject to the security interest and conditional
assignment created in favor of Assignee and the other terms of this Agreement.
SECTION 12. REASSIGNMENT OF COLLATERAL. If (a) an Event of Default
--------------------------
shall have occurred and, by reason of cure, waiver, modification, amendment or
otherwise, no longer be continuing, (b) no other Event of Default shall have
occurred and be continuing, (c) an assignment to Assignee of any rights, title
and interests in and to the Collateral shall have been previously made and shall
have become absolute and effective pursuant to Section 2, Section 13(f) or
Section 16(b), and (d) the Secured Obligations shall not have become immediately
due and payable, upon the written request of Assignor and the written consent of
Assignee, Assignee shall promptly execute and deliver to Assignor such
assignments as may be necessary to reassign to Assignor any such rights, title
and interests as may have been assigned to Assignee as aforesaid, subject to any
disposition thereof that may have been made by Assignee pursuant hereto;
provided that, after giving effect to such reassignment, Assignee's security
- --------
interest and conditional assignment granted pursuant to Section 1 and Section 2,
as well as all other rights and remedies of Assignee granted hereunder, shall
continue to be in full force and effect; and provided, further that the rights,
-------- -------
title and interests so reassigned shall be free and clear of all Liens other
than Liens (if any) encumbering such rights, title and interest at the time of
their assignment to Assignee and Permitted Liens.
SECTION 13. ASSIGNEE APPOINTED ATTORNEY-IN-FACT. Assignor hereby
-----------------------------------
irrevocably appoints Assignee as Assignor's attorney-in-fact, with full
authority in the place and stead of Assignor and in the name of Assignor,
Assignee or otherwise, from time to time in Assignee's discretion to take any
action and to execute any instrument that Assignee may deem necessary or
advisable to accomplish the purposes of this Agreement, including without
limitation:
(a) while an Event of Default exists, to endorse Assignor's name on
all applications, documents, papers and instruments necessary for Assignee in
the use or maintenance of the Collateral;
(b) while an Event of Default exists, to ask for, demand, collect,
sue for, recover, compound, receive and give acquittance and receipts for moneys
due and to become due under or in respect of any of the Collateral;
(c) while an Event of Default exists, to receive, endorse and collect
any drafts or other instruments, documents and chattel paper in connection with
clause (b) above;
9
<PAGE>
(d) while an Event of Default exists, to file any claims or take any
action or institute any proceedings that Assignee may deem necessary or
desirable for the collection of any of the Collateral or otherwise to enforce
the rights of Assignee with respect to any of the Collateral;
(e) while an Event of Default exists, to pay or discharge taxes or
Liens (other than Liens permitted under this Agreement or the Credit Agreement)
levied or placed upon or threatened against the Collateral, the legality or
validity thereof and the amounts necessary to discharge the same to be
determined by Assignee in its sole discretion, any such payments made by
Assignee to become obligations of Assignor to Assignee, due and payable
immediately without demand; and
(f) upon the occurrence and during the continuation of an Event of
Default, (i) to execute and deliver any of the assignments or documents
requested by Assignee pursuant to Section 16(b), (ii) to grant or issue an
exclusive or non-exclusive license to the Collateral or any portion thereof to
any Person, and (iii) otherwise generally to sell, transfer, pledge, make any
agreement with respect to or otherwise deal with any of the Collateral as fully
and completely as though Assignee were the absolute owner thereof for all
purposes, and to do, at Assignee's option and Assignor's expense, at any time or
from time to time, all acts and things that Assignee deems necessary to protect,
preserve or realize upon the Collateral and Assignee's security interest therein
in order to effect the intent of this Agreement, all as fully and effectively as
Assignor might do.
SECTION 14. ASSIGNEE MAY PERFORM. If Assignor fails to perform any
--------------------
agreement contained herein, Assignee may itself perform, or cause performance
of, such agreement, and the expenses of Assignee incurred in connection
therewith shall be payable by Assignor under Section 18.
SECTION 15. STANDARD OF CARE. The powers conferred on Assignee
----------------
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the exercise of
reasonable care in the custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, Assignee shall have no
duty as to any Collateral or as to the taking of any necessary steps to preserve
rights against prior parties or any other rights pertaining to any Collateral.
Assignee shall be deemed to have exercised reasonable care in the custody and
preservation of Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which Assignee accords its own property.
SECTION 16. REMEDIES. If any Event of Default shall have occurred
--------
and be continuing:
(a) Assignee may exercise in respect of the Collateral, in addition
to all other rights and remedies provided for herein or otherwise available to
it, all the rights and remedies of a secured party on default under the Uniform
Commercial Code as in effect in any relevant jurisdiction (the "CODE") (whether
or not the Code applies to the affected Collateral), and also may (i) require
Assignor to, and Assignor hereby agrees that it will at
10
<PAGE>
its expense and upon request of Assignee forthwith, assemble all or part of the
Collateral as directed by Assignee and make it available to Assignee at a place
to be designated by Assignee that is reasonably convenient to both parties, (ii)
enter onto the property where any Collateral is located and take possession
thereof with or without judicial process, (iii) prior to the disposition of the
Collateral, store the Collateral or otherwise prepare the Collateral for
disposition in any manner to the extent Assignee deems appropriate, (iv) take
possession of Assignor's premises or place custodians in exclusive control
thereof, remain on such premises and use the same for the purpose of taking any
actions described in the preceding clause (iii) and collecting any Secured
Obligation, (v) exercise any and all rights and remedies of Assignor under or in
connection with the contracts related to the Collateral or otherwise in respect
of the Collateral, including without limitation any and all rights of Assignor
to demand or otherwise require payment of any amount under, or performance of
any provision of, such contracts, and (vi) without notice except as specified
below, sell the Collateral or any part thereof in one or more parcels at public
or private sale, at any of Assignee's offices or elsewhere, for cash, on credit
or for future delivery, at such time or times and at such price or prices and
upon such other terms as Assignee may deem commercially reasonable. Assignee or
any Lender or any Interest Rate Exchanger may be the purchaser of any or all of
the Collateral at any such sale and Assignee, as administrative agent for and
representative of Lenders (but not any Lender or Lenders in its or their
respective individual capacities unless Requisite Lenders shall otherwise agree
in writing), shall be entitled, for the purpose of bidding and making settlement
or payment of the purchase price for all or any portion of the Collateral sold
at any such public sale, to use and apply any of the Secured Obligations as a
credit on account of the purchase price for any Collateral payable by Assignee
at such sale. Each purchaser at any such sale shall hold the property sold
absolutely free from any claim or right on the part of Assignor, and Assignor
hereby waives (to the extent permitted by applicable law) all rights of
redemption, stay and/or appraisal which it now has or may at any time in the
future have under any rule of law or statute now existing or hereafter enacted.
Assignor agrees that, to the extent notice of sale shall be required by law, at
least ten days' notice to Assignor of the time and place of any public sale or
the time after which any private sale is to be made shall constitute reasonable
notification. Assignee shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. Assignee may adjourn any public
or private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned. Assignor hereby waives any claims against
Assignee arising by reason of the fact that the price at which any Collateral
may have been sold at such a private sale was less than the price which might
have been obtained at a public sale, even if Assignee accepts the first offer
received and does not offer such Collateral to more than one offeree. If the
proceeds of any sale or other disposition of the Collateral are insufficient to
pay all the Secured Obligations, Assignor shall be liable for the deficiency and
the fees of any attorneys employed by Assignee to collect such deficiency.
(b) Upon written demand from Assignee, Assignor shall execute and
deliver to Assignee an assignment or assignments of the Patents and such other
documents as are necessary or appropriate to carry out the intent and purposes
of this Agreement; provided that the failure of Assignor to comply with such
--------
demand will not impair or affect the validity of
11
<PAGE>
the conditional assignment effected by Section 2 or its effectiveness upon
notice by Assignee as specified in Section 2. Assignor agrees that such an
assignment (including without limitation the conditional assignment effected by
Section 2) and/or recording shall be applied to reduce the Secured Obligations
outstanding only to the extent that Assignee (or any Lender or any Interest Rate
Exchanger) receives cash proceeds in respect of the sale of, or other
realization upon, the Collateral.
SECTION 17. APPLICATION OF PROCEEDS. All proceeds received by
-----------------------
Assignee in respect of any sale of, collection from, or other realization upon
all or any part of the Collateral shall be applied as provided in subsection
2.4D of the Credit Agreement.
SECTION 18. INDEMNITY AND EXPENSES.
----------------------
(a) Assignor agrees to indemnify Assignee and each Lender and
Interest Rate Exchanger from and against any and all claims, losses and
liabilities in any way relating to, growing out of or resulting from this
Agreement and the transactions contemplated hereby (including, without
limitation, enforcement of this Agreement), except to the extent such claims,
losses or liabilities result solely from Assignee's or such Lender's or such
Interest Rate Exchanger's gross negligence or willful misconduct as finally
determined by a court of competent jurisdiction.
(b) Assignor shall pay to Assignee upon demand the amount of any and
all reasonable out-of-pocket costs and expenses, including the reasonable fees
and expenses of its counsel and of any experts and agents, that Assignee may
incur in connection with (i) the administration of this Agreement, (ii) the
custody, preservation, use or operation of, or the sale of, collection from, or
other realization upon, any of the Collateral, (iii) the exercise or enforcement
of any of the rights of Assignee hereunder, or (iv) the failure by Assignor to
perform or observe any of the provisions hereof.
SECTION 19. CONTINUING ASSIGNMENT AND SECURITY INTEREST; TRANSFER OF
--------------------------------------------------------
LOANS. This Agreement shall create a continuing security interest in, and
- -----
conditional assignment of, the Collateral and shall (a) remain in full force and
effect until the payment in full of the Secured Obligations, the cancellation or
termination of the Commitments and the cancellation or expiration of all
outstanding Letters of Credit, (b) be binding upon Assignor, its successors and
assigns, and (c) inure, together with the rights and remedies of Assignee
hereunder, to the benefit of Assignee and its successors, transferees and
assigns. Without limiting the generality of the foregoing clause (c), but
subject to the provisions of subsection 10.1 of the Credit Agreement, any Lender
may assign or otherwise transfer any Loans held by it to any other Person, and
such other Person shall thereupon become vested with all the benefits in respect
thereof granted to Lenders herein or otherwise. Upon the payment in full of all
Secured Obligations, the cancellation or termination of the Commitments and the
cancellation or expiration of all outstanding Letters of Credit, the security
interest and conditional assignment granted hereby shall terminate and all
rights to the Collateral shall revert to Assignor. Upon any such termination
Assignee will, at Assignor's expense, execute and deliver to Assignor such
documents as Assignor shall reasonably request to evidence such termination.
12
<PAGE>
SECTION 20. ASSIGNEE AS ADMINISTRATIVE AGENT.
--------------------------------
(a) Assignee has been appointed to act as Assignee hereunder by
Lenders and, by their acceptance of the benefits hereof, Interest Rate
Exchangers. Assignee shall be obligated, and shall have the right hereunder, to
make demands, to give notices, to exercise or refrain from exercising any
rights, and to take or refrain from taking any action (including the release or
substitution of Collateral), solely in accordance with this Agreement and the
Credit Agreement; provided that Assignee shall exercise, or refrain from
--------
exercising, any remedies provided for in Section 16 in accordance with the
instructions of (i) Requisite Lenders or (ii) after payment in full of all
Obligations under the Credit Agreement and the other Loan Documents, the holders
of a majority of the aggregate notional amount (or, with respect to any Lender
Interest Rate Agreement that has been terminated in accordance with its terms,
the amount then due and payable (exclusive of expenses and similar payments but
including any early termination payments then due) under such Lender Interest
Rate Agreement) under all Lender Interest Rate Agreements (Requisite Lenders or,
if applicable, such holders being referred to herein as "REQUISITE OBLIGEES").
In furtherance of the foregoing provisions of this Section 20(a), each Interest
Rate Exchanger, by its acceptance of the benefits hereof, agrees that it shall
have no right individually to realize upon any of the Collateral hereunder, it
being understood and agreed by such Interest Rate Exchanger that all rights and
remedies hereunder may be exercised solely by Assignee for the benefit of
Lenders and Interest Rate Exchangers in accordance with the terms of this
Section 20(a).
(b) Assignee shall at all times be the same Person that is
Administrative Agent under the Credit Agreement. Written notice of resignation
by Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall
also constitute notice of resignation as Assignee under this Agreement; removal
of Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall
also constitute removal as Assignee under this Agreement; and appointment of a
successor Administrative Agent pursuant to subsection 9.5 of the Credit
Agreement shall also constitute appointment of a successor Assignee under this
Agreement. Upon the acceptance of any appointment as Administrative Agent under
subsection 9.5 of the Credit Agreement by a successor Administrative Agent, that
successor Administrative Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring or removed
Assignee under this Agreement, and the retiring or removed Assignee under this
Agreement shall promptly (i) transfer to such successor Assignee all sums,
securities and other items of Collateral held hereunder, together with all
records and other documents necessary or appropriate in connection with the
performance of the duties of the successor Assignee under this Agreement, and
(ii) execute and deliver to such successor Assignee such amendments to financing
statements, and take such other actions, as may be necessary or appropriate in
connection with the assignment to such successor Assignee of the security
interests created hereunder, whereupon such retiring or removed Assignee shall
be discharged from its duties and obligations under this Agreement. After any
retiring or removed Administrative Agent's resignation or removal hereunder as
Assignee, the provisions of this Agreement shall inure to its benefit as to any
actions taken or omitted to be taken by it under this Agreement while it was
Assignee hereunder.
13
<PAGE>
SECTION 21. AMENDMENTS; ETC. No amendment, modification, termination
---------------
or waiver of any provision of this Agreement, and no consent to any departure by
Assignor therefrom, shall in any event be effective unless the same shall be in
writing and signed by Assignee and, in the case of any such amendment or
modification, by Assignor. Any such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which it was given.
SECTION 22. NOTICES. Any notice or other communication herein
-------
required or permitted to be given shall be given as provided in the Credit
Agreement. For the purposes hereof, the address of each party hereto shall be as
set forth under such party's name on the signature pages hereof or, as to either
party, such other address as shall be designated by such party in a written
notice delivered to the other party hereto.
SECTION 23. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
-----------------------------------------------------
failure or delay on the part of Assignee in the exercise of any power, right or
privilege hereunder shall impair such power, right or privilege or be construed
to be a waiver of any default or acquiescence therein, nor shall any single or
partial exercise of any such power, right or privilege preclude any other or
further exercise thereof or of any other power, right or privilege. All rights
and remedies existing under this Agreement are cumulative to, and not exclusive
of, any rights or remedies otherwise available.
SECTION 24. SEVERABILITY. In case any provision in or obligation
------------
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 25. HEADINGS. Section and subsection headings in this
--------
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given any
substantive effect.
SECTION 26. GOVERNING LAW; TERMS. THIS AGREEMENT AND THE RIGHTS AND
--------------------
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW
OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES,
EXCEPT TO THE EXTENT THAT THE CODE PROVIDES THAT THE VALIDITY OR PERFECTION OF
THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY
PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
STATE OF NEW YORK. Unless otherwise defined herein or in the Credit Agreement,
terms used in Articles 8 and 9 of the Uniform Commercial Code in the State of
New York are used herein as therein defined.
SECTION 27. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL
----------------------------------------------
JUDICIAL PROCEEDINGS BROUGHT AGAINST ASSIGNOR ARISING OUT OF OR
14
<PAGE>
RELATING TO THIS AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE STATE OF NEW YORK, AND BY EXECUTION AND DELIVERY
OF THIS AGREEMENT ASSIGNOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE
AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY
AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS
AGREEMENT. Assignor hereby agrees that service of all process in any such
proceeding in any such court may be made by registered or certified mail, return
receipt requested, to Assignor at its address provided in Section 22, such
service being hereby acknowledged by Assignor to be sufficient for personal
jurisdiction in any action against Assignor in any such court and to be
otherwise effective and binding service in every respect. Nothing herein shall
affect the right to serve process in any other manner permitted by law or shall
limit the right of Assignee to bring proceedings against Assignor in the courts
of any other jurisdiction.
SECTION 28. WAIVER OF JURY TRIAL. ASSIGNOR AND ASSIGNEE HEREBY AGREE
--------------------
TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this waiver is
intended to be all-encompassing of any and all disputes that may be filed in any
court and that relate to the subject matter of this transaction, including
without limitation contract claims, tort claims, breach of duty claims, and all
other common law and statutory claims. Assignor and Assignee each acknowledge
that this waiver is a material inducement for Assignor and Assignee to enter
into a business relationship, that Assignor and Assignee have already relied on
this waiver in entering into this Agreement and that each will continue to rely
on this waiver in their related future dealings. Assignor and Assignee further
warrant and represent that each has reviewed this waiver with its legal counsel,
and that each knowingly and voluntarily waives its jury trial rights following
consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
In the event of litigation, this Agreement may be filed as a written consent to
a trial by the court.
SECTION 29. COUNTERPARTS. This Agreement may be executed in one or
------------
more counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
[Remainder of page intentionally left blank]
15
<PAGE>
IN WITNESS WHEREOF, Assignor and Assignee have caused this Agreement
to be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
FORSTER INC.,
as Assignor
By: ___________________________
Name: ___________________________
Title: ___________________________
Notice Address:
1800 Cloquet Avenue
Cloquet, MN 55720-2141
Attention: Tom Knuesel
WELLS FARGO BANK, N.A.,
as Administrative Agent
By: ___________________________
Name: ___________________________
Title: ___________________________
Notice Address:
555 Montgomery Street, 17th Floor
San Francisco, CA 9411
Attention: Alan Wray
S-1
<PAGE>
SCHEDULE A
TO PATENT COLLATERAL ASSIGNMENT
AND SECURITY AGREEMENT
PATENTS ISSUED
--------------
Patent No. Issue Date Invention Inventor
- ---------- ---------- --------- --------
PATENTS PENDING
---------------
Applicant's Date Application
Name Filed No. Invention Inventor
---------- ----- ----------- --------- --------
<PAGE>
STATE OF CALIFORNIA )
) SS.:
COUNTY OF ____________ )
On ___________, 19___, before me, ____________________, a Notary Public
in and for said State, personally appeared
_______________________________________, personally known to me (or proved to me
on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature ________________________________ (Seal)
<PAGE>
EXHIBIT XXIV
[FORM OF HOLDINGS PLEDGE AGREEMENT]
HOLDINGS PLEDGE AGREEMENT
This PLEDGE AGREEMENT (this "AGREEMENT") is dated as of April 21, 1998
and entered into by and between DIAMOND BRANDS INCORPORATED, a Minnesota
corporation ("PLEDGOR"), and WELLS FARGO BANK, N.A., as administrative agent for
and representative of (in such capacity herein called "SECURED PARTY") the
financial institutions ("LENDERS") party to the Credit Agreement referred to
below and any Interest Rate Exchangers (as hereinafter defined).
PRELIMINARY STATEMENTS
A. Pledgor is the legal and beneficial owner of (i) the shares of
stock or other equity Securities (the "PLEDGED SHARES") described in Part A of
Schedule I annexed hereto and issued by the companies named therein and (ii) the
- ----------
indebtedness (the "PLEDGED DEBT") described in Part B of said Schedule I and
----------
issued by the obligors named therein.
B. Secured Party and Lenders have entered into a Credit Agreement
dated as of April 21, 1998 (said Credit Agreement, as it may hereafter be
amended, supplemented or otherwise modified from time to time, being the "CREDIT
AGREEMENT", the terms defined therein and not otherwise defined herein being
used herein as therein defined) with Diamond Brands Operating Corp., a Delaware
corporation ("COMPANY"), pursuant to which Lenders have made certain
commitments, subject to the terms and conditions set forth in the Credit
Agreement, to extend certain credit facilities to Company.
C. Company may from time to time enter, or may from time to time
have entered, into one or more Interest Rate Agreements (collectively, the
"LENDER INTEREST RATE AGREEMENTS") with one or more Lenders (in such capacity,
collectively, "INTEREST RATE EXCHANGERS").
D. Pledgor has executed and delivered that certain Guaranty dated as
of April 21, 1998 (said Guaranty, as it may hereafter be amended, supplemented
or otherwise modified from time to time, being the "GUARANTY") in favor of
Secured Party for the benefit of Lenders and any Interest Rate Exchangers,
pursuant to which Pledgor has guarantied the prompt payment and performance when
due of all obligations of Company under the Credit Agreement and all obligations
of Company under the Lender Interest Rate Agreements, including the obligation
of Company to make payments thereunder in the event of early termination
thereof.
XXIV-1
<PAGE>
E. It is a condition precedent to the initial extensions of credit
by Lenders under the Credit Agreement that Pledgor shall have granted the
security interests and undertaken the obligations contemplated by this
Agreement.
NOW, THEREFORE, in consideration of the premises and in order to
induce Lenders to make Loans and other extensions of credit under the Credit
Agreement and to induce Interest Rate Exchangers to enter into Lender Interest
Rate Agreements, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Pledgor hereby agrees with Secured
Party as follows:
SECTION 1. PLEDGE OF SECURITY. Pledgor hereby pledges and assigns to
------------------
Secured Party, and hereby grants to Secured Party a security interest in, all of
Pledgor's right, title and interest in and to the following (the "PLEDGED
COLLATERAL"):
(a) the Pledged Shares and the certificates representing the Pledged
Shares and any interest of Pledgor in the entries on the books of any financial
intermediary pertaining to the Pledged Shares, and all dividends, cash,
warrants, rights, instruments and other property or proceeds from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of the Pledged Shares;
(b) the Pledged Debt and the instruments evidencing the Pledged Debt,
and all interest, cash, instruments and other property or proceeds from time to
time received, receivable or otherwise distributed in respect of or in exchange
for any or all of the Pledged Debt;
(c) all additional shares of, and all securities convertible into and
warrants, options and other rights to purchase or otherwise acquire, stock of
any issuer of the Pledged Shares from time to time acquired by Pledgor in any
manner (which shares shall be deemed to be part of the Pledged Shares), the
certificates or other instruments representing such additional shares,
securities, warrants, options or other rights and any interest of Pledgor in the
entries on the books of any financial intermediary pertaining to such additional
shares, and all dividends, cash, warrants, rights, instruments and other
property or proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such additional
shares, securities, warrants, options or other rights; provided, however, that,
-------- -------
Pledgor shall not be required to pledge more than 66.6% of any class of capital
stock of any direct or indirect Subsidiary of Pledgor which is incorporated in a
jurisdiction other than the states of the United States and the District of
Columbia ("Foreign Subsidiary") hereunder;
(d) all additional indebtedness from time to time owed to Pledgor by
any obligor on the Pledged Debt and the instruments evidencing such
indebtedness, and all interest, cash, instruments and other property or proceeds
from time to time received, receivable or otherwise distributed in respect of or
in exchange for any or all of such indebtedness;
XXIV-2
<PAGE>
(e) all shares of, and all securities convertible into and warrants,
options and other rights to purchase or otherwise acquire, stock of any Person
that, after the date of this Agreement, becomes, as a result of any occurrence,
a direct Subsidiary of Pledgor (which shares shall be deemed to be part of the
Pledged Shares), the certificates or other instruments representing such shares,
securities, warrants, options or other rights and any interest of Pledgor in the
entries on the books of any financial intermediary pertaining to such shares,
and all dividends, cash, warrants, rights, instruments and other property or
proceeds from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such shares, securities, warrants,
options or other rights; provided, however, that Pledgor shall not be required
-------- -------
to pledge more than 66.6% of any class of capital stock of any Foreign
Subsidiary hereunder;
(f) all indebtedness from time to time owed to Pledgor by any Person
that, after the date of this Agreement, becomes, as a result of any occurrence,
a direct or indirect Subsidiary of Pledgor, and all interest, cash, instruments
and other property or proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
indebtedness;
(g) to the extent not covered by clauses (a) through (f) above, all
proceeds of any or all of the foregoing Pledged Collateral. For purposes of
this Agreement, the term "PROCEEDS" includes whatever is receivable or received
when Pledged Collateral or proceeds are sold, exchanged, collected or otherwise
disposed of, whether such disposition is voluntary or involuntary, and includes
proceeds of any indemnity or guaranty payable to Pledgor or Secured Party from
time to time with respect to any of the Pledged Collateral.
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures, and the
------------------------
Pledged Collateral is collateral security for, the prompt payment or performance
in full when due, whether at stated maturity, by required prepayment,
declaration, acceleration, demand or otherwise (including the payment of amounts
that would become due but for the operation of the automatic stay under Section
362(a) of the Bankruptcy Code, 11 U.S.C. (S) 362(a)), of all obligations and
liabilities of every nature of Pledgor now or hereafter existing under or
arising out of or in connection with the Guaranty and all extensions or renewals
thereof, whether for principal, interest (including interest that, but for the
filing of a petition in bankruptcy with respect to Company, would accrue on such
obligations, whether or not a claim is allowed against Company for such interest
in the related bankruptcy proceeding), reimbursement of amounts drawn under
Letters of Credit, payments for early termination of Lender Interest Rate
Agreements, fees, expenses, indemnities or otherwise, whether voluntary or
involuntary, direct or indirect, absolute or contingent, liquidated or
unliquidated, whether or not jointly owed with others, and whether or not from
time to time decreased or extinguished and later increased, created or incurred,
and all or any portion of such obligations or liabilities that are paid, to the
extent all or any part of such payment is avoided or recovered directly or
indirectly from Secured Party or any Lender or Interest Rate Exchanger as a
preference, fraudulent transfer or otherwise, and all obligations of every
nature of Pledgor now or hereafter
XXIV-3
<PAGE>
existing under this Agreement (all such obligations of Pledgor being the
"SECURED OBLIGATIONS").
SECTION 3. DELIVERY OF PLEDGED COLLATERAL. All certificates or
------------------------------
instruments representing or evidencing the Pledged Collateral shall be delivered
to and held by or on behalf of Secured Party pursuant hereto and shall be in
suitable form for transfer by delivery or, as applicable, shall be accompanied
by Pledgor's endorsement, where necessary, or duly executed instruments of
transfer or assignment in blank, all in form and substance satisfactory to
Secured Party. Upon the occurrence and during the continuation of an Event of
Default (as defined in the Credit Agreement) or the occurrence of an Early
Termination Date (as defined in a Master Agreement or an Interest Rate Swap
Agreement or Interest Rate and Currency Exchange Agreement in the form prepared
by the International Swap and Derivatives Association Inc. or a similar event
under any similar swap agreement) under any Lender Interest Rate Agreement
(either such occurrence being an "EVENT OF DEFAULT" for purposes of this
Agreement), Secured Party shall have the right, without notice to Pledgor, to
transfer to or to register in the name of Secured Party or any of its nominees
any or all of the Pledged Collateral, subject only to the revocable rights
specified in Section 7(a). In addition, after the occurrence and during the
continuance of an Event of Default, Secured Party shall have the right at any
time to exchange certificates or instruments representing or evidencing Pledged
Collateral for certificates or instruments of smaller or larger denominations.
SECTION 4. REPRESENTATIONS AND WARRANTIES. Pledgor represents and
------------------------------
warrants as follows:
(a) Due Authorization, etc. of Pledged Collateral. All of the Pledged
---------------------------------------------
Shares have been duly authorized and validly issued and are fully paid and non-
assessable. All of the Pledged Debt has been duly authorized, authenticated or
issued, and delivered and is the legal, valid and binding obligation of the
issuers thereof and is not in default.
(b) Description of Pledged Collateral. The Pledged Shares constitute
---------------------------------
(i) all of the issued and outstanding shares of stock or other equity Securities
of each of the Subsidiaries of Pledgor which are incorporated in a state of the
United States or in the District of Columbia, and (ii) 66.6% of the issued and
outstanding shares of stock or other equity Securities of each Foreign
Subsidiary of Pledgor, and there are no outstanding warrants, options or other
rights to purchase, or other agreements outstanding with respect to, or property
that is now or hereafter convertible into, or that requires the issuance or sale
of, any Pledged Shares. The Pledged Debt constitutes all of the issued and
outstanding intercompany indebtedness evidenced by a promissory note of the
respective issuers thereof owing to Pledgor.
(c) Ownership of Pledged Collateral. Pledgor is the legal, record and
-------------------------------
beneficial owner of the Pledged Collateral free and clear of any Lien except for
the security interest created by this Agreement.
XXIV-4
<PAGE>
(d) Governmental Authorizations. No authorization, approval or other
---------------------------
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for either (i) the pledge by Pledgor of the Pledged
Collateral pursuant to this Agreement and the grant by Pledgor of the security
interest granted hereby, or (ii) the execution, delivery or performance of this
Agreement by Pledgor, or (iii) the exercise by Secured Party of the voting or
other rights, or the remedies in respect of the Pledged Collateral, provided for
in this Agreement (except as may be required in connection with a disposition of
Pledged Collateral by laws affecting the offering and sale of securities
generally).
(e) Perfection. The pledge of the Pledged Collateral pursuant to this
----------
Agreement creates a valid and perfected first priority security interest in the
Pledged Collateral, securing the payment of the Secured Obligations; provided
--------
that Secured Party retains physical possession of such Pledged Collateral.
(f) Margin Regulations. The pledge of the Pledged Collateral pursuant
------------------
to this Agreement does not violate Regulation T, U or X of the Board of
Governors of the Federal Reserve System.
(g) Other Information. All information heretofore, herein or
-----------------
hereafter supplied to Secured Party by or on behalf of Pledgor with respect to
the Pledged Collateral is accurate and complete in all material respects.
SECTION 5. TRANSFERS AND OTHER LIENS; ADDITIONAL PLEDGED COLLATERAL;
---------------------------------------------------------
ETC. Pledgor shall:
- ----
(a) not, except as expressly permitted by the Credit Agreement, (i)
sell, assign (by operation of law or otherwise) or otherwise dispose of, or
grant any option with respect to, any of the Pledged Collateral, (ii) create or
suffer to exist any Lien upon or with respect to any of the Pledged Collateral,
except for the security interest under this Agreement and Permitted
Encumbrances, or (iii) permit any issuer of Pledged Shares to merge or
consolidate unless all the outstanding capital stock or other equity Security of
the surviving or resulting corporation is, upon such merger or consolidation,
pledged hereunder and no cash, securities or other property is distributed in
respect of the outstanding shares of any other constituent corporation; provided
--------
that Pledgor shall not be required to pledge more than 66.6% of any class of
capital stock of any Foreign Subsidiary; provided, further, that in the event
-------- --------
Pledgor makes an Asset Sale permitted by the Credit Agreement and the assets
subject to such Asset Sale are Pledged Shares, Secured Party shall release the
Pledged Shares that are the subject of such Asset Sale to Pledgor free and clear
of the lien and security interest under this Agreement concurrently with the
consummation of such Asset Sale; provided, further that, as a condition
-------- -------
precedent to such release, Secured Party shall have received evidence
satisfactory to it that arrangements satisfactory to it have been made for
delivery to Secured Party of the Net Asset Sale Proceeds of such Asset Sale if
required under the Credit Agreement;
XXIV-5
<PAGE>
(b) (i) cause each issuer of Pledged Shares not to issue any stock or
other securities in addition to or in substitution for the Pledged Shares issued
by such issuer, except to Pledgor, (ii) pledge hereunder, within 5 days of its
acquisition (directly or indirectly) thereof, any and all additional shares of
stock or other securities of each issuer of Pledged Shares, and (iii) pledge
hereunder, within 5 days of its acquisition (directly or indirectly) thereof,
any and all shares of stock of any Person that, after the date of this
Agreement, becomes, as a result of any occurrence, a direct Subsidiary of
Pledgor;
(c) (i) pledge hereunder, within 5 days of their issuance, any and
all instruments or other evidences of additional indebtedness from time to time
owed to Pledgor by any obligor on the Pledged Debt, and (ii) pledge hereunder,
within 5 days of their issuance, any and all instruments or other evidences of
indebtedness from time to time owed to Pledgor by any Person that after the date
of this Agreement becomes, as a result of any occurrence, a direct or indirect
Subsidiary of Pledgor;
(d) promptly notify Secured Party of any event of which Pledgor
becomes aware causing material loss or depreciation in the value of the Pledged
Collateral;
(e) promptly deliver to Secured Party all material written notices
received by it with respect to the Pledged Collateral; and
(f) pay promptly when due all taxes, assessments and governmental
charges or levies imposed upon, and all claims against, the Pledged Collateral,
except to the extent permitted by the terms of the Credit Agreement.
SECTION 6. FURTHER ASSURANCES; PLEDGE AMENDMENTS.
-------------------------------------
(a) Pledgor agrees that from time to time, at the expense of Pledgor,
Pledgor will promptly execute and deliver all further instruments and documents,
and take all further action, that may reasonably be necessary or desirable, or
that Secured Party may reasonably request, in order to perfect and protect any
security interest granted or purported to be granted hereby or to enable Secured
Party to exercise and enforce its rights and remedies hereunder with respect to
any Pledged Collateral. Without limiting the generality of the foregoing,
Pledgor will: (i) execute and file such financing or continuation statements, or
amendments thereto, and such other instruments or notices, as may be necessary
or desirable, or as Secured Party may reasonably request, in order to perfect
and preserve the security interests granted or purported to be granted hereby
and (ii) at Secured Party's reasonable request, appear in and defend any action
or proceeding that may affect Pledgor's title to or Secured Party's security
interest in all or any part of the Pledged Collateral.
(b) Pledgor further agrees that it will, upon obtaining any
additional shares of stock or other securities required to be pledged hereunder
as provided in Section 5(b) or (c), promptly (and in any event within five
Business Days) deliver to Secured
XXIV-6
<PAGE>
Party a Pledge Amendment, duly executed by Pledgor, in substantially the form of
Schedule II annexed hereto (a "PLEDGE AMENDMENT"), in respect of the additional
- -----------
Pledged Shares or Pledged Debt to be pledged pursuant to this Agreement. Pledgor
hereby authorizes Secured Party to attach each Pledge Amendment to this
Agreement and agrees that all Pledged Shares or Pledged Debt listed on any
Pledge Amendment delivered to Secured Party shall for all purposes hereunder be
considered Pledged Collateral; provided that the failure of Pledgor to execute a
--------
Pledge Amendment with respect to any additional Pledged Shares or Pledged Debt
pledged pursuant to this Agreement shall not impair the security interest of
Secured Party therein or otherwise adversely affect the rights and remedies of
Secured Party hereunder with respect thereto.
SECTION 7. VOTING RIGHTS; DIVIDENDS; ETC.
------------------------------
(a) So long as no Event of Default shall have occurred and be
continuing:
(i) Pledgor shall be entitled to exercise any and all voting and
other consensual rights pertaining to the Pledged Collateral or any part
thereof for any purpose not inconsistent with the terms of this Agreement
or the Credit Agreement and as long as such action would not have a
material adverse effect on the value of the Pledged Collateral. It is
understood, however, that neither (A) the voting by Pledgor of any Pledged
Shares for or Pledgor's consent to the election of directors at a regularly
scheduled annual or other meeting of stockholders or members or with
respect to incidental matters at any such meeting nor (B) Pledgor's consent
to or approval of any action otherwise permitted under this Agreement and
the Credit Agreement shall be deemed inconsistent with the terms of this
Agreement or the Credit Agreement within the meaning of this Section
7(a)(i), and no notice of any such voting or consent need be given to
Secured Party;
(ii) Pledgor shall be entitled to receive and retain, and to utilize
free and clear of the lien of this Agreement, any and all dividends and
interest paid in respect of the Pledged Collateral; provided, however, that
-------- -------
any and all
(A) dividends and interest paid or payable other than in cash
in respect of, and instruments and other property received, receivable
or otherwise distributed in respect of, or in exchange for, any
Pledged Collateral,
(B) dividends and other distributions paid or payable in cash
in respect of any Pledged Collateral in connection with a partial or
total liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in-surplus, and
(C) cash paid, payable or otherwise distributed in respect of
principal or in redemption of or in exchange for any Pledged
Collateral,
shall be, and shall forthwith be delivered to Secured Party to hold as,
Pledged Collateral and shall, if received by Pledgor, be received in trust
for the benefit of
XXIV-7
<PAGE>
Secured Party, be segregated from the other property or funds of Pledgor
and be forthwith delivered to Secured Party as Pledged Collateral in the
same form as so received (with all necessary indorsements); provided,
--------
however, that to the extent that property distributed to Pledgor in respect
-------
of the Pledged Collateral continues or becomes, after such distribution, to
be otherwise subject to a Lien in favor of Secured Party under the Loan
Documents, such property shall not be otherwise required to be forthwith
delivered to Secured Party pursuant to clause (ii); and
(iii) Secured Party shall promptly execute and deliver (or cause to
be executed and delivered) to Pledgor all such proxies, dividend payment
orders and other instruments as Pledgor may from time to time reasonably
request for the purpose of enabling Pledgor to exercise the voting and
other consensual rights which it is entitled to exercise pursuant to
paragraph (i) above and to receive the dividends, principal or interest
payments which it is authorized to receive and retain pursuant to paragraph
(ii) above.
(b) Upon the occurrence and during the continuation of an Event of
Default:
(i) upon written notice from Secured Party to Pledgor, all rights
of Pledgor to exercise the voting and other consensual rights which it
would otherwise be entitled to exercise pursuant to Section 7(a)(i) shall
cease, and all such rights shall thereupon become vested in Secured Party
who shall thereupon have the sole right to exercise such voting and other
consensual rights;
(ii) all rights of Pledgor to receive the dividends and interest
payments which it would otherwise be authorized to receive and retain
pursuant to Section 7(a)(ii) shall cease, and all such rights shall
thereupon become vested in Secured Party who shall thereupon have the sole
right to receive and hold as Pledged Collateral such dividends and interest
payments; and
(iii) all dividends, principal and interest payments which are
received by Pledgor contrary to the provisions of paragraph (ii) of this
Section 7(b) shall be received in trust for the benefit of Secured Party,
shall be segregated from other funds of Pledgor and shall forthwith be paid
over to Secured Party as Pledged Collateral in the same form as so received
(with any necessary indorsements).
(c) In order to permit Secured Party to exercise the voting and
other consensual rights which it may be entitled to exercise pursuant to Section
7(b)(i) and to receive all dividends and other distributions which it may be
entitled to receive under Section 7(a)(ii) or Section 7(b)(ii), (i) Pledgor
shall promptly execute and deliver (or cause to be executed and delivered) to
Secured Party all such proxies, dividend payment orders and other instruments as
Secured Party may from time to time reasonably request, including without
limitation to the extent necessary so that the pledge of any shares of stock of
any Foreign Subsidiary is registered (if not already so registered) on the
appropriate books and records of the issuer of the applicable Pledged Shares if
such
XXIV-8
<PAGE>
registration is required under applicable law in order to permit Secured Party
to exercise such rights or to receive such dividends and other distributions,
and (ii) without limiting the effect of the immediately preceding clause (i),
Pledgor hereby grants to Secured Party an irrevocable proxy to vote the Pledged
Shares and to exercise all other rights, powers, privileges and remedies to
which a holder of the Pledged Shares would be entitled (including giving or
withholding written consents of shareholders, calling special meetings of
shareholders and voting at such meetings), which proxy shall be effective,
automatically and without the necessity of any action (including any transfer of
any Pledged Shares on the record books of the issuer thereof) by any other
Person (including the issuer of the Pledged Shares or any officer or agent
thereof), upon the written notice of an Event of Default from Secured Party
delivered at any time, including at a member or shareholder meeting, and which
proxy shall only terminate upon cure of the circumstances which gave rise to the
Event of Default.
SECTION 8. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Pledgor hereby
----------------------------------------
irrevocably appoints Secured Party as Pledgor's attorney-in-fact, with full
authority in the place and stead of Pledgor and in the name of Pledgor, Secured
Party or otherwise, from time to time during the continuation of an Event of
Default in Secured Party's discretion to take any action and to execute any
instrument that Secured Party may deem necessary or advisable to accomplish the
purposes of this Agreement, including:
(a) to file one or more financing or continuation statements, or
amendments thereto, relative to all or any part of the Pledged Collateral
without the signature of Pledgor;
(b) to ask, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Pledged Collateral;
(c) to receive, endorse and collect any instruments made payable to
Pledgor representing any dividend, principal or interest payment or other
distribution in respect of the Pledged Collateral or any part thereof and to
give full discharge for the same; and
(d) to file any claims or take any action or institute any
proceedings that Secured Party may deem necessary or desirable for the
collection of any of the Pledged Collateral or otherwise to enforce the rights
of Secured Party with respect to any of the Pledged Collateral.
SECTION 9. SECURED PARTY MAY PERFORM. If Pledgor fails to perform any
-------------------------
agreement contained herein, Secured Party may itself perform, or cause
performance of, such agreement, and the expenses of Secured Party incurred in
connection therewith shall be payable by Pledgor under Section 13(b).
SECTION 10. STANDARD OF CARE. The powers conferred on Secured Party
----------------
hereunder are solely to protect its interest in the Pledged Collateral and shall
not
XXIV-9
<PAGE>
impose any duty upon it to exercise any such powers. Except for the exercise of
reasonable care in the custody of any Pledged Collateral in its possession and
the accounting for moneys actually received by it hereunder, Secured Party shall
have no duty as to any Pledged Collateral, it being understood that Secured
Party shall have no responsibility for (a) ascertaining or taking action with
respect to calls, conversions, exchanges, maturities, tenders or other matters
relating to any Pledged Collateral, whether or not Secured Party has or is
deemed to have knowledge of such matters, (b) taking any necessary steps (other
than steps taken in accordance with the standard of care set forth above to
maintain possession of the Pledged Collateral) to preserve rights against any
parties with respect to any Pledged Collateral, (c) taking any necessary steps
to collect or realize upon the Secured Obligations or any guarantee therefor, or
any part thereof, or any of the Pledged Collateral, or (d) initiating any action
to protect the Pledged Collateral against the possibility of a decline in market
value. Secured Party shall be deemed to have exercised reasonable care in the
custody and preservation of Pledged Collateral in its possession if such Pledged
Collateral is accorded treatment substantially equal to that which Secured Party
accords its own property consisting of negotiable securities.
SECTION 11. REMEDIES.
--------
(a) If any Event of Default shall have occurred and be continuing,
Secured Party may exercise in respect of the Pledged Collateral, in addition to
all other rights and remedies provided for herein or otherwise available to it,
all the rights and remedies of a secured party on default under the Uniform
Commercial Code as in effect in any relevant jurisdiction (the "CODE") (whether
or not the Code applies to the affected Pledged Collateral), or any other
applicable laws whether of the United States or any state thereof or any other
foreign jurisdiction, and Secured Party may also in its sole discretion, without
notice except as specified below, sell the Pledged Collateral or any part
thereof in one or more parcels at public or private sale, at any exchange or
broker's board or at any of Secured Party's offices or elsewhere, for cash, on
credit or for future delivery, at such time or times and at such price or prices
and upon such other terms as Secured Party may deem commercially reasonable,
irrespective of the impact of any such sales on the market price of the Pledged
Collateral. Secured Party or any Lender or Interest Rate Exchanger may be the
purchaser of any or all of the Pledged Collateral at any such sale and Secured
Party, as agent for and representative of Lenders and Interest Rate Exchangers
(but not any Lender or Lenders or Interest Rate Exchanger or Interest Rate
Exchangers in its or their respective individual capacities unless Requisite
Lenders or Requisite Obligees (as defined in Section 15(a)) shall otherwise
agree in writing), shall be entitled, for the purpose of bidding and making
settlement or payment of the purchase price for all or any portion of the
Pledged Collateral sold at any such public sale, to use and apply any of the
Secured Obligations as a credit on account of the purchase price for any Pledged
Collateral payable by Secured Party at such sale. Each purchaser at any such
sale shall hold the property sold absolutely free from any claim or right on the
part of Pledgor, and Pledgor hereby waives (to the extent permitted by
applicable law) all rights of redemption, stay and/or appraisal which it now has
or may at any time in the future have under any rule of law or statute now
existing or hereafter enacted. Pledgor agrees that, to the extent notice of
sale shall be required by law, at least ten days' notice
XXIV-10
<PAGE>
to Pledgor of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification. Secured
Party shall not be obligated to make any sale of Pledged Collateral regardless
of notice of sale having been given. Secured Party may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned. Pledgor hereby waives any claims against
Secured Party arising by reason of the fact that the price at which any Pledged
Collateral may have been sold at such a private sale was less than the price
which might have been obtained at a public sale, even if Secured Party accepts
the first offer received and does not offer such Pledged Collateral to more than
one offeree. If the proceeds of any sale or other disposition of the Pledged
Collateral are insufficient to pay all the Secured Obligations, Pledgor shall be
liable for the deficiency and the fees of any attorneys employed by Secured
Party to collect such deficiency.
(b) Pledgor recognizes that, by reason of certain prohibitions
contained in the Securities Act and applicable state securities laws, Secured
Party may be compelled, with respect to any sale of all or any part of the
Pledged Collateral conducted without prior registration or qualification of such
Pledged Collateral under the Securities Act and/or such state securities laws,
to limit purchasers to those who will agree, among other things, to acquire the
Pledged Collateral for their own account, for investment and not with a view to
the distribution or resale thereof. Pledgor acknowledges that any such private
sales may be at prices and on terms less favorable than those obtainable through
a public sale without such restrictions (including a public offering made
pursuant to a registration statement under the Securities Act) and,
notwithstanding such circumstances, Pledgor agrees that any such private sale
shall be deemed to have been made in a commercially reasonable manner and that
Secured Party shall have no obligation to engage in public sales and no
obligation to delay the sale of any Pledged Collateral for the period of time
necessary to permit the issuer thereof to register it for a form of public sale
requiring registration under the Securities Act or under applicable state
securities laws, even if such issuer would, or should, agree to so register it.
(c) If Secured Party determines to exercise its right to sell any or
all of the Pledged Collateral, upon written request, Pledgor shall and shall
cause each issuer of any Pledged Shares to be sold hereunder from time to time
to furnish to Secured Party all such information as Secured Party may request in
order to determine the number of shares and other instruments included in the
Pledged Collateral which may be sold by Secured Party in exempt transactions
under the Securities Act and the rules and regulations of the Securities and
Exchange Commission thereunder, as the same are from time to time in effect.
SECTION 12. APPLICATION OF PROCEEDS. All proceeds received by Secured
-----------------------
Party in respect of any sale of, collection from, or other realization upon all
or any part of the Pledged Collateral shall be applied as provided in subsection
2.4D of the Credit Agreement.
XXIV-11
<PAGE>
SECTION 13. INDEMNITY AND EXPENSES.
----------------------
(a) Pledgor agrees to indemnify Secured Party and each Lender from
and against any and all claims, losses and liabilities in any way relating to,
growing out of or resulting from this Agreement and the transactions
contemplated hereby (including, without limitation, enforcement of this
Agreement), except to the extent such claims, losses or liabilities result from
Secured Party's or such Lender's gross negligence or willful misconduct as
finally determined by a court of competent jurisdiction.
(b) Pledgor shall pay to Secured Party upon demand the amount of any
and all reasonable out-of-pocket costs and expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents, that Secured
Party 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 Pledged Collateral, (iii) the exercise or
enforcement of any of the rights of Secured Party hereunder, or (iv) the failure
by Pledgor to perform or observe any of the provisions hereof.
SECTION 14. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS. This
-----------------------------------------------
Agreement shall create a continuing security interest in the Pledged Collateral
and shall (a) remain in full force and effect until the payment in full of all
Secured Obligations, the cancellation or termination of the Commitments and the
cancellation or expiration of all outstanding Letters of Credit, (b) be binding
upon Pledgor, its successors and assigns, and (c) inure, together with the
rights and remedies of Secured Party hereunder, to the benefit of Secured Party
and its successors, transferees and assigns. Without limiting the generality of
the foregoing clause (c), but subject to the provisions of subsection 10.1 of
the Credit Agreement, any Lender may assign or otherwise transfer any Loans held
by it to any other Person, and such other Person shall thereupon become vested
with all the benefits in respect thereof granted to Lenders herein or otherwise.
Upon the payment in full of all Secured Obligations, the cancellation or
termination of the Commitments and the cancellation or expiration of all
outstanding Letters of Credit, the security interest granted hereby shall
terminate and all rights to the Pledged Collateral shall revert to Pledgor. Upon
any such termination Secured Party will, at Pledgor's expense, execute and
deliver to Pledgor such documents as Pledgor shall reasonably request to
evidence such termination and Pledgor shall be entitled to the return, upon its
request and at its expense, against receipt and without recourse to Secured
Party, of such of the Pledged Collateral as shall not have been sold or
otherwise applied pursuant to the terms hereof.
SECTION 15. SECURED PARTY AS ADMINISTRATIVE AGENT.
-------------------------------------
(a) Secured Party has been appointed to act as Secured Party
hereunder by Lenders and, by their acceptance of the benefits hereof, Interest
Rate Exchangers. Secured Party shall be obligated, and shall have the right
hereunder, to make demands, to give notices, to exercise or refrain from
exercising any rights, and to take or refrain from taking any action (including
the release or substitution of Pledged Collateral), solely in accordance with
this Agreement and the Credit Agreement; provided that Secured Party
--------
XXIV-12
<PAGE>
shall exercise, or refrain from exercising, any remedies provided for in Section
11 in accordance with the instructions of (i) Requisite Lenders or (ii) after
payment in full of all Obligations under the Credit Agreement and the other Loan
Documents, the holders of a majority of the aggregate notional amount (or, with
respect to any Lender Interest Rate Agreement that has been terminated in
accordance with its terms, the amount then due and payable (exclusive of
expenses and similar payments but including any early termination payments then
due) under such Lender Interest Rate Agreement) under all Lender Interest Rate
Agreements (Requisite Lenders or, if applicable, such holders being referred to
herein as "REQUISITE OBLIGEES"). In furtherance of the foregoing provisions of
this Section 15(a), each Interest Rate Exchanger, by its acceptance of the
benefits hereof, agrees that it shall have no right individually to realize upon
any of the Pledged Collateral hereunder, it being understood and agreed by such
Interest Rate Exchanger that all rights and remedies hereunder may be exercised
solely by Secured Party for the benefit of Lenders and Interest Rate Exchangers
in accordance with the terms of this Section 15(a).
(b) Secured Party shall at all times be the same Person that is
Administrative Agent under the Credit Agreement. Written notice of resignation
by Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall
also constitute notice of resignation as Secured Party under this Agreement;
removal of Administrative Agent pursuant to subsection 9.5 of the Credit
Agreement shall also constitute removal as Secured Party under this Agreement;
and appointment of a successor Administrative Agent pursuant to subsection 9.5
of the Credit Agreement shall also constitute appointment of a successor Secured
Party under this Agreement. Upon the acceptance of any appointment as
Administrative Agent under subsection 9.5 of the Credit Agreement by a successor
Administrative Agent, that successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring or removed Secured Party under this Agreement, and the retiring
or removed Secured Party under this Agreement shall promptly (i) transfer to
such successor Secured Party all sums, securities and other items of Collateral
held hereunder, together with all records and other documents necessary or
appropriate in connection with the performance of the duties of the successor
Secured Party under this Agreement, and (ii) execute and deliver to such
successor Secured Party such amendments to financing statements, and take such
other actions, as may be necessary or appropriate in connection with the
assignment to such successor Secured Party of the security interests created
hereunder, whereupon such retiring or removed Secured Party shall be discharged
from its duties and obligations under this Agreement. After any retiring or
removed Administrative Agent's resignation or removal hereunder as Secured
Party, the provisions of this Agreement shall inure to its benefit as to any
actions taken or omitted to be taken by it under this Agreement while it was
Secured Party hereunder.
SECTION 16. AMENDMENTS; ETC. No amendment, modification, termination
---------------
or waiver of any provision of this Agreement, and no consent to any departure by
Pledgor therefrom, shall in any event be effective unless the same shall be in
writing and signed by Secured Party and, in the case of any such amendment or
modification, by Pledgor. Any such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which it was given.
XXIV-13
<PAGE>
SECTION 17. NOTICES. Any notice or other communication herein
-------
required or permitted to be given shall be given as provided in the Credit
Agreement. For the purposes hereof, the address of each party hereto shall be
as set forth under such party's name on the signature pages hereof or, as to
either party, such other address as shall be designated by such party in a
written notice delivered to the other party hereto.
SECTION 18. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
-----------------------------------------------------
failure or delay on the part of Secured Party in the exercise of any power,
right or privilege hereunder shall impair such power, right or privilege or be
construed to be a waiver of any default or acquiescence therein, nor shall any
single or partial exercise of any such power, right or privilege preclude any
other or further exercise thereof or of any other power, right or privilege.
All rights and remedies existing under this Agreement are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
SECTION 19. SEVERABILITY. In case any provision in or obligation
------------
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 20. HEADINGS. Section and subsection headings in this
--------
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given any
substantive effect.
SECTION 21. GOVERNING LAW; TERMS; RULES OF CONSTRUCTION. THIS
-------------------------------------------
AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE
GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL
OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES, EXCEPT TO THE EXTENT THAT THE CODE PROVIDES THAT THE PERFECTION OF
THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY
PARTICULAR PLEDGED COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER
THAN THE STATE OF NEW YORK. Unless otherwise defined herein or in the Credit
Agreement, terms used in Articles 8 and 9 of the Uniform Commercial Code in the
State of New York are used herein as therein defined. The rules of construction
set forth in subsection 1.3 of the Credit Agreement shall be applicable to this
Agreement mutatis mutandis.
SECTION 22. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
----------------------------------------------
(A) ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST PLEDGOR ARISING OUT OF
OR RELATING TO THIS AGREEMENT, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN
ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND
CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS
XXIV-14
<PAGE>
AGREEMENT, PLEDGOR, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
IRREVOCABLY
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN
ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO PLEDGOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION
17;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER PLEDGOR IN ANY SUCH
PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT;
(V) AGREES THAT SECURED PARTY RETAINS THE RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST PLEDGOR
IN THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SECTION 22 RELATING TO
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR
OTHERWISE.
(b) Without limiting the generality of the last sentence of Section
22(a), any judicial proceedings brought against Pledgor arising out of or
relating to the pledge of shares of capital stock of any Foreign Subsidiary
hereunder may be brought in any court of competent jurisdiction in the
jurisdiction in which such Foreign Subsidiary is organized, and by execution and
delivery of this Agreement, Pledgor accepts for itself and in connection with
its properties (including without limitation the applicable Pledged Shares),
generally and unconditionally, the nonexclusive jurisdiction of any such court
and waives any defense of forum non conveniens (or any similar defense under the
laws of such jurisdiction) and irrevocably agrees to be bound by any judgement
rendered thereby in connection with such pledge or the enforcement thereof.
SECTION 23. WAIVER OF JURY TRIAL. PLEDGOR AND SECURED PARTY HEREBY
--------------------
AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this waiver is
intended to be all-encompassing of any and all disputes that may be filed in any
court and that relate to
XXIV-15
<PAGE>
the subject matter of this transaction, including contract claims, tort claims,
breach of duty claims, and all other common law and statutory claims. Pledgor
and Secured Party each acknowledge that this waiver is a material inducement for
Pledgor and Secured Party to enter into a business relationship, that Pledgor
and Secured Party have already relied on this waiver in entering into this
Agreement and that each will continue to rely on this waiver in their related
future dealings. Pledgor and Secured Party further warrant and represent that
each has reviewed this waiver with its legal counsel, and that each knowingly
and voluntarily waives its jury trial rights following consultation with legal
counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY
REFERRING TO THIS SECTION 23 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT. In the event of litigation, this Agreement may
be filed as a written consent to a trial by the court.
SECTION 24. COUNTERPARTS. This Agreement may be executed in one or
------------
more counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
[Remainder of page intentionally left blank]
XXIV-16
<PAGE>
IN WITNESS WHEREOF, Pledgor and Secured Party have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
DIAMOND BRANDS INCORPORATED,
as Pledgor
By: _____________________________
Name: __________________________
Title: __________________________
Notice Address:
1800 Cloquet Avenue
Cloquet, MN 55720-2141
Attention: Tom Knuesel
WELLS FARGO BANK, N.A., as
Administrative Agent
By: _____________________________
Name: __________________________
Title: __________________________
Notice Address:
Attention:
S-1
<PAGE>
SCHEDULE I
Attached to and forming a part of the Pledge Agreement dated as of
April 21, 1998 between Diamond Brands Incorporated, as Pledgor, and Wells Fargo
Bank, N.A., as Secured Party.
Part A
Class of Stock Certi- Par Number of
Stock Issuer Stock ficate Nos. Value Shares
- ------------ ----- ------------ ----- ---------
Part B
Debt Issuer Amount of Indebtedness
- ----------- ----------------------
<PAGE>
SCHEDULE II
PLEDGE AMENDMENT
This Pledge Amendment, dated ____________, _____, is delivered
pursuant to Section 6(b) of the Pledge Agreement referred to below. The
undersigned hereby agrees that this Subsidiary Pledge Amendment may be attached
to the Subsidiary Pledge Agreement dated April 21, 1998, between the undersigned
and Wells Fargo Bank, N.A., as Secured Party (the "PLEDGE AGREEMENT,"
capitalized terms defined therein being used herein as therein defined), and
that the [Pledged Shares] [Pledged Debt] listed on this Pledge Amendment shall
be deemed to be part of the [Pledged Shares] [Pledged Debt] and shall become
part of the Pledged Collateral and shall secure all Secured Obligations.
DIAMOND BRANDS INCORPORATED
By: ___________________________
Title:
Class of Stock Certi- Par Number of
Stock Issuer Stock ficate Nos. Value Shares
- ------------ ----- ------------ ----- ---------
Debt Issuer Amount of Indebtedness
- ----------- ----------------------
<PAGE>
HOLDINGS PLEDGE AGREEMENT
This PLEDGE AGREEMENT (this "AGREEMENT") is dated as of April 21, 1998
and entered into by and between DIAMOND BRANDS INCORPORATED, a Minnesota
corporation ("PLEDGOR"), and WELLS FARGO BANK, N.A., as administrative agent for
and representative of (in such capacity herein called "SECURED PARTY") the
financial institutions ("LENDERS") party to the Credit Agreement referred to
below and any Interest Rate Exchangers (as hereinafter defined).
PRELIMINARY STATEMENTS
A. Pledgor is the legal and beneficial owner of (i) the shares of
stock or other equity Securities (the "PLEDGED SHARES") described in Part A of
Schedule I annexed hereto and issued by the companies named therein and (ii) the
- ----------
indebtedness (the "PLEDGED DEBT") described in Part B of said Schedule I and
----------
issued by the obligors named therein.
B. Secured Party and Lenders have entered into a Credit Agreement
dated as of April 21, 1998 (said Credit Agreement, as it may hereafter be
amended, supplemented or otherwise modified from time to time, being the "CREDIT
AGREEMENT", the terms defined therein and not otherwise defined herein being
used herein as therein defined) with Diamond Brands Operating Corp., a Delaware
corporation ("COMPANY"), pursuant to which Lenders have made certain
commitments, subject to the terms and conditions set forth in the Credit
Agreement, to extend certain credit facilities to Company.
C. Company may from time to time enter, or may from time to time
have entered, into one or more Interest Rate Agreements (collectively, the
"LENDER INTEREST RATE AGREEMENTS") with one or more Lenders (in such capacity,
collectively, "INTEREST RATE EXCHANGERS").
D. Pledgor has executed and delivered that certain Guaranty dated as
of April 21, 1998 (said Guaranty, as it may hereafter be amended, supplemented
or otherwise modified from time to time, being the "GUARANTY") in favor of
Secured Party for the benefit of Lenders and any Interest Rate Exchangers,
pursuant to which Pledgor has guarantied the prompt payment and performance when
due of all obligations of Company under the Credit Agreement and all obligations
of Company under the Lender Interest Rate Agreements, including the obligation
of Company to make payments thereunder in the event of early termination
thereof.
E. It is a condition precedent to the initial extensions of credit
by Lenders under the Credit Agreement that Pledgor shall have granted the
security interests and undertaken the obligations contemplated by this
Agreement.
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<PAGE>
NOW, THEREFORE, in consideration of the premises and in order to induce
Lenders to make Loans and other extensions of credit under the Credit Agreement
and to induce Interest Rate Exchangers to enter into Lender Interest Rate
Agreements, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Pledgor hereby agrees with Secured
Party as follows:
SECTION 1. PLEDGE OF SECURITY. Pledgor hereby pledges and assigns to
------------------
Secured Party, and hereby grants to Secured Party a security interest in, all of
Pledgor's right, title and interest in and to the following (the "PLEDGED
COLLATERAL"):
(a) the Pledged Shares and the certificates representing the Pledged
Shares and any interest of Pledgor in the entries on the books of any financial
intermediary pertaining to the Pledged Shares, and all dividends, cash,
warrants, rights, instruments and other property or proceeds from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of the Pledged Shares;
(b) the Pledged Debt and the instruments evidencing the Pledged Debt,
and all interest, cash, instruments and other property or proceeds from time to
time received, receivable or otherwise distributed in respect of or in exchange
for any or all of the Pledged Debt;
(c) all additional shares of, and all securities convertible into and
warrants, options and other rights to purchase or otherwise acquire, stock of
any issuer of the Pledged Shares from time to time acquired by Pledgor in any
manner (which shares shall be deemed to be part of the Pledged Shares), the
certificates or other instruments representing such additional shares,
securities, warrants, options or other rights and any interest of Pledgor in the
entries on the books of any financial intermediary pertaining to such additional
shares, and all dividends, cash, warrants, rights, instruments and other
property or proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such additional
shares, securities, warrants, options or other rights; provided, however, that,
-------- -------
Pledgor shall not be required to pledge more than 66.6% of any class of capital
stock of any direct or indirect Subsidiary of Pledgor which is incorporated in a
jurisdiction other than the states of the United States and the District of
Columbia ("Foreign Subsidiary") hereunder;
(d) all additional indebtedness from time to time owed to Pledgor by
any obligor on the Pledged Debt and the instruments evidencing such
indebtedness, and all interest, cash, instruments and other property or proceeds
from time to time received, receivable or otherwise distributed in respect of or
in exchange for any or all of such indebtedness;
(e) all shares of, and all securities convertible into and warrants,
options and other rights to purchase or otherwise acquire, stock of any Person
that, after the date of this Agreement, becomes, as a result of any occurrence,
a direct Subsidiary of Pledgor (which shares shall be deemed to be part of the
Pledged Shares), the certificates or other instruments representing such shares,
securities, warrants, options or other rights and any
2
<PAGE>
interest of Pledgor in the entries on the books of any financial intermediary
pertaining to such shares, and all dividends, cash, warrants, rights,
instruments and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of such shares, securities, warrants, options or other rights; provided,
however, that Pledgor shall not be required to pledge more than 66.6% of any
class of capital stock of any Foreign Subsidiary hereunder;
(f) all indebtedness from time to time owed to Pledgor by any Person
that, after the date of this Agreement, becomes, as a result of any occurrence,
a direct or indirect Subsidiary of Pledgor, and all interest, cash, instruments
and other property or proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
indebtedness;
(g) to the extent not covered by clauses (a) through (f) above, all
proceeds of any or all of the foregoing Pledged Collateral. For purposes of
this Agreement, the term "PROCEEDS" includes whatever is receivable or received
when Pledged Collateral or proceeds are sold, exchanged, collected or otherwise
disposed of, whether such disposition is voluntary or involuntary, and includes
proceeds of any indemnity or guaranty payable to Pledgor or Secured Party from
time to time with respect to any of the Pledged Collateral.
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures, and the
------------------------
Pledged Collateral is collateral security for, the prompt payment or performance
in full when due, whether at stated maturity, by required prepayment,
declaration, acceleration, demand or otherwise (including the payment of amounts
that would become due but for the operation of the automatic stay under Section
362(a) of the Bankruptcy Code, 11 U.S.C. (S) 362(a)), of all obligations and
liabilities of every nature of Pledgor now or hereafter existing under or
arising out of or in connection with the Guaranty and all extensions or renewals
thereof, whether for principal, interest (including interest that, but for the
filing of a petition in bankruptcy with respect to Company, would accrue on such
obligations, whether or not a claim is allowed against Company for such interest
in the related bankruptcy proceeding), reimbursement of amounts drawn under
Letters of Credit, payments for early termination of Lender Interest Rate
Agreements, fees, expenses, indemnities or otherwise, whether voluntary or
involuntary, direct or indirect, absolute or contingent, liquidated or
unliquidated, whether or not jointly owed with others, and whether or not from
time to time decreased or extinguished and later increased, created or incurred,
and all or any portion of such obligations or liabilities that are paid, to the
extent all or any part of such payment is avoided or recovered directly or
indirectly from Secured Party or any Lender or Interest Rate Exchanger as a
preference, fraudulent transfer or otherwise, and all obligations of every
nature of Pledgor now or hereafter existing under this Agreement (all such
obligations of Pledgor being the "SECURED OBLIGATIONS").
SECTION 3. DELIVERY OF PLEDGED COLLATERAL. All certificates or
------------------------------
instruments representing or evidencing the Pledged Collateral shall be delivered
to and held by or on behalf of Secured Party pursuant hereto and shall be in
suitable form for transfer by delivery or, as applicable, shall be accompanied
by Pledgor's endorsement,
3
<PAGE>
where necessary, or duly executed instruments of transfer or assignment in
blank, all in form and substance satisfactory to Secured Party. Upon the
occurrence and during the continuation of an Event of Default (as defined in the
Credit Agreement) or the occurrence of an Early Termination Date (as defined in
a Master Agreement or an Interest Rate Swap Agreement or Interest Rate and
Currency Exchange Agreement in the form prepared by the International Swap and
Derivatives Association Inc. or a similar event under any similar swap
agreement) under any Lender Interest Rate Agreement (either such occurrence
being an "EVENT OF DEFAULT" for purposes of this Agreement), Secured Party shall
have the right, without notice to Pledgor, to transfer to or to register in the
name of Secured Party or any of its nominees any or all of the Pledged
Collateral, subject only to the revocable rights specified in Section 7(a). In
addition, after the occurrence and during the continuance of an Event of
Default, Secured Party shall have the right at any time to exchange certificates
or instruments representing or evidencing Pledged Collateral for certificates or
instruments of smaller or larger denominations.
SECTION 4. REPRESENTATIONS AND WARRANTIES. Pledgor represents and
------------------------------
warrants as follows:
(a) Due Authorization, etc. of Pledged Collateral. All of the Pledged
---------------------------------------------
Shares have been duly authorized and validly issued and are fully paid and non-
assessable. All of the Pledged Debt has been duly authorized, authenticated or
issued, and delivered and is the legal, valid and binding obligation of the
issuers thereof and is not in default.
(b) Description of Pledged Collateral. The Pledged Shares constitute
---------------------------------
(i) all of the issued and outstanding shares of stock or other equity Securities
of each of the Subsidiaries of Pledgor which are incorporated in a state of the
United States or in the District of Columbia, and (ii) 66.6% of the issued and
outstanding shares of stock or other equity Securities of each Foreign
Subsidiary of Pledgor, and there are no outstanding warrants, options or other
rights to purchase, or other agreements outstanding with respect to, or property
that is now or hereafter convertible into, or that requires the issuance or sale
of, any Pledged Shares. The Pledged Debt consti tutes all of the issued and
outstanding intercompany indebtedness evidenced by a promissory note of the
respective issuers thereof owing to Pledgor.
(c) Ownership of Pledged Collateral. Pledgor is the legal, record and
-------------------------------
beneficial owner of the Pledged Collateral free and clear of any Lien except for
the security interest created by this Agreement.
(d) Governmental Authorizations. No authorization, approval or other
---------------------------
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for either (i) the pledge by Pledgor of the Pledged
Collateral pursuant to this Agreement and the grant by Pledgor of the security
interest granted hereby, or (ii) the execution, delivery or performance of this
Agreement by Pledgor, or (iii) the exercise by Secured Party of the voting or
other rights, or the remedies in respect of the Pledged Collateral, provided for
in this Agreement (except as may be required in connection with
4
<PAGE>
a disposition of Pledged Collateral by laws affecting the offering and sale of
securities generally).
(e) Perfection. The pledge of the Pledged Collateral pursuant to this
----------
Agreement creates a valid and perfected first priority security interest in the
Pledged Collateral, securing the payment of the Secured Obligations; provided
--------
that Secured Party retains physical possession of such Pledged Collateral.
(f) Margin Regulations. The pledge of the Pledged Collateral pursuant
------------------
to this Agreement does not violate Regulation T, U or X of the Board of
Governors of the Federal Reserve System.
(g) Other Information. All information heretofore, herein or hereafter
-----------------
supplied to Secured Party by or on behalf of Pledgor with respect to the Pledged
Collateral is accurate and complete in all material respects.
SECTION 5. TRANSFERS AND OTHER LIENS; ADDITIONAL PLEDGED COLLATERAL;
---------------------------------------------------------
ETC. Pledgor shall:
- ----
(a) not, except as expressly permitted by the Credit Agreement, (i)
sell, assign (by operation of law or otherwise) or otherwise dispose of, or
grant any option with respect to, any of the Pledged Collateral, (ii) create or
suffer to exist any Lien upon or with respect to any of the Pledged Collateral,
except for the security interest under this Agreement and Permitted
Encumbrances, or (iii) permit any issuer of Pledged Shares to merge or
consolidate unless all the outstanding capital stock or other equity Security of
the surviving or resulting corporation is, upon such merger or consolidation,
pledged hereunder and no cash, securities or other property is distributed in
respect of the outstanding shares of any other constituent corporation; provided
--------
that Pledgor shall not be required to pledge more than 66.6% of any class of
capital stock of any Foreign Subsidiary; provided, further, that in the event
-------- --------
Pledgor makes an Asset Sale permitted by the Credit Agreement and the assets
subject to such Asset Sale are Pledged Shares, Secured Party shall release the
Pledged Shares that are the subject of such Asset Sale to Pledgor free and clear
of the lien and security interest under this Agreement concurrently with the
consummation of such Asset Sale; provided, further that, as a condition
-------- -------
precedent to such release, Secured Party shall have received evidence
satisfactory to it that arrangements satisfactory to it have been made for
delivery to Secured Party of the Net Asset Sale Proceeds of such Asset Sale if
required under the Credit Agreement;
(b) (i) cause each issuer of Pledged Shares not to issue any stock or
other securities in addition to or in substitution for the Pledged Shares issued
by such issuer, except to Pledgor, (ii) pledge hereunder, within 5 days of its
acquisition (directly or indirectly) thereof, any and all additional shares of
stock or other securities of each issuer of Pledged Shares, and (iii) pledge
hereunder, within 5 days of its acquisition (directly or indirectly) thereof,
any and all shares of stock of any Person that, after the date of this
Agreement, becomes, as a result of any occurrence, a direct Subsidiary of
Pledgor;
5
<PAGE>
(c) (i) pledge hereunder, within 5 days of their issuance, any and all
instruments or other evidences of additional indebtedness from time to time owed
to Pledgor by any obligor on the Pledged Debt, and (ii) pledge hereunder, within
5 days of their issuance, any and all instruments or other evidences of
indebtedness from time to time owed to Pledgor by any Person that after the date
of this Agreement becomes, as a result of any occurrence, a direct or indirect
Subsidiary of Pledgor;
(d) promptly notify Secured Party of any event of which Pledgor
becomes aware causing material loss or depreciation in the value of the Pledged
Collateral;
(e) promptly deliver to Secured Party all material written notices
received by it with respect to the Pledged Collateral; and
(f) pay promptly when due all taxes, assessments and governmental
charges or levies imposed upon, and all claims against, the Pledged Collateral,
except to the extent permitted by the terms of the Credit Agreement.
SECTION 6. FURTHER ASSURANCES; PLEDGE AMENDMENTS.
-------------------------------------
(a) Pledgor agrees that from time to time, at the expense of Pledgor,
Pledgor will promptly execute and deliver all further instruments and documents,
and take all further action, that may reasonably be necessary or desirable, or
that Secured Party may reasonably request, in order to perfect and protect any
security interest granted or purported to be granted hereby or to enable Secured
Party to exercise and enforce its rights and remedies hereunder with respect to
any Pledged Collateral. Without limiting the generality of the foregoing,
Pledgor will: (i) execute and file such financing or continuation statements,
or amendments thereto, and such other instruments or notices, as may be
necessary or desirable, or as Secured Party may reasonably request, in order to
perfect and preserve the security interests granted or purported to be granted
hereby and (ii) at Secured Party's reasonable request, appear in and defend any
action or proceeding that may affect Pledgor's title to or Secured Party's
security interest in all or any part of the Pledged Collateral.
(b) Pledgor further agrees that it will, upon obtaining any additional
shares of stock or other securities required to be pledged hereunder as provided
in Section 5(b) or (c), promptly (and in any event within five Business Days)
deliver to Secured Party a Pledge Amendment, duly executed by Pledgor, in
substantially the form of Schedule II annexed hereto (a "PLEDGE AMENDMENT"), in
-----------
respect of the additional Pledged Shares or Pledged Debt to be pledged pursuant
to this Agreement. Pledgor hereby authorizes Secured Party to attach each
Pledge Amendment to this Agreement and agrees that all Pledged Shares or Pledged
Debt listed on any Pledge Amendment delivered to Secured Party shall for all
purposes hereunder be considered Pledged Collateral; provided that the failure
--------
of Pledgor to execute a Pledge Amendment with respect to any additional Pledged
Shares or Pledged Debt pledged pursuant to this Agreement shall not
6
<PAGE>
impair the security interest of Secured Party therein or otherwise adversely
affect the rights and remedies of Secured Party hereunder with respect thereto.
SECTION 7. VOTING RIGHTS; DIVIDENDS; ETC.
------------------------------
(a) So long as no Event of Default shall have occurred and be
continuing:
(i) Pledgor shall be entitled to exercise any and all voting and
other consensual rights pertaining to the Pledged Collateral or any part
thereof for any purpose not inconsistent with the terms of this Agreement or
the Credit Agreement and as long as such action would not have a material
adverse effect on the value of the Pledged Collateral. It is understood,
however, that neither (A) the voting by Pledgor of any Pledged Shares for or
Pledgor's consent to the election of directors at a regularly scheduled
annual or other meeting of stockholders or members or with respect to
incidental matters at any such meeting nor (B) Pledgor's consent to or
approval of any action otherwise permitted under this Agreement and the
Credit Agreement shall be deemed inconsistent with the terms of this
Agreement or the Credit Agreement within the meaning of this Section
7(a)(i), and no notice of any such voting or consent need be given to
Secured Party;
(ii) Pledgor shall be entitled to receive and retain, and to utilize
free and clear of the lien of this Agreement, any and all dividends and
interest paid in respect of the Pledged Collateral; provided, however, that
-------- -------
any and all
(A) dividends and interest paid or payable other than in cash in
respect of, and instruments and other property received, receivable or
otherwise distributed in respect of, or in exchange for, any Pledged
Collateral,
(B) dividends and other distributions paid or payable in cash in
respect of any Pledged Collateral in connection with a partial or total
liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in-surplus, and
(C) cash paid, payable or otherwise distributed in respect of
principal or in redemption of or in exchange for any Pledged
Collateral,
shall be, and shall forthwith be delivered to Secured Party to hold as,
Pledged Collateral and shall, if received by Pledgor, be received in trust
for the benefit of Secured Party, be segregated from the other property or
funds of Pledgor and be forthwith delivered to Secured Party as Pledged
Collateral in the same form as so received (with all necessary
indorsements); provided, however, that to the extent that property
-------- -------
distributed to Pledgor in respect of the Pledged Collateral continues or
becomes, after such distribution, to be otherwise subject to a Lien in favor
of Secured Party under the Loan Documents, such property shall not be
otherwise required to be forthwith delivered to Secured Party pursuant to
clause (ii); and
7
<PAGE>
(iii) Secured Party shall promptly execute and deliver (or cause to be
executed and delivered) to Pledgor all such proxies, dividend payment orders
and other instruments as Pledgor may from time to time reasonably request
for the purpose of enabling Pledgor to exercise the voting and other
consensual rights which it is entitled to exercise pursuant to paragraph (i)
above and to receive the dividends, principal or interest payments which it
is authorized to receive and retain pursuant to paragraph (ii) above.
(b) Upon the occurrence and during the continuation of an Event of
Default:
(i) upon written notice from Secured Party to Pledgor, all rights of
Pledgor to exercise the voting and other consensual rights which it would
otherwise be entitled to exercise pursuant to Section 7(a)(i) shall cease,
and all such rights shall thereupon become vested in Secured Party who shall
thereupon have the sole right to exercise such voting and other consensual
rights;
(ii) all rights of Pledgor to receive the dividends and interest
payments which it would otherwise be authorized to receive and retain
pursuant to Section 7(a)(ii) shall cease, and all such rights shall
thereupon become vested in Secured Party who shall thereupon have the sole
right to receive and hold as Pledged Collateral such dividends and interest
payments; and
(iii) all dividends, principal and interest payments which are received
by Pledgor contrary to the provisions of paragraph (ii) of this Section 7(b)
shall be received in trust for the benefit of Secured Party, shall be
segregated from other funds of Pledgor and shall forthwith be paid over to
Secured Party as Pledged Collateral in the same form as so received (with
any necessary indorsements).
(c) In order to permit Secured Party to exercise the voting and other
consensual rights which it may be entitled to exercise pursuant to Section
7(b)(i) and to receive all dividends and other distributions which it may be
entitled to receive under Section 7(a)(ii) or Section 7(b)(ii), (i) Pledgor
shall promptly execute and deliver (or cause to be executed and delivered) to
Secured Party all such proxies, dividend payment orders and other instruments as
Secured Party may from time to time reasonably request, including without
limitation to the extent necessary so that the pledge of any shares of stock of
any Foreign Subsidiary is registered (if not already so registered) on the
appropriate books and records of the issuer of the applicable Pledged Shares if
such registration is required under applicable law in order to permit Secured
Party to exercise such rights or to receive such dividends and other
distributions, and (ii) without limiting the effect of the immediately preceding
clause (i), Pledgor hereby grants to Secured Party an irrevocable proxy to vote
the Pledged Shares and to exercise all other rights, powers, privileges and
remedies to which a holder of the Pledged Shares would be entitled (including
giving or withholding written consents of shareholders, calling special meetings
of shareholders and voting at such meetings), which proxy shall be effective,
automatically and without the necessity of any action (including any transfer of
any
8
<PAGE>
Pledged Shares on the record books of the issuer thereof) by any other Person
(including the issuer of the Pledged Shares or any officer or agent thereof),
upon the written notice of an Event of Default from Secured Party delivered at
any time, including at a member or shareholder meeting, and which proxy shall
only terminate upon cure of the circumstances which gave rise to the Event of
Default.
SECTION 8. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Pledgor hereby
----------------------------------------
irrevocably appoints Secured Party as Pledgor's attorney-in-fact, with full
authority in the place and stead of Pledgor and in the name of Pledgor, Secured
Party or otherwise, from time to time during the continuation of an Event of
Default in Secured Party's discretion to take any action and to execute any
instrument that Secured Party may deem necessary or advisable to accomplish the
purposes of this Agreement, including:
(a) to file one or more financing or continuation statements, or
amendments thereto, relative to all or any part of the Pledged Collateral
without the signature of Pledgor;
(b) to ask, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Pledged Collateral;
(c) to receive, endorse and collect any instruments made payable to
Pledgor representing any dividend, principal or interest payment or other
distribution in respect of the Pledged Collateral or any part thereof and to
give full discharge for the same; and
(d) to file any claims or take any action or institute any
proceedings that Secured Party may deem necessary or desirable for the
collection of any of the Pledged Collateral or otherwise to enforce the rights
of Secured Party with respect to any of the Pledged Collateral.
SECTION 9. SECURED PARTY MAY PERFORM. If Pledgor fails to perform any
-------------------------
agreement contained herein, Secured Party may itself perform, or cause
performance of, such agreement, and the expenses of Secured Party incurred in
connection therewith shall be payable by Pledgor under Section 13(b).
SECTION 10. STANDARD OF CARE. The powers conferred on Secured Party
----------------
hereunder are solely to protect its interest in the Pledged Collateral and shall
not impose any duty upon it to exercise any such powers. Except for the
exercise of reasonable care in the custody of any Pledged Collateral in its
possession and the accounting for moneys actually received by it hereunder,
Secured Party shall have no duty as to any Pledged Collateral, it being
understood that Secured Party shall have no responsibility for (a) ascertaining
or taking action with respect to calls, conversions, exchanges, maturities,
tenders or other matters relating to any Pledged Collateral, whether or not
Secured Party has or is deemed to have knowledge of such matters, (b) taking any
necessary steps (other than steps taken in accordance with the standard of care
set forth
9
<PAGE>
above to maintain possession of the Pledged Collateral) to preserve rights
against any parties with respect to any Pledged Collateral, (c) taking any
necessary steps to collect or realize upon the Secured Obligations or any
guarantee therefor, or any part thereof, or any of the Pledged Collateral, or
(d) initiating any action to protect the Pledged Collateral against the
possibility of a decline in market value. Secured Party shall be deemed to have
exercised reasonable care in the custody and preservation of Pledged Collateral
in its possession if such Pledged Collateral is accorded treatment substantially
equal to that which Secured Party accords its own property consisting of
negotiable securities.
SECTION 11. REMEDIES.
--------
(a) If any Event of Default shall have occurred and be continuing,
Secured Party may exercise in respect of the Pledged Collateral, in addition to
all other rights and remedies provided for herein or otherwise available to it,
all the rights and remedies of a secured party on default under the Uniform
Commercial Code as in effect in any relevant jurisdiction (the "CODE") (whether
or not the Code applies to the affected Pledged Collateral), or any other
applicable laws whether of the United States or any state thereof or any other
foreign jurisdiction, and Secured Party may also in its sole discretion, without
notice except as specified below, sell the Pledged Collateral or any part
thereof in one or more parcels at public or private sale, at any exchange or
broker's board or at any of Secured Party's offices or elsewhere, for cash, on
credit or for future delivery, at such time or times and at such price or prices
and upon such other terms as Secured Party may deem commercially reasonable,
irrespective of the impact of any such sales on the market price of the Pledged
Collateral. Secured Party or any Lender or Interest Rate Exchanger may be the
purchaser of any or all of the Pledged Collateral at any such sale and Secured
Party, as agent for and representative of Lenders and Interest Rate Exchangers
(but not any Lender or Lenders or Interest Rate Exchanger or Interest Rate
Exchangers in its or their respective individual capacities unless Requisite
Lenders or Requisite Obligees (as defined in Section 15(a)) shall otherwise
agree in writing), shall be enti tled, for the purpose of bidding and making
settlement or payment of the purchase price for all or any portion of the
Pledged Collateral sold at any such public sale, to use and apply any of the
Secured Obligations as a credit on account of the purchase price for any Pledged
Collateral payable by Secured Party at such sale. Each purchaser at any such
sale shall hold the property sold absolutely free from any claim or right on the
part of Pledgor, and Pledgor hereby waives (to the extent permitted by
applicable law) all rights of redemption, stay and/or appraisal which it now has
or may at any time in the future have under any rule of law or statute now
existing or hereafter enacted. Pledgor agrees that, to the extent notice of sale
shall be required by law, at least ten days' notice to Pledgor of the time and
place of any public sale or the time after which any private sale is to be made
shall constitute reasonable notification. Secured Party shall not be obligated
to make any sale of Pledged Collateral regardless of notice of sale having been
given. Secured Party may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned.
Pledgor hereby waives any claims against Secured Party arising by reason of the
fact that the price at which any Pledged Collateral may have been sold at such a
private sale was less than the
10
<PAGE>
price which might have been obtained at a public sale, even if Secured Party
accepts the first offer received and does not offer such Pledged Collateral to
more than one offeree. If the proceeds of any sale or other disposition of the
Pledged Collateral are insufficient to pay all the Secured Obligations, Pledgor
shall be liable for the deficiency and the fees of any attorneys employed by
Secured Party to collect such deficiency.
(b) Pledgor recognizes that, by reason of certain prohibitions
contained in the Securities Act and applicable state securities laws, Secured
Party may be compelled, with respect to any sale of all or any part of the
Pledged Collateral conducted without prior registration or qualification of such
Pledged Collateral under the Securities Act and/or such state securities laws,
to limit purchasers to those who will agree, among other things, to acquire the
Pledged Collateral for their own account, for investment and not with a view to
the distribution or resale thereof. Pledgor acknowledges that any such private
sales may be at prices and on terms less favorable than those obtainable through
a public sale without such restrictions (including a public offering made
pursuant to a registration statement under the Securities Act) and,
notwithstanding such circumstances, Pledgor agrees that any such private sale
shall be deemed to have been made in a commercially reasonable manner and that
Secured Party shall have no obligation to engage in public sales and no
obligation to delay the sale of any Pledged Collateral for the period of time
necessary to permit the issuer thereof to register it for a form of public sale
requiring registration under the Securities Act or under applicable state
securities laws, even if such issuer would, or should, agree to so register it.
(c) If Secured Party determines to exercise its right to sell any or
all of the Pledged Collateral, upon written request, Pledgor shall and shall
cause each issuer of any Pledged Shares to be sold hereunder from time to time
to furnish to Secured Party all such information as Secured Party may request in
order to determine the number of shares and other instruments included in the
Pledged Collateral which may be sold by Secured Party in exempt transactions
under the Securities Act and the rules and regulations of the Securities and
Exchange Commission thereunder, as the same are from time to time in effect.
SECTION 12. APPLICATION OF PROCEEDS. All proceeds received by Secured
-----------------------
Party in respect of any sale of, collection from, or other realization upon all
or any part of the Pledged Collateral shall be applied as provided in subsection
2.4D of the Credit Agreement.
SECTION 13. INDEMNITY AND EXPENSES.
----------------------
(a) Pledgor agrees to indemnify Secured Party and each Lender from
and against any and all claims, losses and liabilities in any way relating to,
growing out of or resulting from this Agreement and the transactions
contemplated hereby (including, without limitation, enforcement of this
Agreement), except to the extent such claims, losses or liabilities result from
Secured Party's or such Lender's gross negligence or willful misconduct as
finally determined by a court of competent jurisdiction.
11
<PAGE>
(b) Pledgor shall pay to Secured Party upon demand the amount of any
and all reasonable out-of-pocket costs and expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents, that Secured
Party 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 Pledged Collateral, (iii) the exercise or
enforcement of any of the rights of Secured Party hereunder, or (iv) the failure
by Pledgor to perform or observe any of the provisions hereof.
SECTION 14. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS. This
-----------------------------------------------
Agreement shall create a continuing security interest in the Pledged Collateral
and shall (a) remain in full force and effect until the payment in full of all
Secured Obligations, the cancellation or termination of the Commitments and the
cancellation or expiration of all outstanding Letters of Credit, (b) be binding
upon Pledgor, its successors and assigns, and (c) inure, together with the
rights and remedies of Secured Party hereunder, to the benefit of Secured Party
and its successors, transferees and assigns. Without limiting the generality of
the foregoing clause (c), but subject to the provisions of subsection 10.1 of
the Credit Agreement, any Lender may assign or otherwise transfer any Loans held
by it to any other Person, and such other Person shall thereupon become vested
with all the benefits in respect thereof granted to Lenders herein or otherwise.
Upon the payment in full of all Secured Obligations, the cancellation or
termination of the Commitments and the cancellation or expiration of all
outstanding Letters of Credit, the security interest granted hereby shall
terminate and all rights to the Pledged Collateral shall revert to Pledgor.
Upon any such termination Secured Party will, at Pledgor's expense, execute and
deliver to Pledgor such documents as Pledgor shall reasonably request to
evidence such termination and Pledgor shall be entitled to the return, upon its
request and at its expense, against receipt and without recourse to Secured
Party, of such of the Pledged Collateral as shall not have been sold or
otherwise applied pursuant to the terms hereof.
SECTION 15. SECURED PARTY AS ADMINISTRATIVE AGENT.
-------------------------------------
(a) Secured Party has been appointed to act as Secured Party
hereunder by Lenders and, by their acceptance of the benefits hereof, Interest
Rate Exchangers. Secured Party shall be obligated, and shall have the right
hereunder, to make demands, to give notices, to exercise or refrain from
exercising any rights, and to take or refrain from taking any action (including
the release or substitution of Pledged Collateral), solely in accordance with
this Agreement and the Credit Agreement; provided that Secured Party shall
--------
exercise, or refrain from exercising, any remedies provided for in Section 11 in
accordance with the instructions of (i) Requisite Lenders or (ii) after payment
in full of all Obligations under the Credit Agreement and the other Loan
Documents, the holders of a majority of the aggregate notional amount (or, with
respect to any Lender Interest Rate Agreement that has been terminated in
accordance with its terms, the amount then due and payable (exclusive of
expenses and similar payments but including any early termination payments then
due) under such Lender Interest Rate Agreement) under all Lender Interest Rate
Agreements (Requisite Lenders or, if applicable, such holders being referred to
herein as "REQUISITE OBLIGEES"). In furtherance of the foregoing provisions of
12
<PAGE>
this Section 15(a), each Interest Rate Exchanger, by its acceptance of the
benefits hereof, agrees that it shall have no right individually to realize upon
any of the Pledged Collateral hereunder, it being understood and agreed by such
Interest Rate Exchanger that all rights and remedies hereunder may be exercised
solely by Secured Party for the benefit of Lenders and Interest Rate Exchangers
in accordance with the terms of this Section 15(a).
(b) Secured Party shall at all times be the same Person that is
Administrative Agent under the Credit Agreement. Written notice of resignation
by Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall
also constitute notice of resignation as Secured Party under this Agreement;
removal of Administrative Agent pursuant to subsection 9.5 of the Credit
Agreement shall also constitute removal as Secured Party under this Agreement;
and appointment of a successor Administrative Agent pursuant to subsection 9.5
of the Credit Agreement shall also constitute appointment of a successor Secured
Party under this Agreement. Upon the acceptance of any appointment as
Administrative Agent under subsection 9.5 of the Credit Agreement by a successor
Administrative Agent, that successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring or removed Secured Party under this Agreement, and the retiring
or removed Secured Party under this Agreement shall promptly (i) transfer to
such successor Secured Party all sums, securities and other items of Collateral
held hereunder, together with all records and other documents necessary or
appropriate in connection with the performance of the duties of the successor
Secured Party under this Agreement, and (ii) execute and deliver to such
successor Secured Party such amendments to financing statements, and take such
other actions, as may be necessary or appropriate in connection with the
assignment to such successor Secured Party of the security interests created
hereunder, whereupon such retiring or removed Secured Party shall be discharged
from its duties and obligations under this Agreement. After any retiring or
removed Administrative Agent's resignation or removal hereunder as Secured
Party, the provisions of this Agreement shall inure to its benefit as to any
actions taken or omitted to be taken by it under this Agreement while it was
Secured Party hereunder.
SECTION 16. AMENDMENTS; ETC. No amendment, modification, termination
---------------
or waiver of any provision of this Agreement, and no consent to any departure by
Pledgor therefrom, shall in any event be effective unless the same shall be in
writing and signed by Secured Party and, in the case of any such amendment or
modification, by Pledgor. Any such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which it was given.
SECTION 17. NOTICES. Any notice or other communication herein
-------
required or permitted to be given shall be given as provided in the Credit
Agreement. For the purposes hereof, the address of each party hereto shall be
as set forth under such party's name on the signature pages hereof or, as to
either party, such other address as shall be designated by such party in a
written notice delivered to the other party hereto.
SECTION 18. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
-----------------------------------------------------
failure or delay on the part of Secured Party in the exercise of any
13
<PAGE>
power, right or privilege hereunder shall impair such power, right or privilege
or be construed to be a waiver of any default or acquiescence therein, nor shall
any single or partial exercise of any such power, right or privilege preclude
any other or further exercise thereof or of any other power, right or privilege.
All rights and remedies existing under this Agreement are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
SECTION 19. SEVERABILITY. In case any provision in or obligation
------------
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 20. HEADINGS. Section and subsection headings in this
--------
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given any
substantive effect.
SECTION 21. GOVERNING LAW; TERMS; RULES OF CONSTRUCTION. THIS
-------------------------------------------
AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE
GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL
OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES, EXCEPT TO THE EXTENT THAT THE CODE PROVIDES THAT THE PERFECTION OF
THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY
PARTICULAR PLEDGED COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER
THAN THE STATE OF NEW YORK. Unless otherwise defined herein or in the Credit
Agreement, terms used in Articles 8 and 9 of the Uniform Commercial Code in the
State of New York are used herein as therein defined. The rules of construction
set forth in subsection 1.3 of the Credit Agreement shall be applicable to this
Agreement mutatis mutandis.
SECTION 22. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
----------------------------------------------
(A) ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST PLEDGOR ARISING OUT OF
OR RELATING TO THIS AGREEMENT, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN
ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND
CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, PLEDGOR, FOR
ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
14
<PAGE>
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN
ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO PLEDGOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 17;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER PLEDGOR IN ANY SUCH
PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT;
(V) AGREES THAT SECURED PARTY RETAINS THE RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST PLEDGOR IN
THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SECTION 22 RELATING TO
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR
OTHERWISE.
(b) Without limiting the generality of the last sentence of Section
22(a), any judicial proceedings brought against Pledgor arising out of or
relating to the pledge of shares of capital stock of any Foreign Subsidiary
hereunder may be brought in any court of competent jurisdiction in the
jurisdiction in which such Foreign Subsidiary is organized, and by execution and
delivery of this Agreement, Pledgor accepts for itself and in connection with
its properties (including without limitation the applicable Pledged Shares),
generally and unconditionally, the nonexclusive jurisdiction of any such court
and waives any defense of forum non conveniens (or any similar defense under the
laws of such jurisdiction) and irrevocably agrees to be bound by any judgement
rendered thereby in connection with such pledge or the enforcement thereof.
SECTION 23. WAIVER OF JURY TRIAL. PLEDGOR AND SECURED PARTY HEREBY
--------------------
AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this waiver is
intended to be all-encompassing of any and all disputes that may be filed in any
court and that relate to the subject matter of this transaction, including
contract claims, tort claims, breach of duty claims, and all other common law
and statutory claims. Pledgor and Secured Party each acknowledge that this
waiver is a material inducement for Pledgor and Secured Party to enter into a
business relationship, that Pledgor and Secured Party have already relied on
this waiver in entering into this Agreement and that each will continue to rely
on this waiver in their related future dealings. Pledgor and Secured Party
further warrant and represent that each has reviewed this waiver with its legal
counsel, and that each knowingly and voluntarily waives its jury trial rights
following consultation with legal
15
<PAGE>
counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY
REFERRING TO THIS SECTION 23 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT. In the event of litigation, this Agreement may
be filed as a written consent to a trial by the court.
SECTION 24. COUNTERPARTS. This Agreement may be executed in one or
------------
more counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
[Remainder of page intentionally left blank]
16
<PAGE>
IN WITNESS WHEREOF, Pledgor and Secured Party have caused this Agreement to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
DIAMOND BRANDS INCORPORATED,
as Pledgor
By: _____________________________
Name: ___________________________
Title: __________________________
Notice Address:
1800 Cloquet Avenue
Cloquet, MN 55720-2141
Attention: Tom Knuesel
WELLS FARGO BANK, N.A.,
as Administrative Agent
By: _____________________________
Name: ___________________________
Title: __________________________
Notice Address:
555 Montgomery Street, 17th Floor
San Francisco, California 94111
Attention: Alan Wray
S-1
<PAGE>
SCHEDULE I
Attached to and forming a part of the Pledge Agreement dated as of
April 21, 1998 between Diamond Brands Incorporated, as Pledgor, and Wells Fargo
Bank, N.A., as Secured Party.
<TABLE>
<CAPTION>
Part A
Class of Stock Certi- Par Number of
Stock Issuer Stock ficate Nos. Value Shares
- ------------ -------- ------------ ----- ---------
<S> <C> <C> <C> <C>
<CAPTION>
Part B
Debt Issuer Amount of Indebtedness
- ----------- ----------------------
<S> <C>
</TABLE>
<PAGE>
SCHEDULE II
PLEDGE AMENDMENT
This Pledge Amendment, dated ____________, _____, is delivered
pursuant to Section 6(b) of the Pledge Agreement referred to below. The
undersigned hereby agrees that this Subsidiary Pledge Amendment may be attached
to the Subsidiary Pledge Agreement dated April 21, 1998, between the undersigned
and Wells Fargo Bank, N.A., as Secured Party (the "PLEDGE AGREEMENT,"
capitalized terms defined therein being used herein as therein defined), and
that the [Pledged Shares] [Pledged Debt] listed on this Pledge Amendment shall
be deemed to be part of the [Pledged Shares] [Pledged Debt] and shall become
part of the Pledged Collateral and shall secure all Secured Obligations.
DIAMOND BRANDS INCORPORATED
By: ___________________________
Title:
<TABLE>
<CAPTION>
Class of Stock Certi- Par Number of
Stock Issuer Stock ficate Nos. Value Shares
- ------------ -------- ------------- ----- ---------
<S> <C> <C> <C> <C>
<CAPTION>
Debt Issuer Amount of Indebtedness
- ----------- ----------------------
<S> <C>
</TABLE>
<PAGE>
EXHIBIT XXV
[FORM OF HOLDINGS GUARANTY]
HOLDINGS GUARANTY
This GUARANTY is entered into as of April 21, 1998 by THE UNDERSIGNED
("GUARANTOR") in favor of and for the benefit of WELLS FARGO BANK, N.A., as
administrative agent for and representative of (in such capacity herein called
"GUARANTIED PARTY") the financial institutions ("LENDERS") party to the Credit
Agreement referred to below and any Interest Rate Exchangers (as hereinafter
defined), and, subject to subsection 5.13, for the benefit of the other
Beneficiaries (as hereinafter defined).
RECITALS
A. Diamond Brands Operating Corp., a Delaware corporation
("COMPANY"), has entered into that certain Credit Agreement dated as of April
21, 1998 with DLJ Capital Funding, Inc., as Syndication Agent, Guarantied Party,
Morgan Stanley Senior Funding, Inc., as Documentation Agent, and Lenders (said
Credit Agreement, as it may hereafter be amended, supplemented or otherwise
modified from time to time, being the "CREDIT AGREEMENT"; capitalized terms
defined therein and not otherwise defined herein being used herein as therein
defined).
B. Company may from time to time enter, or may from time to time have
entered, into one or more Interest Rate Agreements (collectively, the "LENDER
INTEREST RATE AGREEMENTS") with or one or more Lenders (in such capacity,
collectively, "INTEREST RATE EXCHANGERS") in accordance with the terms of the
Credit Agreement, and it is desired that the obligations of Company under the
Lender Interest Rate Agreements, including the obligation of Company to make
payments thereunder in the event of early termination thereof (all such
obligations being the "INTEREST RATE OBLIGATIONS"), together with all
obligations of Company under the Credit Agreement and the other Loan Documents,
be guarantied hereunder.
C. Guarantor is willing irrevocably and unconditionally to guaranty
such obligations of Company.
D. EMPIRE CANDLE, INC., a Kansas corporation, and FORSTER INC., a
Maine corporation, (each a "SUBSIDIARY GUARANTOR," and collectively, the
"SUBSIDIARY GUARANTORS") have entered into that certain Subsidiary Guaranty
dated as of April 21, 1998 in favor of Guarantied Party (the "SUBSIDIARY
GUARANTY").
E. It is a condition precedent to the making of the initial Loans
under the Credit Agreement that Company's obligations thereunder be guarantied
by Guarantor.
XXV-1
<PAGE>
NOW, THEREFORE, based upon the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
in order to induce Lenders and Guarantied Party to enter into the Credit
Agreement and to make Loans and other extensions of credit thereunder and to
induce Interest Rate Exchangers to enter into the Lender Interest Rate
Agreements, Guarantor hereby agrees as follows:
SECTION 1. DEFINITIONS
1.1 CERTAIN DEFINED TERMS. As used in this Guaranty, the following terms
---------------------
shall have the following meanings unless the context otherwise requires:
"BENEFICIARIES" means Guarantied Party, Lenders and any Interest Rate
Exchangers.
"GUARANTIED OBLIGATIONS" has the meaning assigned to that term in
subsection 2.1.
"GUARANTY" means this Guaranty dated as of April 21, 1998, as it may be
amended, supplemented or otherwise modified from time to time.
"PAYMENT IN FULL", "PAID IN FULL" or any similar term means payment in
full of the Guarantied Obligations, including all principal, interest,
costs, fees and expenses (including reasonable legal fees and expenses) of
Beneficiaries as required under the Loan Documents and the Lender Interest
Rate Agreements.
1.2 DEFINED TERMS IN CREDIT AGREEMENT. All capitalized terms used and not
---------------------------------
otherwise defined herein shall have the meanings given such terms in the Credit
Agreement.
1.3 INTERPRETATION.
--------------
(a) References to "Sections" and "subsections" shall be to Sections and
subsections, respectively, of this Guaranty unless otherwise specifically
provided.
(b) In the event of any conflict or inconsistency between the terms,
conditions and provisions of this Guaranty and the terms, conditions and
provisions of the Credit Agreement, the terms, conditions and provisions of
this Guaranty shall prevail.
SECTION 2. THE GUARANTY
2.1 GUARANTY OF THE GUARANTIED OBLIGATIONS. Subject to the provisions of
--------------------------------------
subsection 2.2(a), Guarantor hereby irrevocably and unconditionally guaranties
the due and punctual payment in full of all Guarantied Obligations when the same
shall become
XXV-2
<PAGE>
due, whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise (including amounts that would become due but
for the operation of the automatic stay under Section 362(a) of the Bankruptcy
Code, 11 U.S.C. (S) 362(a)). The term "GUARANTIED OBLIGATIONS" is used herein in
its most comprehensive sense and includes:
(a) any and all Obligations of Company and any and all Interest Rate
Obligations, in each case now or hereafter made, incurred or created,
whether absolute or contingent, liquidated or unliquidated, whether due or
not due, and however arising under or in connection with the Credit
Agreement and the other Loan Documents and the Lender Interest Rate
Agreements, including those arising under successive borrowing transactions
under the Credit Agreement which shall either continue the Obligations of
Company or from time to time renew them after they have been satisfied and
including interest which, but for the filing of a petition in bankruptcy
with respect to Company, would have accrued on any Guarantied Obligations,
whether or not a claim is allowed against Company for such interest in the
related bankruptcy proceeding; and
(b) those expenses set forth in subsection 2.8 hereof.
2.2 LIMITATION ON AMOUNT GUARANTIED; CONTRIBUTION BY GUARANTOR.
----------------------------------------------------------
(a) Anything contained in this Guaranty to the contrary notwithstanding, if any
Fraudulent Transfer Law (as hereinafter defined) is determined by a court of
competent jurisdiction to be applicable to the obligations of Guarantor under
this Guaranty, such obligations of Guarantor hereunder shall be limited to a
maximum aggregate amount equal to the largest amount that would not render its
obligations hereunder subject to avoidance as a fraudulent transfer or
conveyance under Section 548 of Title 11 of the United States Code or any
applicable provisions of comparable state law (collectively, the "FRAUDULENT
TRANSFER LAWS"), in each case after giving effect to all other liabilities of
Guarantor, contingent or otherwise, that are relevant under the Fraudulent
Transfer Laws (specifically excluding, however, any liabilities of Guarantor (x)
in respect of intercompany indebtedness to Company or other affiliates of
Company to the extent that such indebtedness would be discharged in an amount
equal to the amount paid by Guarantor hereunder and (y) under any guaranty of
Subordinated Indebtedness which guaranty contains a limitation as to maximum
amount similar to that set forth in this subsection 2.2(a), pursuant to which
the liability of 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, reimbursement, indemnification or
contribution of Guarantor pursuant to applicable law or pursuant to the terms of
any agreement (including any such right of contribution under subsection
2.2(b)).
(b) Guarantor under this Guaranty, and each Subsidiary Guarantor under the
Subsidiary Guaranty, together desire to allocate among themselves (collectively,
the "CONTRIBUTING GUARANTORS"), in a fair and equitable manner, their
obligations arising
XXV-3
<PAGE>
under this Guaranty. Accordingly, in the event any payment or distribution is
made on any date by Guarantor under this Guaranty or any Subsidiary Guarantor
under the Subsidiary Guaranty (a "FUNDING GUARANTOR") that exceeds its Fair
Share (as defined below) as of such date, that Funding Guarantor shall be
entitled to a contribution from each of the other Contributing Guarantors in the
amount of such other Contributing Guarantor's Fair Share Shortfall (as defined
below) as of such date, with the result that all such contributions will cause
each Contributing Guarantor's Aggregate Payments (as defined below) to equal its
Fair Share as of such date. "FAIR SHARE" means, with respect to a Contributing
Guarantor as of any date of determination, an amount equal to (i) the ratio of
(x) the Adjusted Maximum Amount (as defined below) with respect to such
Contributing Guarantor to (y) the aggregate of the Adjusted Maximum Amounts with
respect to all Contributing Guarantors multiplied by (ii) the aggregate amount
----------
paid or distributed on or before such date by all Funding Guarantors under this
Guaranty and the Subsidiary Guaranty in respect of the obligations guarantied.
"FAIR SHARE SHORTFALL" means, with respect to a Contributing Guarantor as of any
date of determination, the excess, if any, of the Fair Share of such
Contributing Guarantor over the Aggregate Payments of such Contributing
Guarantor. "ADJUSTED MAXIMUM AMOUNT" means, with respect to a Contributing
Guarantor as of any date of determination, the maximum aggregate amount of the
obligations of such Contributing Guarantor under this Guaranty and the
Subsidiary Guaranty, determined as of such date, in the case of Guarantor, in
accordance with subsection 2.2(a), or, if applicable, subsection 2.2(a) of the
Subsidiary Guaranty; provided that, solely for purposes of calculating the
--------
"Adjusted Maximum Amount" with respect to any Contributing Guarantor for
purposes of this subsection 2.2(b), any assets or liabilities of such
Contributing Guarantor arising by virtue of any rights to subrogation,
reimbursement or indemnification or any rights to or obligations of contribution
hereunder or under the Subsidiary Guaranty shall not be considered as assets or
liabilities of such Contributing Guarantor. "AGGREGATE PAYMENTS" means, with
respect to a Contributing Guarantor as of any date of determination, an amount
equal to (i) the aggregate amount of all payments and distributions made on or
before such date by such Contributing Guarantor in respect of this Guaranty and
the Subsidiary Guaranty (including in respect of this subsection 2.2(b) or
subsection 2.2(b) of the Subsidiary Guaranty) minus (ii) the aggregate amount of
-----
all payments received on or before such date by such Contributing Guarantor from
the other Contributing Guarantors as contributions under this subsection 2.2(b)
or subsection 2.2(b) of the Subsidiary Guaranty. The amounts payable as
contributions hereunder shall be determined as of the date on which the related
payment or distribution is made by the applicable Funding Guarantor. The
allocation among Contributing Guarantors of their obligations as set forth in
this subsection 2.2(b) or subsection 2.2(b) of the Subsidiary Guaranty shall not
be construed in any way to limit the liability of any Contributing Guarantor
hereunder or under the Subsidiary Guaranty. Each Contributing Guarantor under
the Subsidiary Guaranty is a third party beneficiary to the contribution
agreement set forth in this subsection 2.2(b).
2.3 PAYMENT BY GUARANTOR; APPLICATION OF PAYMENTS. Subject to the
---------------------------------------------
provisions of subsection 2.2(a), Guarantor hereby agrees, in furtherance of the
foregoing and not in limitation of any other right which any Beneficiary may
have at law or in
XXV-4
<PAGE>
equity against Guarantor by virtue hereof, that upon the failure of Company to
pay any of the Guarantied Obligations when and as the same shall become due,
whether at stated maturity, by required prepayment, declaration, acceleration,
demand or otherwise (including amounts that would become due but for the
operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11
U.S.C. (S) 362(a)), Guarantor will upon demand pay, or cause to be paid, in
cash, to Guarantied Party for the ratable benefit of Beneficiaries, an amount
equal to the sum of the unpaid principal amount of all Guarantied Obligations
then due as aforesaid, accrued and unpaid interest on such Guarantied
Obligations (including interest which, but for the filing of a petition in
bankruptcy with respect to Company, would have accrued on such Guarantied
Obligations, whether or not a claim is allowed against Company for such interest
in the related bankruptcy proceeding) and all other Guarantied Obligations then
owed to Beneficiaries as aforesaid. All such payments shall be applied promptly
from time to time by Guarantied Party as provided in subsection 2.4D of the
Credit Agreement.
2.4 LIABILITY OF GUARANTOR ABSOLUTE. Guarantor agrees that its obligations
-------------------------------
hereunder are irrevocable, absolute, independent and unconditional and shall not
be affected by any circumstance which constitutes a legal or equitable discharge
of a guarantor or surety other than payment in full of the Guarantied
Obligations. In furtherance of the foregoing and without limiting the
generality thereof, Guarantor agrees as follows:
(a) This Guaranty is a guaranty of payment when due and not of
collectibility.
(b) Guarantied Party may enforce this Guaranty upon the occurrence and
continuation of an Event of Default under the Credit Agreement or the
occurrence and continuation of an Early Termination Date (as defined in a
Master Agreement or an Interest Rate Swap Agreement or Interest Rate and
Currency Exchange Agreement in the form prepared by the International Swap
and Derivatives Association Inc. or a similar event under any similar swap
agreement) under any Lender Interest Rate Agreement (either such occurrence
being an "EVENT OF DEFAULT" for purposes of this Guaranty).
(c) The obligations of Guarantor hereunder are independent of the
obligations of Company under the Loan Documents or the Lender Interest Rate
Agreements and the obligations of any other guarantor of the obligations of
Company under the Loan Documents or the Lender Interest Rate Agreements, and
a separate action or actions may be brought and prosecuted against Guarantor
whether or not any action is brought against Company or any of such other
guarantors and whether or not Company is joined in any such action or
actions.
(d) Payment by Guarantor of a portion, but not all, of the Guarantied
Obligations shall in no way limit, affect, modify or abridge Guarantor's
liability for any portion of the Guarantied Obligations which has not been
paid. Without
XXV-5
<PAGE>
limiting the generality of the foregoing, if Guarantied Party is awarded a
judgment in any suit brought to enforce Guarantor's covenant to pay a
portion of the Guarantied Obligations, such judgment shall not be deemed to
release Guarantor from its covenant to pay the portion of the Guarantied
Obligations that is not the subject of such suit.
(e) Any Beneficiary, upon such terms as it deems appropriate, without
notice or demand and without affecting the validity or enforceability of
this Guaranty or giving rise to any reduction, limitation, impairment,
discharge or termination of Guarantor's liability hereunder, from time to
time may (i) renew, extend, accelerate, increase the rate of interest on, or
otherwise change the time, place, manner or terms of payment of the
Guarantied Obligations, (ii) settle, compromise, release or discharge, or
accept or refuse any offer of performance with respect to, or substitutions
for, the Guarantied Obligations or any agreement relating thereto and/or
subordinate the payment of the same to the payment of any other obligations;
(iii) request and accept other guaranties of the Guarantied Obligations and
take and hold security for the payment of this Guaranty or the Guarantied
Obligations; (iv) release, surrender, exchange, substitute, compromise,
settle, rescind, waive, alter, subordinate or modify, with or without
consideration, any security for payment of the Guarantied Obligations, any
other guaranties of the Guarantied Obligations, or any other obligation of
any Person with respect to the Guarantied Obligations; (v) enforce and apply
any security now or hereafter held by or for the benefit of such Beneficiary
in respect of this Guaranty or the Guarantied Obligations and direct the
order or manner of sale thereof, or exercise any other right or remedy that
such Beneficiary may have against any such security, in each case as such
Beneficiary in its discretion may determine consistent with the Credit
Agreement or the applicable Lender Interest Rate Agreement and any
applicable security agreement, including foreclosure on any such security
pursuant to one or more judicial or nonjudicial sales, whether or not every
aspect of any such sale is commercially reasonable, and even though such
action operates to impair or extinguish any right of reimbursement or
subrogation or other right or remedy of Guarantor against Company or any
security for the Guarantied Obligations; and (vi) exercise any other rights
available to it under the Loan Documents or the Lender Interest Rate
Agreements.
(f) This Guaranty and the obligations of Guarantor hereunder shall be
valid and enforceable and shall not be subject to any reduction, limitation,
impairment, discharge or termination for any reason (other than payment in
full of the Guarantied Obligations), including the occurrence of any of the
following, whether or not Guarantor shall have had notice or knowledge of
any of them: (i) any failure or omission to assert or enforce or agreement
or election not to assert or enforce, or the stay or enjoining, by order of
court, by operation of law or otherwise, of the exercise or enforcement of,
any claim or demand or any right, power or remedy (whether arising under the
Loan Documents or the Lender Interest Rate Agreements, at law, in equity or
otherwise) with respect to the Guarantied
XXV-6
<PAGE>
Obligations or any agreement relating thereto, or with respect to any other
guaranty of or security for the payment of the Guarantied Obligations; (ii)
any rescission, waiver, amendment or modification of, or any consent to
departure from, any of the terms or provisions (including provisions
relating to events of default) of the Credit Agreement, any of the other
Loan Documents, any of the Lender Interest Rate Agreements or any agreement
or instrument executed pursuant thereto, or of any other guaranty or
security for the Guarantied Obligations, in each case whether or not in
accordance with the terms of the Credit Agreement or such Loan Document,
such Lender Interest Rate Agreement or any agreement relating to such other
guaranty or security; (iii) the Guarantied Obligations, or any agreement
relating thereto, at any time being found to be illegal, invalid or
unenforceable in any respect; (iv) the application of payments received from
any source (other than payments received pursuant to the other Loan Docu
ments or any of the Lender Interest Rate Agreements or from the proceeds of
any security for the Guarantied Obligations, except to the extent such
security also serves as collateral for indebtedness other than the
Guarantied Obligations) to the payment of indebtedness other than the
Guarantied Obligations, even though any Beneficiary might have elected to
apply such payment to any part or all of the Guarantied Obligations; (v) any
Beneficiary's consent to the change, reorganization or termination of the
corporate structure or existence of Company or any of its Subsidiaries and
to any corresponding restructuring of the Guarantied Obligations; (vi) any
failure to perfect or continue perfection of a security interest in any
collateral which secures any of the Guarantied Obligations; (vii) any
defenses (other than the expiration of applicable statute of limitations),
set-offs or counterclaims which Company may allege or assert against any
Beneficiary in respect of the Guarantied Obligations, including failure of
consideration, breach of warranty, payment, statute of frauds, accord and
satisfaction and usury; and (viii) 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 Guarantor as an obligor in respect of the
Guarantied Obligations.
2.5 WAIVERS BY GUARANTOR. Guarantor hereby waives, for the benefit of
--------------------
Beneficiaries:
(a) any right to require any Beneficiary, as a condition of payment or
performance by Guarantor, to (i) proceed against Company, any other
guarantor of the Guarantied Obligations or any other Person, (ii) proceed
against or exhaust any security held from Company, any such other guarantor
or any other Person, (iii) proceed against or have resort to any balance of
any deposit account or credit on the books of any Beneficiary in favor of
Company or any other Person, or (iv) pursue any other remedy in the power of
any Beneficiary whatsoever;
(b) any defense arising by reason of the incapacity, lack of authority
or any disability or other defense of Company (other than the expiration of
applicable statute of limitations) including any defense based on or arising
out of the lack of
XXV-7
<PAGE>
validity or the unenforceability of the Guarantied Obligations or any
agreement or instrument relating thereto or by reason of the cessation of
the liability of Company from any cause other than payment in full of the
Guarantied Obligations;
(c) any defense based upon any statute or rule of law which provides
that the obligation of a surety must be neither larger in amount nor in
other respects more burdensome than that of the principal;
(d) any defense based upon any Beneficiary's errors or omissions in the
administration of the Guarantied Obligations, except behavior which amounts
to gross negligence, wilful misconduct or bad faith;
(e) (i) any principles or provisions of law, statutory or otherwise,
which are or might be in conflict with the terms of this Guaranty and any
legal or equitable discharge of Guarantor's obligations hereunder, (ii) any
rights to set-offs, recoupments and counterclaims, and (iii) promptness,
diligence and any requirement that any Beneficiary protect, secure, perfect
or insure any security interest or lien or any property subject thereto;
(f) notices, demands, presentments, protests, notices of protest,
notices of dishonor and notices of any action or inaction, including
acceptance of this Guaranty, notices of default under the Credit Agreement,
the Lender Interest Rate Agreements or any agreement or instrument related
thereto, notices of any renewal, extension or modification of the Guarantied
Obligations or any agreement related thereto, notices of any extension of
credit to Company and notices of any of the matters referred to in
subsection 2.4 and any right to consent to any thereof; and
(g) any defenses (other than expiration of statutes of limitations) or
benefits that may be derived from or afforded by law which limit the
liability of or exonerate guarantors or sureties, or which may conflict with
the terms of this Guaranty.
2.6 GUARANTOR' RIGHTS OF SUBROGATION, CONTRIBUTION, ETC. Until the
---------------------------------------------------
Guarantied Obligations shall have been indefeasilby paid in full and the
Commitments shall have terminated and all Letters of Credit shall have expired
or been cancelled, Guarantor hereby waives any claim, right or remedy, direct or
indirect, that Guarantor now has or may hereafter have against Company or any of
its assets in connection with this Guaranty or the performance by Guarantor of
its obligations hereunder, in each case whether such claim, right or remedy
arises in equity, under contract, by statute, under common law or otherwise and
including without limitation (a) any right of subrogation, reimbursement or
indemnification that Guarantor now has or may hereafter have against Company,
(b) any right to enforce, or to participate in, any claim, right or remedy that
any Beneficiary now has or may hereafter have against Company, and (c) any
benefit of,
XXV-8
<PAGE>
and any right to participate in, any collateral or security now or hereafter
held by any Beneficiary. In addition, until the Guarantied Obligations shall
have been indefeasibly paid in full and the Commitments shall have terminated
and all Letters of Credit shall have expired or been cancelled, Guarantor shall
withhold exercise of any right of contribution Guarantor may have against any
other guarantor of the Guarantied Obligations. Guarantor further agrees that, to
the extent the waiver or agreement to withhold the exercise of its rights of
subrogation, reimbursement, indemnification and contribution as set forth herein
is found by a court of competent jurisdiction to be void or voidable for any
reason, any rights of subrogation, reimbursement or indemnification Guarantor
may have against Company or against any collateral or security, and any rights
of contribution Guarantor may have against any such other guarantor, shall be
junior and subordinate to any rights any Beneficiary may have against Company,
to all right, title and interest any Beneficiary may have in any such collateral
or security, and to any right any Beneficiary may have against such other
guarantor. If any amount shall be paid to Guarantor on account of any such
subrogation, reimbursement, indemnification or contribution rights at any time
when all Guarantied Obligations shall not have been paid in full, such amount
shall be held in trust for Guarantied Party on behalf of Beneficiaries and shall
forthwith be paid over to Guarantied Party for the benefit of Beneficiaries to
be credited and applied against the Guarantied Obligations, whether matured or
unmatured, in accordance with the terms hereof.
2.7 SUBORDINATION OF OTHER OBLIGATIONS. Any indebtedness of Company now or
----------------------------------
hereafter held by Guarantor is hereby subordinated in right of payment to the
Guarantied Obligations, and any such indebtedness of Company to Guarantor
collected or received by Guarantor after an Event of Default has occurred and is
continuing shall be held in trust for Guarantied Party on behalf of
Beneficiaries and shall forthwith be paid over to Guarantied Party for the
benefit of Beneficiaries to be credited and applied against the Guarantied
Obligations but without affecting, impairing or limiting in any manner the
liability of Guarantor under any other provision of this Guaranty.
2.8 EXPENSES. Guarantor agrees to pay, or cause to be paid, on demand, and
--------
to save Beneficiaries harmless against liability for, any and all out-of-pocket
costs and expenses (including reasonable fees and disbursements of counsel and
allocated costs of internal counsel) incurred or expended by any Beneficiary in
connection with the enforcement of or preservation of any rights under this
Guaranty.
2.9 CONTINUING GUARANTY. This Guaranty is a continuing guaranty and shall
-------------------
remain in effect until all of the Guarantied Obligations shall have been paid in
full and the Commitments shall have terminated and all Letters of Credit shall
have expired or been cancelled. Guarantor hereby irrevocably waives any right
to revoke this Guaranty as to future transactions giving rise to any Guarantied
Obligations.
2.10 AUTHORITY OF GUARANTOR OR COMPANY. It is not necessary for any
---------------------------------
Beneficiary to inquire into the capacity or powers of Guarantor or Company or
the
XXV-9
<PAGE>
officers, directors, members, governors or any agents acting or purporting to
act on behalf of any of them.
2.11 FINANCIAL CONDITION OF COMPANY. Any Loans may be granted to Company or
------------------------------
continued from time to time, and any Lender Interest Rate Agreements may be
entered into from time to time, in each case without notice to or authorization
from Guarantor regardless of the financial or other condition of Company at the
time of any such grant or continuation or at the time such Lender Interest Rate
Agreement is entered into, as the case may be. No Beneficiary shall have any
obligation to disclose or discuss with Guarantor its assessment, or Guarantor's
assessment, of the financial condition of Company. Guarantor has adequate means
to obtain information from Company on a continuing basis concerning the
financial condition of Company and its ability to perform its obligations under
the Loan Documents and the Lender Interest Rate Agreements, and Guarantor
assumes the responsibility for being and keeping informed of the financial
condition of Company and of all circumstances bearing upon the risk of
nonpayment of the Guarantied Obligations. Guarantor hereby waives and
relinquishes any duty on the part of any Beneficiary to disclose any matter,
fact or thing relating to the business, operations or conditions of Company now
known or hereafter known by any Beneficiary.
2.12 RIGHTS CUMULATIVE. The rights, powers and remedies given to
-----------------
Beneficiaries by this Guaranty are cumulative and shall be in addition to and
independent of all rights, powers and remedies given to Beneficiaries by virtue
of any statute or rule of law or in any of the other Loan Documents, any of the
Lender Interest Rate Agreements or any agreement between Guarantor and any
Beneficiary or Beneficiaries or between Company and any Beneficiary or
Beneficiaries. Any forbearance or failure to exercise, and any delay by any
Beneficiary in exercising, any right, power or remedy hereunder shall not impair
any such right, power or remedy or be construed to be a waiver thereof, nor
shall it preclude the further exercise of any such right, power or remedy.
2.13 BANKRUPTCY; POST-PETITION INTEREST; REINSTATEMENT OF GUARANTY. (a) So
-------------------------------------------------------------
long as any Guarantied Obligations remain outstanding, Guarantor shall not,
without the prior written consent of Guarantied Party acting pursuant to the
instructions of Requisite Lenders, commence or join with any other Person in
commencing any bankruptcy, reorganization or insolvency proceedings of or
against Company. The obligations of Guarantor under this Guaranty shall not be
reduced, limited, impaired, discharged, deferred, suspended or terminated by any
proceeding, voluntary or involuntary, involving the bankruptcy, insolvency,
receivership, reorganization, liquidation or arrangement of Company or by any
defense which Company may have by reason of the order, decree or decision of any
court or administrative body resulting from any such proceeding.
(b) Guarantor acknowledges and agrees that any interest on any portion
of the Guarantied Obligations which accrues after the commencement of any
proceeding referred to in clause (a) above (or, if interest on any portion of
the Guarantied Obligations ceases to accrue by operation of law by reason of the
commencement of said proceeding,
XXV-10
<PAGE>
such interest as would have accrued on such portion of the Guarantied
Obligations if said proceedings had not been commenced) shall be included in the
Guarantied Obligations because it is the intention of Guarantor and
Beneficiaries that the Guarantied Obligations which are guarantied by Guarantor
pursuant to this Guaranty should be determined without regard to any rule of law
or order which may relieve Company of any portion of such Guarantied
Obligations. Guarantor will permit any trustee in bankruptcy, receiver, debtor
in possession, assignee for the benefit of creditors or similar person to pay
Guarantied Party, or allow the claim of Guarantied Party in respect of, any such
interest accruing after the date on which such proceeding is commenced.
(c) In the event that all or any portion of the Guarantied
Obligations is paid by Company, the obligations of Guarantor hereunder shall
continue and remain in full force and effect or be reinstated, as the case may
be, in the event that all or any part of such payment(s) are rescinded or
recovered directly or indirectly from any Beneficiary as a preference,
fraudulent transfer or otherwise, and any such payments which are so rescinded
or recovered shall constitute Guarantied Obligations for all purposes under this
Guaranty.
2.14 NOTICE OF EVENTS. As soon as Guarantor obtains knowledge thereof,
----------------
Guarantor shall give Guarantied Party written notice of any condition or event
which has resulted in (a) a material adverse change in the financial condition
of Guarantor or Company or (b) a breach of or noncompliance with any term,
condition or covenant contained herein or in the Credit Agreement, any other
Loan Document, any Lender Interest Rate Agreements or any other document
delivered pursuant hereto or thereto.
2.15 SET OFF. In addition to any other rights any Beneficiary may have
-------
under law or in equity, if any amount shall at any time be due and owing by
Guarantor to any Beneficiary under this Guaranty, such Beneficiary is authorized
at any time or from time to time, without notice (any such notice being hereby
expressly waived), to set off and to appropriate and to apply any and all
deposits (general or special, including indebtedness evidenced by certificates
of deposit, whether matured or unmatured) and any other indebtedness of such
Beneficiary owing to Guarantor and any other property of Guarantor held by any
Beneficiary to or for the credit or the account of Guarantor against and on
account of the Guarantied Obligations and liabilities of Guarantor to any
Beneficiary under this Guaranty.
2.16 DISCHARGE OF GUARANTY UPON SALE OF GUARANTOR. If all of the stock or
--------------------------------------------
limited liability company interests of Guarantor or any of its successors in
interest under this Guaranty shall be sold or otherwise disposed of (including
by merger or consolidation) in an Asset Sale not prohibited by subsection 7.7 of
the Credit Agreement or otherwise consented to by Requisite Lenders, the
Guaranty of Guarantor or such successor in interest, as the case may be,
hereunder shall automatically be discharged and released without any further
action by any Beneficiary or any other Person effective as of the time of such
Asset Sale; provided that, as a condition precedent to such discharge and
--------
release, Guarantied Party shall have received evidence satisfactory to it that
arrangements
XXV-11
<PAGE>
satisfactory to it have been made for delivery to Guarantied Party of the
applicable Net Asset Sale Proceeds if required under the Credit Agreement;
provided further that no such delivery shall be required in connection with a
- ----------------
merger or consolidation of such entity into or with Company or another
subsidiary of Company.
SECTION 3. REPRESENTATIONS AND WARRANTIES
In order to induce Beneficiaries to accept this Guaranty and to enter
into the Credit Agreement and to make the Loans thereunder, Guarantor hereby
represents and warrants to Beneficiaries that the following statements are true
and correct:
3.1 CORPORATE EXISTENCE. Guarantor is duly organized, validly existing
-------------------
and in good standing under the laws of the state of its incorporation, has the
corporate power to own its assets and to transact the business in which it is
now engaged and is duly qualified as a foreign corporation and in good standing
under the laws of each jurisdiction where its ownership or lease of property or
the conduct of its business requires such qualification, except for failures to
be so qualified, authorized or licensed that would not in the aggregate have a
material adverse effect on the business, operations, assets or financial
condition of Guarantor.
3.2 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. Guarantor has
-------------------------------------------------------
the corporate power, authority and legal right to execute, deliver and perform
this Guaranty and all obligations required hereunder and has taken all necessary
corporate action to authorize its Guaranty hereunder on the terms and conditions
hereof and its execution, delivery and performance of this Guaranty and all
obligations required hereunder. No consent of any other Person including,
without limitation, stockholders and creditors of Guarantor, and no license,
permit, approval or authorization of, exemption by, notice or report to, or
registration, filing or declaration with, any governmental authority is required
by Guarantor in connection with this Guaranty or the execution, delivery,
performance, validity or enforceability of this Guaranty and all obligations
required hereunder. This Guaranty has been, and each instrument or document
required hereunder will be, executed and delivered by a duly authorized officer
of the Guarantor, and this Guaranty constitutes, and each instrument or document
required hereunder when executed and delivered hereunder will constitute, the
legally valid and binding obligation of the Guarantor, enforceable against the
Guarantor in accordance with its terms, except as enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws or equitable principles relating to or limiting creditors' rights
generally.
3.3 NO LEGAL BAR TO THIS GUARANTY. The execution, delivery and performance
-----------------------------
of this Guaranty and the documents or instruments required hereunder, and the
use of the proceeds of the borrowings under the Credit Agreement, will not
violate any provision of any existing law or regulation binding on Guarantor, or
any order, judgment, award or decree of any court, arbitrator or governmental
authority binding on Guarantor, or the certificate of incorporation or bylaws of
Guarantor or any securities issued by Guarantor,
XXV-12
<PAGE>
or any mortgage, indenture, lease, contract or other agreement, instrument or
undertaking to which Guarantor is a party or by which Guarantor or any of its
assets may be bound, the violation of which would have a material adverse effect
on the business, operations, assets or financial condition of Guarantor and will
not result in, or require, the creation or imposition of any Lien on any of its
property, assets or revenues pursuant to the provisions of any such mortgage,
indenture, lease, contract or other agreement, instrument or undertaking.
SECTION 4. AFFIRMATIVE COVENANTS
Guarantor covenants and agrees that, unless and until all of the
Guarantied Obligations shall have been paid in full and the Commitments shall
have terminated, unless Requisite Lenders shall otherwise consent in writing:
4.1 CORPORATE EXISTENCE, ETC. Guarantor shall at all times preserve and
------------------------
keep in full force and effect its corporate existence and all rights and
franchises material to its business.
4.2 COMPLIANCE WITH LAWS, ETC. Guarantor shall comply in all material
-------------------------
respects with all applicable laws, rules, regulations and orders, such
compliance to include, without limitation, paying when due all taxes,
assessments and governmental charges imposed upon it or upon any of its
properties or assets or in respect of any of its franchises, businesses, income
or property before any penalty or interest accrues thereon.
4.3 BOOKS AND RECORDS. Subject to the terms of the Credit Agreement,
-----------------
Guarantor shall keep and maintain books of record and account with respect to
its operations in accordance with generally accepted accounting principles and
shall permit any Beneficiary and its officers, employees and authorized agents,
to the extent Guarantied Party in good faith deems necessary for the proper
administration of this Guaranty, to examine, copy and make excerpts from the
books and records of Guarantor and its Subsidiaries and to inspect the
properties of Guarantor and its Subsidiaries, both real and personal, at such
reasonable times as Guarantied Party may request.
SECTION 5. MISCELLANEOUS
5.1 SURVIVAL OF WARRANTIES. All agreements, representations and warranties
----------------------
made herein shall survive the execution and delivery of this Guaranty and the
other Loan Documents and the Lender Interest Rate Agreements and any increase in
the Commitments under the Credit Agreement.
5.2 NOTICES. Any communications between Guarantied Party and Guarantor and
-------
any notices or requests provided herein to be given shall be given as provided
in the Credit Agreement to each such party at its address set forth in the
Credit Agreement, on the signature pages hereof or to such other addresses as
each such party may in writing
XXV-13
<PAGE>
hereafter indicate. Any notice, request or demand to or upon Guarantied Party or
Guarantor shall not be effective until received.
5.3 SEVERABILITY. In case any provision in or obligation under this
------------
Guaranty shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
5.4 AMENDMENTS AND WAIVERS. No amendment, modification, termination or
----------------------
waiver of any provision of this Guaranty, and no consent to any departure by
Guarantor therefrom, shall in any event be effective without the written
concurrence of Guarantied Party and, in the case of any such amendment or
modification, Guarantor against whom enforcement of such amendment or
modification is sought. Any such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which it was given.
5.5 HEADINGS. Section and subsection headings in this Guaranty are
--------
included herein for convenience of reference only and shall not constitute a
part of this Guaranty for any other purpose or be given any substantive effect.
5.6 APPLICABLE LAW; RULES OF CONSTRUCTION. THIS GUARANTY AND THE RIGHTS
-------------------------------------
AND OBLIGATIONS OF GUARANTOR AND BENEFICIARIES HEREUNDER SHALL BE GOVERNED BY,
AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF
THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. The
rules of construction set forth in subsection 1.3 of the Credit Agreement shall
be applicable to this Guaranty mutatis mutandis.
5.7 SUCCESSORS AND ASSIGNS. This Guaranty is a continuing guaranty and
----------------------
shall be binding upon Guarantor and its respective successors and assigns. This
Guaranty shall inure to the benefit of Beneficiaries and their respective
successors and assigns. Guarantor shall not assign this Guaranty or any of the
rights or obligations of Guarantor hereunder without the prior written consent
of all Lenders. Any Beneficiary may, without notice or consent, assign its
interest in this Guaranty in whole or in part. The terms and provisions of this
Guaranty shall inure to the benefit of any transferee or assignee of any Loan,
and in the event of such transfer or assignment the rights and privileges herein
conferred upon such Beneficiary shall automatically extend to and be vested in
such transferee or assignee, all subject to the terms and conditions hereof.
5.8 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL JUDICIAL
----------------------------------------------
PROCEEDINGS BROUGHT AGAINST GUARANTOR ARISING OUT OF OR RELATING TO THIS
GUARANTY, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL
COURT OF COMPETENT
XXV-14
<PAGE>
JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND
DELIVERING THIS AGREEMENT, GUARANTOR, FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, IRREVOCABLY
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN
ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO GUARANTOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH
SUBSECTION 5.2;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER GUARANTOR IN ANY SUCH
PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT;
(V) AGREES THAT BENEFICIARIES RETAIN THE RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST GUARANTOR
IN THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 5.8 RELATING TO
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR
OTHERWISE.
5.9 WAIVER OF TRIAL BY JURY. GUARANTOR AND, BY ITS ACCEPTANCE OF THE
-----------------------
BENEFITS HEREOF, EACH BENEFICIARY EACH HEREBY AGREES TO WAIVE ITS RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS GUARANTY. The scope of this waiver is intended to be all encompassing of
any and all disputes that may be filed in any court and that relate to the
subject matter of this transaction, including contract claims, tort claims,
breach of duty claims and all other common law and statutory claims. Guarantor
and, by its acceptance of the benefits hereof, each Beneficiary, each (i)
acknowledges that this waiver is a material inducement for Guarantor and
Beneficiaries to enter into a business relationship, that Guarantor and
Beneficiaries have already relied on this waiver in entering into this Guaranty
or accepting the benefits thereof, as the case may be, and that each will
continue to rely on this waiver in their related future dealings and (ii)
further warrants and represents that each has
XXV-15
<PAGE>
reviewed this waiver with its legal counsel, and that each knowingly and
voluntarily waives its jury trial rights following consultation with legal
counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY
REFERRING TO THIS SUBSECTION 5.9 AND EXECUTED BY GUARANTIED PARTY AND
GUARANTOR), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY. In the event of litigation, this
Guaranty may be filed as a written consent to a trial by the court.
5.10 NO OTHER WRITING. This writing is intended by Guarantor and
----------------
Beneficiaries as the final expression of this Guaranty and is also intended as a
complete and exclusive statement of the terms of their agreement with respect to
the matters covered hereby. No course of dealing, course of performance or trade
usage, and no parol evidence of any nature, shall be used to supplement or
modify any terms of this Guaranty. There are no conditions to the full
effectiveness of this Guaranty.
5.11 FURTHER ASSURANCES. At any time or from time to time, upon the
------------------
request of Guarantied Party, Guarantor shall execute and deliver such further
documents and do such other acts and things as Guarantied Party may reasonably
request in order to effect fully the purposes of this Guaranty.
5.12 COUNTERPARTS; EFFECTIVENESS. This Guaranty may be executed in any
---------------------------
number of counterparts and by the different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original for all purposes; but all such counterparts together shall
constitute but one and the same instrument. This Guaranty shall become effective
as to Guarantor upon the execution of a counterpart hereof by Guarantor and
receipt by Guarantied Party of written or telephonic notification of such
execution and authorization of delivery thereof.
5.13 GUARANTIED PARTY AS ADMINISTRATIVE AGENT.
----------------------------------------
(a) Guarantied Party has been appointed to act as Guarantied Party
hereunder by Lenders and, by their acceptance of the benefits hereof, Interest
Rate Exchangers. Guarantied Party shall be obligated, and shall have the right
hereunder, to make demands, to give notices, to exercise or refrain from
exercising any rights, and to take or refrain from taking any action, solely in
accordance with this Guaranty and the Credit Agreement; provided that Guarantied
--------
Party shall exercise, or refrain from exercising, any remedies hereunder in
accordance with the instructions of (i) Requisite Lenders or (ii) after payment
in full of all Obligations under the Credit Agreement and the other Loan
Documents, the holders of a majority of the aggregate notional amount (or, with
respect to any Lender Interest Rate Agreement that has been terminated in
accordance with its terms, the amount then due and payable (exclusive of
expenses and similar payments but including any early termination payments then
due) under such Lender Interest Rate Agreement) under all Lender Interest Rate
Agreements (Requisite
XXV-16
<PAGE>
Lenders or, if applicable, such holders being referred to herein as "REQUISITE
OBLIGEES"). In furtherance of the foregoing provisions of this subsection 5.13,
each Interest Rate Exchanger, by its acceptance of the benefits hereof, agrees
that it shall have no right individually to enforce this Guaranty, it being
understood and agreed by such Interest Rate Exchanger that all rights and
remedies hereunder may be exercised solely by Guarantied Party for the benefit
of Beneficiaries in accordance with the terms of this subsection 5.13.
(b) Guarantied Party shall at all times be the same Person that is
Administrative Agent under the Credit Agreement. Written notice of resignation
by Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall
also constitute notice of resignation as Guarantied Party under this Guaranty;
removal of Administrative Agent pursuant to subsection 9.5 of the Credit
Agreement shall also constitute removal as Guarantied Party under this Guaranty;
and appointment of a successor Administrative Agent pursuant to subsection 9.5
of the Credit Agreement shall also constitute appointment of a successor
Guarantied Party under this Guaranty. Upon the acceptance of any appointment as
Administrative Agent under subsection 9.5 of the Credit Agreement by a successor
Administrative Agent, that successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring or removed Guarantied Party under this Guaranty, and the
retiring or removed Guarantied Party under this Guaranty shall promptly (i)
transfer to such successor Guarantied Party all sums held hereunder, together
with all records and other documents necessary or appropriate in connection with
the performance of the duties of the successor Guarantied Party under this
Guaranty, and (ii) take such other actions as may be necessary or appropriate in
connection with the assignment to such successor Guarantied Party of the rights
created hereunder, whereupon such retiring or removed Guarantied Party shall be
discharged from its duties and obligations under this Guaranty. After any
retiring or removed Guarantied Party's resignation or removal hereunder as
Guarantied Party, the provisions of this Guaranty shall inure to its benefit as
to any actions taken or omitted to be taken by it under this Guaranty while it
was Guarantied Party hereunder.
[Remainder of page intentionally left blank]
XXV-17
<PAGE>
IN WITNESS WHEREOF, the undersigned Guarantor has caused this Guaranty
to be duly executed and delivered by its officer thereunto duly authorized as of
the date first written above.
DIAMOND BRANDS INCORPORATED
By: _____________________
Name: ___________________
Title: __________________
Address:
1800 Cloquet Avenue
Cloquet, MN 55720-2141
Attention: Tom Knuesel
S-1
<PAGE>
HOLDINGS GUARANTY
This GUARANTY is entered into as of April 21, 1998 by THE UNDERSIGNED
("GUARANTOR") in favor of and for the benefit of WELLS FARGO BANK, N.A., as
administrative agent for and representative of (in such capacity herein called
"GUARANTIED PARTY") the financial institutions ("LENDERS") party to the Credit
Agreement referred to below and any Interest Rate Exchangers (as hereinafter
defined), and, subject to subsection 5.13, for the benefit of the other
Beneficiaries (as hereinafter defined).
RECITALS
A. Diamond Brands Operating Corp., a Delaware corporation
("COMPANY"), has entered into that certain Credit Agreement dated as of April
21, 1998 with DLJ Capital Funding, Inc., as Syndication Agent, Guarantied Party,
Morgan Stanley Senior Funding, Inc., as Documentation Agent, and Lenders (said
Credit Agreement, as it may hereafter be amended, supplemented or otherwise
modified from time to time, being the "CREDIT AGREEMENT"; capitalized terms
defined therein and not otherwise defined herein being used herein as therein
defined).
B. Company may from time to time enter, or may from time to time
have entered, into one or more Interest Rate Agreements (collectively, the
"LENDER INTEREST RATE AGREEMENTS") with or one or more Lenders (in such
capacity, collectively, "INTEREST RATE EXCHANGERS") in accordance with the terms
of the Credit Agreement, and it is desired that the obligations of Company under
the Lender Interest Rate Agreements, including the obligation of Company to make
payments thereunder in the event of early termination thereof (all such
obligations being the "INTEREST RATE OBLIGATIONS"), together with all
obligations of Company under the Credit Agreement and the other Loan Documents,
be guarantied hereunder.
C. Guarantor is willing irrevocably and unconditionally to guaranty
such obligations of Company.
D. EMPIRE CANDLE, INC., a Kansas corporation, and FORSTER INC., a
Maine corporation, (each a "SUBSIDIARY GUARANTOR," and collectively, the
"SUBSIDIARY GUARANTORS") have entered into that certain Subsidiary Guaranty
dated as of April 21, 1998 in favor of Guarantied Party (the "SUBSIDIARY
GUARANTY").
E. It is a condition precedent to the making of the initial Loans
under the Credit Agreement that Company's obligations thereunder be guarantied
by Guarantor.
NOW, THEREFORE, based upon the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
in order to induce Lenders and Guarantied Party to enter into the Credit
Agreement and
1
<PAGE>
to make Loans and other extensions of credit thereunder and to induce Interest
Rate Exchangers to enter into the Lender Interest Rate Agreements, Guarantor
hereby agrees as follows:
SECTION 1. DEFINITIONS
1.1 CERTAIN DEFINED TERMS. As used in this Guaranty, the following terms
---------------------
shall have the following meanings unless the context otherwise requires:
"BENEFICIARIES" means Guarantied Party, Lenders and any Interest Rate
Exchangers.
"GUARANTIED OBLIGATIONS" has the meaning assigned to that term in
subsection 2.1.
"GUARANTY" means this Guaranty dated as of April 21, 1998, as it may be
amended, supplemented or otherwise modified from time to time.
"PAYMENT IN FULL", "PAID IN FULL" or any similar term means payment in
full of the Guarantied Obligations, including all principal, interest,
costs, fees and expenses (including reasonable legal fees and expenses) of
Beneficiaries as required under the Loan Documents and the Lender Interest
Rate Agreements.
1.2 DEFINED TERMS IN CREDIT AGREEMENT. All capitalized terms used and not
---------------------------------
otherwise defined herein shall have the meanings given such terms in the Credit
Agreement.
1.3 INTERPRETATION.
--------------
(a) References to "Sections" and "subsections" shall be to Sections
and subsections, respectively, of this Guaranty unless otherwise
specifically provided.
(b) In the event of any conflict or inconsistency between the terms,
conditions and provisions of this Guaranty and the terms, conditions and
provisions of the Credit Agreement, the terms, conditions and provisions of
this Guaranty shall prevail.
SECTION 2. THE GUARANTY
2.1 GUARANTY OF THE GUARANTIED OBLIGATIONS. Subject to the provisions of
--------------------------------------
subsection 2.2(a), Guarantor hereby irrevocably and unconditionally guaranties
the due and punctual payment in full of all Guarantied Obligations when the same
shall become due, whether at stated maturity, by required prepayment,
declaration, acceleration, demand or otherwise (including amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code, 11 U.S.C. (S) 362(a)).
2
<PAGE>
The term "GUARANTIED OBLIGATIONS" is used herein in its most comprehensive sense
and includes:
(a) any and all Obligations of Company and any and all Interest Rate
Obligations, in each case now or hereafter made, incurred or created,
whether absolute or contingent, liquidated or unliquidated, whether due or
not due, and however arising under or in connection with the Credit
Agreement and the other Loan Documents and the Lender Interest Rate
Agreements, including those arising under successive borrowing transactions
under the Credit Agreement which shall either continue the Obligations of
Company or from time to time renew them after they have been satisfied and
including interest which, but for the filing of a petition in bankruptcy
with respect to Company, would have accrued on any Guarantied Obligations,
whether or not a claim is allowed against Company for such interest in the
related bankruptcy proceeding; and
(b) those expenses set forth in subsection 2.8 hereof.
2.2 LIMITATION ON AMOUNT GUARANTIED; CONTRIBUTION BY GUARANTOR. (a)
----------------------------------------------------------
Anything contained in this Guaranty to the contrary notwithstanding, if any
Fraudulent Transfer Law (as hereinafter defined) is determined by a court of
competent jurisdiction to be applicable to the obligations of Guarantor under
this Guaranty, such obligations of Guarantor hereunder shall be limited to a
maximum aggregate amount equal to the largest amount that would not render its
obligations hereunder subject to avoidance as a fraudulent transfer or
conveyance under Section 548 of Title 11 of the United States Code or any
applicable provisions of comparable state law (collectively, the "FRAUDULENT
TRANSFER LAWS"), in each case after giving effect to all other liabilities of
Guarantor, contingent or otherwise, that are relevant under the Fraudulent
Transfer Laws (specifically excluding, however, any liabilities of Guarantor (x)
in respect of intercompany indebtedness to Company or other affiliates of
Company to the extent that such indebtedness would be discharged in an amount
equal to the amount paid by Guarantor hereunder and (y) under any guaranty of
Subordinated Indebtedness which guaranty contains a limitation as to maximum
amount similar to that set forth in this subsection 2.2(a), pursuant to which
the liability of 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, reimbursement, indemnification or
contribution of Guarantor pursuant to applicable law or pursuant to the terms of
any agreement (including any such right of contribution under subsection
2.2(b)).
(b) Guarantor under this Guaranty, and each Subsidiary Guarantor under the
Subsidiary Guaranty, together desire to allocate among themselves (collectively,
the "CONTRIBUTING GUARANTORS"), in a fair and equitable manner, their
obligations arising under this Guaranty. Accordingly, in the event any payment
or distribution is made on any date by Guarantor under this Guaranty or any
Subsidiary Guarantor under the Subsidiary Guaranty (a "FUNDING GUARANTOR") that
exceeds its Fair Share (as defined
3
<PAGE>
below) as of such date, that Funding Guarantor shall be entitled to a
contribution from each of the other Contributing Guarantors in the amount of
such other Contributing Guarantor's Fair Share Shortfall (as defined below) as
of such date, with the result that all such contributions will cause each
Contributing Guarantor's Aggregate Payments (as defined below) to equal its Fair
Share as of such date. "FAIR SHARE" means, with respect to a Contributing
Guarantor as of any date of determination, an amount equal to (i) the ratio of
(x) the Adjusted Maximum Amount (as defined below) with respect to such
Contributing Guarantor to (y) the aggregate of the Adjusted Maximum Amounts with
respect to all Contributing Guarantors multiplied by (ii) the aggregate amount
---------- --
paid or distributed on or before such date by all Funding Guarantors under this
Guaranty and the Subsidiary Guaranty in respect of the obligations guarantied.
"FAIR SHARE SHORTFALL" means, with respect to a Contributing Guarantor as of any
date of determination, the excess, if any, of the Fair Share of such
Contributing Guarantor over the Aggregate Payments of such Contributing
Guarantor. "ADJUSTED MAXIMUM AMOUNT" means, with respect to a Contributing
Guarantor as of any date of determination, the maximum aggregate amount of the
obligations of such Contributing Guarantor under this Guaranty and the
Subsidiary Guaranty, determined as of such date, in the case of Guarantor, in
accordance with subsection 2.2(a), or, if applicable, subsection 2.2(a) of the
Subsidiary Guaranty; provided that, solely for purposes of calculating the
--------
"Adjusted Maximum Amount" with respect to any Contributing Guarantor for
purposes of this subsection 2.2(b), any assets or liabilities of such
Contributing Guarantor arising by virtue of any rights to subrogation,
reimbursement or indemnification or any rights to or obligations of contribution
hereunder or under the Subsidiary Guaranty shall not be considered as assets or
liabilities of such Contributing Guarantor. "AGGREGATE PAYMENTS" means, with
respect to a Contributing Guarantor as of any date of determination, an amount
equal to (i) the aggregate amount of all payments and distributions made on or
before such date by such Contributing Guarantor in respect of this Guaranty and
the Subsidiary Guaranty (including in respect of this subsection 2.2(b) or
subsection 2.2(b) of the Subsidiary Guaranty) minus (ii) the aggregate amount of
-----
all payments received on or before such date by such Contributing Guarantor from
the other Contributing Guarantors as contributions under this subsection 2.2(b)
or subsection 2.2(b) of the Subsidiary Guaranty. The amounts payable as
contributions hereunder shall be determined as of the date on which the related
payment or distribution is made by the applicable Funding Guarantor. The
allocation among Contributing Guarantors of their obligations as set forth in
this subsection 2.2(b) or subsection 2.2(b) of the Subsidiary Guaranty shall not
be construed in any way to limit the liability of any Contributing Guarantor
hereunder or under the Subsidiary Guaranty. Each Contributing Guarantor under
the Subsidiary Guaranty is a third party beneficiary to the contribution
agreement set forth in this subsection 2.2(b).
2.3 PAYMENT BY GUARANTOR; APPLICATION OF PAYMENTS. Subject to the
---------------------------------------------
provisions of subsection 2.2(a), Guarantor hereby agrees, in furtherance of the
foregoing and not in limitation of any other right which any Beneficiary may
have at law or in equity against Guarantor by virtue hereof, that upon the
failure of Company to pay any of the Guarantied Obligations when and as the same
shall become due, whether at stated maturity, by required prepayment,
declaration, acceleration, demand or otherwise
4
<PAGE>
(including amounts that would become due but for the operation of the automatic
stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. (S) 362(a)),
Guarantor will upon demand pay, or cause to be paid, in cash, to Guarantied
Party for the ratable benefit of Beneficiaries, an amount equal to the sum of
the unpaid principal amount of all Guarantied Obligations then due as aforesaid,
accrued and unpaid interest on such Guarantied Obligations (including interest
which, but for the filing of a petition in bankruptcy with respect to Company,
would have accrued on such Guarantied Obligations, whether or not a claim is
allowed against Company for such interest in the related bankruptcy proceeding)
and all other Guarantied Obligations then owed to Beneficiaries as aforesaid.
All such payments shall be applied promptly from time to time by Guarantied
Party as provided in subsection 2.4D of the Credit Agreement.
2.4 LIABILITY OF GUARANTOR ABSOLUTE. Guarantor agrees that its obligations
-------------------------------
hereunder are irrevocable, absolute, independent and unconditional and shall not
be affected by any circumstance which constitutes a legal or equitable discharge
of a guarantor or surety other than payment in full of the Guarantied
Obligations. In furtherance of the foregoing and without limiting the
generality thereof, Guarantor agrees as follows:
(a) This Guaranty is a guaranty of payment when due and not of
collectibility.
(b) Guarantied Party may enforce this Guaranty upon the occurrence
and continuation of an Event of Default under the Credit Agreement or the
occurrence and continuation of an Early Termination Date (as defined in a
Master Agreement or an Interest Rate Swap Agreement or Interest Rate and
Currency Exchange Agreement in the form prepared by the International Swap
and Derivatives Association Inc. or a similar event under any similar swap
agreement) under any Lender Interest Rate Agreement (either such occurrence
being an "EVENT OF DEFAULT" for purposes of this Guaranty).
(c) The obligations of Guarantor hereunder are independent of the
obligations of Company under the Loan Documents or the Lender Interest Rate
Agreements and the obligations of any other guarantor of the obligations of
Company under the Loan Documents or the Lender Interest Rate Agreements,
and a separate action or actions may be brought and prosecuted against
Guarantor whether or not any action is brought against Company or any of
such other guarantors and whether or not Company is joined in any such
action or actions.
(d) Payment by Guarantor of a portion, but not all, of the Guarantied
Obligations shall in no way limit, affect, modify or abridge Guarantor's
liability for any portion of the Guarantied Obligations which has not been
paid. Without limiting the generality of the foregoing, if Guarantied Party
is awarded a judgment in any suit brought to enforce Guarantor's covenant to
pay a portion of the Guarantied Obligations, such judgment shall not be
deemed to release Guarantor
5
<PAGE>
from its covenant to pay the portion of the Guarantied Obligations that is
not the subject of such suit.
(e) Any Beneficiary, upon such terms as it deems appropriate, without
notice or demand and without affecting the validity or enforceability of
this Guaranty or giving rise to any reduction, limitation, impairment,
discharge or termination of Guarantor's liability hereunder, from time to
time may (i) renew, extend, accelerate, increase the rate of interest on,
or otherwise change the time, place, manner or terms of payment of the
Guarantied Obligations, (ii) settle, compromise, release or discharge, or
accept or refuse any offer of performance with respect to, or substitutions
for, the Guarantied Obligations or any agreement relating thereto and/or
subordinate the payment of the same to the payment of any other
obligations; (iii) request and accept other guaranties of the Guarantied
Obligations and take and hold security for the payment of this Guaranty or
the Guarantied Obligations; (iv) release, surrender, exchange, substitute,
compromise, settle, rescind, waive, alter, subordinate or modify, with or
without consideration, any security for payment of the Guarantied
Obligations, any other guaranties of the Guarantied Obligations, or any
other obligation of any Person with respect to the Guarantied Obligations;
(v) enforce and apply any security now or hereafter held by or for the
benefit of such Beneficiary in respect of this Guaranty or the Guarantied
Obligations and direct the order or manner of sale thereof, or exercise any
other right or remedy that such Beneficiary may have against any such
security, in each case as such Beneficiary in its discretion may determine
consistent with the Credit Agreement or the applicable Lender Interest Rate
Agreement and any applicable security agreement, including foreclosure on
any such security pursuant to one or more judicial or nonjudicial sales,
whether or not every aspect of any such sale is commercially reasonable,
and even though such action operates to impair or extinguish any right of
reimbursement or subrogation or other right or remedy of Guarantor against
Company or any security for the Guarantied Obligations; and (vi) exercise
any other rights available to it under the Loan Documents or the Lender
Interest Rate Agreements.
(f) This Guaranty and the obligations of Guarantor hereunder shall be
valid and enforceable and shall not be subject to any reduction,
limitation, impairment, discharge or termination for any reason (other than
payment in full of the Guarantied Obligations), including the occurrence of
any of the following, whether or not Guarantor shall have had notice or
knowledge of any of them: (i) any failure or omission to assert or enforce
or agreement or election not to assert or enforce, or the stay or
enjoining, by order of court, by operation of law or otherwise, of the
exercise or enforcement of, any claim or demand or any right, power or
remedy (whether arising under the Loan Documents or the Lender Interest
Rate Agreements, at law, in equity or otherwise) with respect to the
Guarantied Obligations or any agreement relating thereto, or with respect
to any other guaranty of or security for the payment of the Guarantied
Obligations; (ii) any rescission, waiver, amendment or modification of, or
any consent to departure
6
<PAGE>
from, any of the terms or provisions (including provisions relating to
events of default) of the Credit Agreement, any of the other Loan
Documents, any of the Lender Interest Rate Agreements or any agreement or
instrument executed pursuant thereto, or of any other guaranty or security
for the Guarantied Obligations, in each case whether or not in accordance
with the terms of the Credit Agreement or such Loan Document, such Lender
Interest Rate Agreement or any agreement relating to such other guaranty or
security; (iii) the Guarantied Obligations, or any agreement relating
thereto, at any time being found to be illegal, invalid or unenforceable in
any respect; (iv) the application of payments received from any source
(other than payments received pursuant to the other Loan Documents or any
of the Lender Interest Rate Agreements or from the proceeds of any security
for the Guarantied Obligations, except to the extent such security also
serves as collateral for indebtedness other than the Guarantied
Obligations) to the payment of indebtedness other than the Guarantied
Obligations, even though any Beneficiary might have elected to apply such
payment to any part or all of the Guarantied Obligations; (v) any
Beneficiary's consent to the change, reorganization or termination of the
corporate structure or existence of Company or any of its Subsidiaries and
to any corresponding restructuring of the Guarantied Obligations; (vi) any
failure to perfect or continue perfection of a security interest in any
collateral which secures any of the Guarantied Obligations; (vii) any
defenses (other than the expiration of applicable statute of limitations),
set-offs or counterclaims which Company may allege or assert against any
Beneficiary in respect of the Guarantied Obligations, including failure of
consideration, breach of warranty, payment, statute of frauds, accord and
satisfaction and usury; and (viii) 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 Guarantor as an obligor in respect of the
Guarantied Obligations.
2.5 WAIVERS BY GUARANTOR. Guarantor hereby waives, for the benefit of
--------------------
Beneficiaries:
(a) any right to require any Beneficiary, as a condition of payment
or performance by Guarantor, to (i) proceed against Company, any other
guarantor of the Guarantied Obligations or any other Person, (ii) proceed
against or exhaust any security held from Company, any such other guarantor
or any other Person, (iii) proceed against or have resort to any balance of
any deposit account or credit on the books of any Beneficiary in favor of
Company or any other Person, or (iv) pursue any other remedy in the power
of any Beneficiary whatsoever;
(b) any defense arising by reason of the incapacity, lack of
authority or any disability or other defense of Company (other than the
expiration of applicable statute of limitations) including any defense
based on or arising out of the lack of validity or the unenforceability of
the Guarantied Obligations or any agreement or instrument relating thereto
or by reason of the cessation of the liability of Company from any cause
other than payment in full of the Guarantied Obligations;
7
<PAGE>
(c) any defense based upon any statute or rule of law which provides
that the obligation of a surety must be neither larger in amount nor in
other respects more burdensome than that of the principal;
(d) any defense based upon any Beneficiary's errors or omissions in
the administration of the Guarantied Obligations, except behavior which
amounts to gross negligence, wilful misconduct or bad faith;
(e) (i) any principles or provisions of law, statutory or otherwise,
which are or might be in conflict with the terms of this Guaranty and any
legal or equitable discharge of Guarantor's obligations hereunder, (ii) any
rights to set-offs, recoupments and counterclaims, and (iii) promptness,
diligence and any requirement that any Beneficiary protect, secure, perfect
or insure any security interest or lien or any property subject thereto;
(f) notices, demands, presentments, protests, notices of protest,
notices of dishonor and notices of any action or inaction, including
acceptance of this Guaranty, notices of default under the Credit Agreement,
the Lender Interest Rate Agreements or any agreement or instrument related
thereto, notices of any renewal, extension or modification of the
Guarantied Obligations or any agreement related thereto, notices of any
extension of credit to Company and notices of any of the matters referred
to in subsection 2.4 and any right to consent to any thereof; and
(g) any defenses (other than expiration of statutes of limitations)
or benefits that may be derived from or afforded by law which limit the
liability of or exonerate guarantors or sureties, or which may conflict
with the terms of this Guaranty.
2.6 GUARANTOR' RIGHTS OF SUBROGATION, CONTRIBUTION, ETC. Until the
---------------------------------------------------
Guarantied Obligations shall have been indefeasilby paid in full and the
Commitments shall have terminated and all Letters of Credit shall have expired
or been cancelled, Guarantor hereby waives any claim, right or remedy, direct or
indirect, that Guarantor now has or may hereafter have against Company or any of
its assets in connection with this Guaranty or the performance by Guarantor of
its obligations hereunder, in each case whether such claim, right or remedy
arises in equity, under contract, by statute, under common law or otherwise and
including without limitation (a) any right of subrogation, reimbursement or
indemnification that Guarantor now has or may hereafter have against Company,
(b) any right to enforce, or to participate in, any claim, right or remedy that
any Beneficiary now has or may hereafter have against Company, and (c) any
benefit of, and any right to participate in, any collateral or security now or
hereafter held by any Beneficiary. In addition, until the Guarantied
Obligations shall have been indefeasibly paid in full and the Commitments shall
have terminated and all Letters of Credit shall have expired or been cancelled,
Guarantor shall withhold exercise of any right of contribution Guarantor may
have against any other guarantor of the Guarantied Obli-
8
<PAGE>
gations. Guarantor further agrees that, to the extent the waiver or agreement to
withhold the exercise of its rights of subrogation, reimbursement,
indemnification and contribution as set forth herein is found by a court of
competent jurisdiction to be void or voidable for any reason, any rights of
subrogation, reimbursement or indemnification Guarantor may have against Company
or against any collateral or security, and any rights of contribution Guarantor
may have against any such other guarantor, shall be junior and subordinate to
any rights any Beneficiary may have against Company, to all right, title and
interest any Beneficiary may have in any such collateral or security, and to any
right any Beneficiary may have against such other guarantor. If any amount shall
be paid to Guarantor on account of any such subrogation, reimbursement,
indemnification or contribution rights at any time when all Guarantied
Obligations shall not have been paid in full, such amount shall be held in trust
for Guarantied Party on behalf of Beneficiaries and shall forthwith be paid over
to Guarantied Party for the benefit of Beneficiaries to be credited and applied
against the Guarantied Obligations, whether matured or unmatured, in accordance
with the terms hereof.
2.7 SUBORDINATION OF OTHER OBLIGATIONS. Any indebtedness of Company now
----------------------------------
or hereafter held by Guarantor is hereby subordinated in right of payment to the
Guarantied Obligations, and any such indebtedness of Company to Guarantor
collected or received by Guarantor after an Event of Default has occurred and is
continuing shall be held in trust for Guarantied Party on behalf of
Beneficiaries and shall forthwith be paid over to Guarantied Party for the
benefit of Beneficiaries to be credited and applied against the Guarantied
Obligations but without affecting, impairing or limiting in any manner the
liability of Guarantor under any other provision of this Guaranty.
2.8 EXPENSES. Guarantor agrees to pay, or cause to be paid, on demand,
--------
and to save Beneficiaries harmless against liability for, any and all out-of-
pocket costs and expenses (including reasonable fees and disbursements of
counsel and allocated costs of internal counsel) incurred or expended by any
Beneficiary in connection with the enforcement of or preservation of any rights
under this Guaranty.
2.9 CONTINUING GUARANTY. This Guaranty is a continuing guaranty and shall
-------------------
remain in effect until all of the Guarantied Obligations shall have been paid in
full and the Commitments shall have terminated and all Letters of Credit shall
have expired or been cancelled. Guarantor hereby irrevocably waives any right
to revoke this Guaranty as to future transactions giving rise to any Guarantied
Obligations.
2.10 AUTHORITY OF GUARANTOR OR COMPANY. It is not necessary for any
---------------------------------
Beneficiary to inquire into the capacity or powers of Guarantor or Company or
the officers, directors, members, governors or any agents acting or purporting
to act on behalf of any of them.
2.11 FINANCIAL CONDITION OF COMPANY. Any Loans may be granted to Company
------------------------------
or continued from time to time, and any Lender Interest Rate Agreements may be
entered into from time to time, in each case without notice to or authorization
from
9
<PAGE>
Guarantor regardless of the financial or other condition of Company at the time
of any such grant or continuation or at the time such Lender Interest Rate
Agreement is entered into, as the case may be. No Beneficiary shall have any
obligation to disclose or discuss with Guarantor its assessment, or Guarantor's
assessment, of the financial condition of Company. Guarantor has adequate means
to obtain information from Company on a continuing basis concerning the
financial condition of Company and its ability to perform its obligations under
the Loan Documents and the Lender Interest Rate Agreements, and Guarantor
assumes the responsibility for being and keeping informed of the financial
condition of Company and of all circumstances bearing upon the risk of
nonpayment of the Guarantied Obligations. Guarantor hereby waives and
relinquishes any duty on the part of any Beneficiary to disclose any matter,
fact or thing relating to the business, operations or conditions of Company now
known or hereafter known by any Beneficiary.
2.12 RIGHTS CUMULATIVE. The rights, powers and remedies given to
-----------------
Beneficiaries by this Guaranty are cumulative and shall be in addition to and
independent of all rights, powers and remedies given to Beneficiaries by virtue
of any statute or rule of law or in any of the other Loan Documents, any of the
Lender Interest Rate Agreements or any agreement between Guarantor and any
Beneficiary or Beneficiaries or between Company and any Beneficiary or
Beneficiaries. Any forbearance or failure to exercise, and any delay by any
Beneficiary in exercising, any right, power or remedy hereunder shall not impair
any such right, power or remedy or be construed to be a waiver thereof, nor
shall it preclude the further exercise of any such right, power or remedy.
2.13 BANKRUPTCY; POST-PETITION INTEREST; REINSTATEMENT OF GUARANTY. (a) So
-------------------------------------------------------------
long as any Guarantied Obligations remain outstanding, Guarantor shall not,
without the prior written consent of Guarantied Party acting pursuant to the
instructions of Requisite Lenders, commence or join with any other Person in
commencing any bankruptcy, reorganization or insolvency proceedings of or
against Company. The obligations of Guarantor under this Guaranty shall not be
reduced, limited, impaired, discharged, deferred, suspended or terminated by any
proceeding, voluntary or involuntary, involving the bankruptcy, insolvency,
receivership, reorganization, liquidation or arrangement of Company or by any
defense which Company may have by reason of the order, decree or decision of any
court or administrative body resulting from any such proceeding.
(b) Guarantor acknowledges and agrees that any interest on any
portion of the Guarantied Obligations which accrues after the commencement of
any proceeding referred to in clause (a) above (or, if interest on any portion
of the Guarantied Obligations ceases to accrue by operation of law by reason of
the commencement of said proceeding, such interest as would have accrued on such
portion of the Guarantied Obligations if said proceedings had not been
commenced) shall be included in the Guarantied Obligations because it is the
intention of Guarantor and Beneficiaries that the Guarantied Obligations which
are guarantied by Guarantor pursuant to this Guaranty should be determined
without regard to any rule of law or order which may relieve Company of any
portion of such Guarantied Obligations. Guarantor will permit any trustee in
bankruptcy, receiver, debtor in possession, assignee for the benefit of
creditors or similar person to pay
10
<PAGE>
Guarantied Party, or allow the claim of Guarantied Party in respect of, any such
interest accruing after the date on which such proceeding is commenced.
(c) In the event that all or any portion of the Guarantied
Obligations is paid by Company, the obligations of Guarantor hereunder shall
continue and remain in full force and effect or be reinstated, as the case may
be, in the event that all or any part of such payment(s) are rescinded or
recovered directly or indirectly from any Beneficiary as a preference,
fraudulent transfer or otherwise, and any such payments which are so rescinded
or recovered shall constitute Guarantied Obligations for all purposes under this
Guaranty.
2.14 NOTICE OF EVENTS. As soon as Guarantor obtains knowledge thereof,
----------------
Guarantor shall give Guarantied Party written notice of any condition or event
which has resulted in (a) a material adverse change in the financial condition
of Guarantor or Company or (b) a breach of or noncompliance with any term,
condition or covenant contained herein or in the Credit Agreement, any other
Loan Document, any Lender Interest Rate Agreements or any other document
delivered pursuant hereto or thereto.
2.15 SET OFF. In addition to any other rights any Beneficiary may have
-------
under law or in equity, if any amount shall at any time be due and owing by
Guarantor to any Beneficiary under this Guaranty, such Beneficiary is authorized
at any time or from time to time, without notice (any such notice being hereby
expressly waived), to set off and to appropriate and to apply any and all
deposits (general or special, including indebtedness evidenced by certificates
of deposit, whether matured or unmatured) and any other indebtedness of such
Beneficiary owing to Guarantor and any other property of Guarantor held by any
Beneficiary to or for the credit or the account of Guarantor against and on
account of the Guarantied Obligations and liabilities of Guarantor to any
Beneficiary under this Guaranty.
2.16 DISCHARGE OF GUARANTY UPON SALE OF GUARANTOR. If all of the stock or
--------------------------------------------
limited liability company interests of Guarantor or any of its successors in
interest under this Guaranty shall be sold or otherwise disposed of (including
by merger or consolidation) in an Asset Sale not prohibited by subsection 7.7 of
the Credit Agreement or otherwise consented to by Requisite Lenders, the
Guaranty of Guarantor or such successor in interest, as the case may be,
hereunder shall automatically be discharged and released without any further
action by any Beneficiary or any other Person effective as of the time of such
Asset Sale; provided that, as a condition precedent to such discharge and
--------
release, Guarantied Party shall have received evidence satisfactory to it that
arrangements satisfactory to it have been made for delivery to Guarantied Party
of the applicable Net Asset Sale Proceeds if required under the Credit
Agreement; provided further that no such delivery shall be required in
----------------
connection with a merger or consolidation of such entity into or with Company or
another subsidiary of Company.
11
<PAGE>
SECTION 3. REPRESENTATIONS AND WARRANTIES
In order to induce Beneficiaries to accept this Guaranty and to enter
into the Credit Agreement and to make the Loans thereunder, Guarantor hereby
represents and warrants to Beneficiaries that the following statements are true
and correct:
3.1 CORPORATE EXISTENCE. Guarantor is duly organized, validly existing and
-------------------
in good standing under the laws of the state of its incorporation, has the
corporate power to own its assets and to transact the business in which it is
now engaged and is duly qualified as a foreign corporation and in good standing
under the laws of each jurisdiction where its ownership or lease of property or
the conduct of its business requires such qualification, except for failures to
be so qualified, authorized or licensed that would not in the aggregate have a
material adverse effect on the business, operations, assets or financial
condition of Guarantor.
3.2 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. Guarantor has
-------------------------------------------------------
the corporate power, authority and legal right to execute, deliver and perform
this Guaranty and all obligations required hereunder and has taken all necessary
corporate action to authorize its Guaranty hereunder on the terms and conditions
hereof and its execution, delivery and performance of this Guaranty and all
obligations required hereunder. No consent of any other Person including,
without limitation, stockholders and creditors of Guarantor, and no license,
permit, approval or authorization of, exemption by, notice or report to, or
registration, filing or declaration with, any governmental authority is required
by Guarantor in connection with this Guaranty or the execution, delivery,
performance, validity or enforceability of this Guaranty and all obligations
required hereunder. This Guaranty has been, and each instrument or document
required hereunder will be, executed and delivered by a duly authorized officer
of the Guarantor, and this Guaranty constitutes, and each instrument or document
required hereunder when executed and delivered hereunder will constitute, the
legally valid and binding obligation of the Guarantor, enforceable against the
Guarantor in accordance with its terms, except as enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws or equitable principles relating to or limiting creditors' rights
generally.
3.3 NO LEGAL BAR TO THIS GUARANTY. The execution, delivery and performance
-----------------------------
of this Guaranty and the documents or instruments required hereunder, and the
use of the proceeds of the borrowings under the Credit Agreement, will not
violate any provision of any existing law or regulation binding on Guarantor, or
any order, judgment, award or decree of any court, arbitrator or governmental
authority binding on Guarantor, or the certificate of incorporation or bylaws of
Guarantor or any securities issued by Guarantor, or any mortgage, indenture,
lease, contract or other agreement, instrument or undertaking to which Guarantor
is a party or by which Guarantor or any of its assets may be bound, the
violation of which would have a material adverse effect on the business,
operations, assets or financial condition of Guarantor and will not result in,
or require, the creation or imposition of any Lien on any of its property,
assets or revenues pursuant to the
12
<PAGE>
provisions of any such mortgage, indenture, lease, contract or other agreement,
instrument or undertaking.
SECTION 4. AFFIRMATIVE COVENANTS
Guarantor covenants and agrees that, unless and until all of the
Guarantied Obligations shall have been paid in full and the Commitments shall
have terminated, unless Requisite Lenders shall otherwise consent in writing:
4.1 CORPORATE EXISTENCE, ETC. Guarantor shall at all times preserve and
------------------------
keep in full force and effect its corporate existence and all rights and
franchises material to its business.
4.2 COMPLIANCE WITH LAWS, ETC. Guarantor shall comply in all material
-------------------------
respects with all applicable laws, rules, regulations and orders, such
compliance to include, without limitation, paying when due all taxes,
assessments and governmental charges imposed upon it or upon any of its
properties or assets or in respect of any of its franchises, businesses, income
or property before any penalty or interest accrues thereon.
4.3 BOOKS AND RECORDS. Subject to the terms of the Credit Agreement,
-----------------
Guarantor shall keep and maintain books of record and account with respect to
its operations in accordance with generally accepted accounting principles and
shall permit any Beneficiary and its officers, employees and authorized agents,
to the extent Guarantied Party in good faith deems necessary for the proper
administration of this Guaranty, to examine, copy and make excerpts from the
books and records of Guarantor and its Subsidiaries and to inspect the
properties of Guarantor and its Subsidiaries, both real and personal, at such
reasonable times as Guarantied Party may request.
SECTION 5. MISCELLANEOUS
5.1 SURVIVAL OF WARRANTIES. All agreements, representations and warranties
----------------------
made herein shall survive the execution and delivery of this Guaranty and the
other Loan Documents and the Lender Interest Rate Agreements and any increase in
the Commitments under the Credit Agreement.
5.2 NOTICES. Any communications between Guarantied Party and Guarantor and
-------
any notices or requests provided herein to be given shall be given as provided
in the Credit Agreement to each such party at its address set forth in the
Credit Agreement, on the signature pages hereof or to such other addresses as
each such party may in writing hereafter indicate. Any notice, request or
demand to or upon Guarantied Party or Guarantor shall not be effective until
received.
5.3 SEVERABILITY. In case any provision in or obligation under this
------------
Guaranty shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and
13
<PAGE>
enforceability of the remaining provisions or obligations, or of such provision
or obligation in any other jurisdiction, shall not in any way be affected or
impaired thereby.
5.4 AMENDMENTS AND WAIVERS. No amendment, modification, termination or
----------------------
waiver of any provision of this Guaranty, and no consent to any departure by
Guarantor therefrom, shall in any event be effective without the written
concurrence of Guarantied Party and, in the case of any such amendment or
modification, Guarantor against whom enforcement of such amendment or
modification is sought. Any such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which it was given.
5.5 HEADINGS. Section and subsection headings in this Guaranty are
--------
included herein for convenience of reference only and shall not constitute a
part of this Guaranty for any other purpose or be given any substantive effect.
5.6 APPLICABLE LAW; RULES OF CONSTRUCTION. THIS GUARANTY AND THE RIGHTS
-------------------------------------
AND OBLIGATIONS OF GUARANTOR AND BENEFICIARIES HEREUNDER SHALL BE GOVERNED BY,
AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF
THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. The
rules of construction set forth in subsection 1.3 of the Credit Agreement shall
be applicable to this Guaranty mutatis mutandis.
5.7 SUCCESSORS AND ASSIGNS. This Guaranty is a continuing guaranty and
----------------------
shall be binding upon Guarantor and its respective successors and assigns. This
Guaranty shall inure to the benefit of Beneficiaries and their respective
successors and assigns. Guarantor shall not assign this Guaranty or any of the
rights or obligations of Guarantor hereunder without the prior written consent
of all Lenders. Any Beneficiary may, without notice or consent, assign its
interest in this Guaranty in whole or in part. The terms and provisions of this
Guaranty shall inure to the benefit of any transferee or assignee of any Loan,
and in the event of such transfer or assignment the rights and privileges herein
conferred upon such Beneficiary shall automatically extend to and be vested in
such transferee or assignee, all subject to the terms and conditions hereof.
5.8 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL JUDICIAL
----------------------------------------------
PROCEEDINGS BROUGHT AGAINST GUARANTOR ARISING OUT OF OR RELATING TO THIS
GUARANTY, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL
COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY
EXECUTING AND DELIVERING THIS AGREEMENT, GUARANTOR, FOR ITSELF AND IN CONNECTION
WITH ITS PROPERTIES, IRREVOCABLY
14
<PAGE>
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN
ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO GUARANTOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH
SUBSECTION 5.2;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER GUARANTOR IN ANY SUCH
PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT;
(V) AGREES THAT BENEFICIARIES RETAIN THE RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST GUARANTOR
IN THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 5.8 RELATING TO
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR
OTHERWISE.
5.9 WAIVER OF TRIAL BY JURY. GUARANTOR AND, BY ITS ACCEPTANCE OF THE
-----------------------
BENEFITS HEREOF, EACH BENEFICIARY EACH HEREBY AGREES TO WAIVE ITS RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS GUARANTY. The scope of this waiver is intended to be all encompassing of
any and all disputes that may be filed in any court and that relate to the
subject matter of this transaction, including contract claims, tort claims,
breach of duty claims and all other common law and statutory claims. Guarantor
and, by its acceptance of the benefits hereof, each Beneficiary, each (i)
acknowledges that this waiver is a material inducement for Guarantor and
Beneficiaries to enter into a business relationship, that Guarantor and
Beneficiaries have already relied on this waiver in entering into this Guaranty
or accepting the benefits thereof, as the case may be, and that each will
continue to rely on this waiver in their related future dealings and (ii)
further warrants and represents that each has reviewed this waiver with its
legal counsel, and that each knowingly and voluntarily waives its jury trial
rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE,
MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A
MUTUAL WRITTEN WAIVER
15
<PAGE>
SPECIFICALLY REFERRING TO THIS SUBSECTION 5.9 AND EXECUTED BY GUARANTIED PARTY
AND GUARANTOR), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY. In the event of
litigation, this Guaranty may be filed as a written consent to a trial by the
court.
5.10 NO OTHER WRITING. This writing is intended by Guarantor and
----------------
Beneficiaries as the final expression of this Guaranty and is also intended as a
complete and exclusive statement of the terms of their agreement with respect to
the matters covered hereby. No course of dealing, course of performance or trade
usage, and no parol evidence of any nature, shall be used to supplement or
modify any terms of this Guaranty. There are no conditions to the full
effectiveness of this Guaranty.
5.11 FURTHER ASSURANCES. At any time or from time to time, upon the
------------------
request of Guarantied Party, Guarantor shall execute and deliver such further
documents and do such other acts and things as Guarantied Party may reasonably
request in order to effect fully the purposes of this Guaranty.
5.12 COUNTERPARTS; EFFECTIVENESS. This Guaranty may be executed in any
---------------------------
number of counterparts and by the different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original for all purposes; but all such counterparts together shall
constitute but one and the same instrument. This Guaranty shall become effective
as to Guarantor upon the execution of a counterpart hereof by Guarantor and
receipt by Guarantied Party of written or telephonic notification of such
execution and authorization of delivery thereof.
5.13 GUARANTIED PARTY AS ADMINISTRATIVE AGENT.
----------------------------------------
(a) Guarantied Party has been appointed to act as Guarantied Party
hereunder by Lenders and, by their acceptance of the benefits hereof, Interest
Rate Exchangers. Guarantied Party shall be obligated, and shall have the right
hereunder, to make demands, to give notices, to exercise or refrain from
exercising any rights, and to take or refrain from taking any action, solely in
accordance with this Guaranty and the Credit Agreement; provided that Guarantied
--------
Party shall exercise, or refrain from exercising, any remedies hereunder in
accordance with the instructions of (i) Requisite Lenders or (ii) after payment
in full of all Obligations under the Credit Agreement and the other Loan
Documents, the holders of a majority of the aggregate notional amount (or, with
respect to any Lender Interest Rate Agreement that has been terminated in
accordance with its terms, the amount then due and payable (exclusive of
expenses and similar payments but including any early termination payments then
due) under such Lender Interest Rate Agreement) under all Lender Interest Rate
Agreements (Requisite Lenders or, if applicable, such holders being referred to
herein as "REQUISITE OBLIGEES"). In furtherance of the foregoing provisions of
this subsection 5.13, each Interest Rate Exchanger, by its acceptance of the
benefits hereof, agrees that it shall have no right individually to enforce this
Guaranty, it being understood and agreed by such Interest
16
<PAGE>
Rate Exchanger that all rights and remedies hereunder may be exercised solely by
Guarantied Party for the benefit of Beneficiaries in accordance with the terms
of this subsection 5.13.
(b) Guarantied Party shall at all times be the same Person that is
Administrative Agent under the Credit Agreement. Written notice of resignation
by Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall
also constitute notice of resignation as Guarantied Party under this Guaranty;
removal of Administrative Agent pursuant to subsection 9.5 of the Credit
Agreement shall also constitute removal as Guarantied Party under this Guaranty;
and appointment of a successor Administrative Agent pursuant to subsection 9.5
of the Credit Agreement shall also constitute appointment of a successor
Guarantied Party under this Guaranty. Upon the acceptance of any appointment as
Administrative Agent under subsection 9.5 of the Credit Agreement by a successor
Administrative Agent, that successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring or removed Guarantied Party under this Guaranty, and the
retiring or removed Guarantied Party under this Guaranty shall promptly (i)
transfer to such successor Guarantied Party all sums held hereunder, together
with all records and other documents necessary or appropriate in connection with
the performance of the duties of the successor Guarantied Party under this
Guaranty, and (ii) take such other actions as may be necessary or appropriate in
connection with the assignment to such successor Guarantied Party of the rights
created hereunder, whereupon such retiring or removed Guarantied Party shall be
discharged from its duties and obligations under this Guaranty. After any
retiring or removed Guarantied Party's resignation or removal hereunder as
Guarantied Party, the provisions of this Guaranty shall inure to its benefit as
to any actions taken or omitted to be taken by it under this Guaranty while it
was Guarantied Party hereunder.
[Remainder of page intentionally left blank]
17
<PAGE>
IN WITNESS WHEREOF, the undersigned Guarantor has caused this Guaranty
to be duly executed and delivered by its officer thereunto duly authorized as of
the date first written above.
DIAMOND BRANDS INCORPORATED
By: _________________________
Name: _______________________
Title: ______________________
Address:
1800 Cloquet Avenue
Cloquet, MN 55720-2141
Attention: Tom Knuesel
S-1
<PAGE>
A/B EXCHANGE
REGISTRATION RIGHTS AGREEMENT
DATED AS OF APRIL 21, 1998
BY AND AMONG
DIAMOND BRANDS OPERATING CORP.
EMPIRE CANDLE, INC.
FORSTER, INC.
AND
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
MORGAN STANLEY & CO. INCORPORATED
<PAGE>
This Registration Rights Agreement (this "AGREEMENT") is made and entered
---------
into as of April 21, 1998, by and among Diamond Brands Operating Corp., a
Delaware corporation (the "COMPANY"), Empire Candle, Inc., a Kansas corporation
-------
and wholly owned subsidiary of the Company ("EMPIRE"), Forster, Inc., a Maine
------
corporation and wholly owned subsidiary of the Company ("FORSTER" and together
-------
with Empire, the "GUARANTORS"), and Donaldson, Lufkin & Jenrette Securities
----------
Corporation ("DLJ") and Morgan Stanley & Co. Incorporated ("MORGAN STANLEY")
--- --------------
(each an "INITIAL PURCHASER" and, collectively, the "INITIAL PURCHASERS"), each
----------------- ------------------
of whom has agreed to purchase the Company's 10 1//8 /% Series A Senior
Subordinated Notes due 2008 (the "SERIES A NOTES") pursuant to the Purchase
--------------
Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated April 15,
1998, (the "PURCHASE AGREEMENT"), by and among the Company, the Guarantors and
------------------
the Initial Purchasers. In order to induce the Initial Purchasers to purchase
the Series A Notes, the Company has agreed to provide the registration rights
set forth in this Agreement. The execution and delivery of this Agreement is a
condition to the obligations of the Initial Purchasers set forth in Section 2 of
the Purchase Agreement. Capitalized terms used herein and not otherwise defined
shall have the meaning assigned to them in the Indenture, dated April 21, 1998
(the "INDENTURE"), between the Company and State Street Bank and Trust Company,
---------
as Trustee, relating to the Series A Notes and the Series B Notes (as defined
herein).
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have the
following meanings:
ACT: The Securities Act of 1933, as amended.
---
AFFILIATE: As defined in Rule 144 of the Act.
---------
AFFILIATED MARKET MAKER: A Broker-Dealer who is deemed to be an Affiliate
-----------------------
of the Company.
BUSINESS DAY: Any day except a Saturday, Sunday, or other day in the City
-------------
of New York, or in the city of the corporate trust office of the Trustee, on
which banks are authorized to close.
BROKER-DEALER: Any broker or dealer registered under the Exchange Act.
-------------
CERTIFICATED SECURITIES: Definitive Notes, as defined in the Indenture.
-----------------------
CLOSING DATE: The date hereof.
------------
COMMISSION: The Securities and Exchange Commission.
----------
1
<PAGE>
CONSUMMATE: An Exchange Offer shall be deemed "Consummated" for purposes
----------
of this Agreement upon the occurrence of (a) the filing and effectiveness under
the Act of the Exchange Offer Registration Statement relating to the Series B
Notes to be issued in the Exchange Offer, (b) the maintenance of such Exchange
Offer Registration Statement continuously effective and the keeping of the
Exchange Offer open for a period not less than the minimum period required
pursuant to Section 3(b) hereof and (c) the delivery by the Company to the
Registrar under the Indenture of Series B Notes in the same aggregate principal
amount as the aggregate principal amount of Series A Notes tendered by Holders
thereof pursuant to the Exchange Offer.
CONSUMMATION DEADLINE: As defined in Section 3(b) hereof.
---------------------
EFFECTIVENESS DEADLINE: As defined in Sections 3(a) and 4(a) hereof.
----------------------
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
------------
EXCHANGE OFFER: The exchange and issuance by the Company of a principal
--------------
amount of Series B Notes (which shall be registered under the Act pursuant to
the Exchange Offer Registration Statement) equal to the outstanding principal
amount of Series A Notes that are Transfer Restricted Securities and are
tendered by such Holders in connection with such exchange and issuance.
EXCHANGE OFFER REGISTRATION STATEMENT: The Registration Statement relating
-------------------------------------
to the Exchange Offer, including the related Prospectus.
EXEMPT RESALES: The transactions in which the Initial Purchasers propose
--------------
to sell the Series A Notes to certain "qualified institutional buyers," as such
term is defined in Rule 144A under the Act and pursuant to Regulation S under
the Act.
FILING DEADLINE: As defined in Sections 3(a) and 4(a) hereof.
---------------
HOLDERS: As defined in Section 2 hereof.
-------
NASD: National Association of Securities Dealers, Inc.
-----
NOTES: The Series A Notes and the Series B Notes.
------
PERSON: An individual, partnership, corporation, trust, unincorporated
-------
organization, or a government or agency or political subdivision thereof.
PROSPECTUS: The prospectus included in a Registration Statement at the
----------
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
RECOMMENCEMENT DATE: As defined in Section 6(d) hereof.
-------------------
REGISTRATION DEFAULT: As defined in Section 5 hereof.
--------------------
2
<PAGE>
REGISTRATION STATEMENT: Any registration statement of the Company and the
----------------------
Guarantors relating to (a) an offering of Series B Notes pursuant to an Exchange
Offer or (b) the registration for resale of Transfer Restricted Securities
pursuant to the Shelf Registration Statement, in each case, (i) that is filed
pursuant to the provisions of this Agreement and (ii) including the Prospectus
included therein, all amendments and supplements thereto (including post-
effective amendments) and all exhibits and material incorporated by reference
therein.
REGULATION S: Regulation S promulgated under the Act.
------------
RULE 144: Rule 144 promulgated under the Act.
--------
SERIES B NOTES: The Company's 10 1/8% Series B Senior Subordinated
--------------
Notes due 2008 to be issued pursuant to the Indenture: (i) in the Exchange
Offer or (ii) as contemplated by Section 4 hereof.
SHELF REGISTRATION STATEMENT: As defined in Section 4 hereof.
----------------------------
SUSPENSION NOTICE: As defined in Section 6(d) hereof.
-----------------
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as
---
in effect on the date of the Indenture.
TRANSFER RESTRICTED SECURITIES: Each Series A Note, until the earliest to
------------------------------
occur of (a) the date on which such Series A Note is exchanged in the Exchange
Offer for a Series B Note which is entitled to be resold to the public by the
Holder thereof without complying with the prospectus delivery requirements of
the Act, (b) the date on which such Series A Note has been disposed of in
accordance with a Shelf Registration Statement (and the purchasers thereof have
been issued Series B Notes), or (c) the date on which such Series A Note is
distributed to the public pursuant to Rule 144 under the Act (and purchasers
thereof have been issued Series B Notes) and each Series B Note until the date
on which such Series B Note is disposed of by a Broker-Dealer pursuant to the
"Plan of Distribution" contemplated by the Exchange Offer Registration Statement
(including the delivery of the Prospectus contained therein).
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities (each,
a "HOLDER") whenever such Person owns Transfer Restricted Securities.
------
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable federal
law (after the procedures set forth in Section 6(a)(i) below have been complied
with), the Company and the Guarantors shall (i) cause the Exchange Offer
Registration Statement to be filed with the Commission as soon as practicable
after the Closing Date, but in no event later than 75 days after the Closing
Date (such 75th day being the "FILING DEADLINE"), (ii) use its best efforts to
---------------
cause such Exchange Offer Registration Statement to become effective at the
earliest possible time, but
3
<PAGE>
in no event later than 150 days after the Closing Date (such 150th day being the
"EFFECTIVENESS DEADLINE"), (iii) in connection with the foregoing, (A) file all
----------------------
pre-effective amendments to such Exchange Offer Registration Statement as may be
necessary in order to cause it to become effective, (B) file, if applicable, a
post-effective amendment to such Exchange Offer Registration Statement pursuant
to Rule 430A under the Act and (C) cause all necessary filings, if any, in
connection with the registration and qualification of the Series B Notes to be
made under the Blue Sky laws of such jurisdictions as are necessary to permit
Consummation of the Exchange Offer, and (iv) upon the effectiveness of such
Exchange Offer Registration Statement, commence and Consummate the Exchange
Offer. The Exchange Offer shall be on the appropriate form permitting (i)
registration of the Series B Notes to be offered in exchange for the Series A
Notes that are Transfer Restricted Securities and (ii) resales of Series B Notes
by any Broker-Dealer that tendered into the Exchange Offer Series A Notes that
such Broker-Dealer acquired for its own account as a result of market making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any of its Affiliates) as contemplated by Section
3(c) below.
(b) The Company and the Guarantors shall use their respective best efforts
to cause the Exchange Offer Registration Statement to be effective continuously,
and shall keep the Exchange Offer open for a period of not less than the minimum
period required under applicable federal and state securities laws to Consummate
the Exchange Offer; provided, however, that in no event shall such period be
less than 20 Business Days. The Company and the Guarantors shall cause the
Exchange Offer to comply with all applicable federal and state securities laws.
No securities other than the Series B Notes shall be included in the Exchange
Offer Registration Statement. The Company and the Guarantors shall use their
respective best efforts to cause the Exchange Offer to be Consummated on the
earliest practicable date after the Exchange Offer Registration Statement has
become effective, but in no event later than 195 days after the Closing Date
(such 195th day being the "CONSUMMATION DEADLINE").
---------------------
(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Broker-Dealer who holds Transfer Restricted Securities that
were acquired for the account of such Broker-Dealer as a result of market-making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any Affiliate of the Company), may exchange such
Transfer Restricted Securities pursuant to the Exchange Offer. Such "Plan of
Distribution" section shall also contain all other information with respect to
such sales by such Broker-Dealers that the Commission may require in order to
permit such sales pursuant thereto, but such "Plan of Distribution" shall not
name any such Broker-Dealer or disclose the amount of Transfer Restricted
Securities held by any such Broker-Dealer, except to the extent required by the
Commission as a result of a change in policy, rules or regulations after the
date of this Agreement.
Because such Broker-Dealer may be deemed to be an "underwriter" within the
meaning of the Act and must, therefore, deliver a prospectus meeting the
requirements of the Act in connection with its initial sale of any Series B
Notes received by such Broker-Dealer in the Exchange Offer, the Company and
Guarantors shall permit the use of the Prospectus contained in the Exchange
4
<PAGE>
Offer Registration Statement by such Broker-Dealer to satisfy such prospectus
delivery requirement. To the extent necessary to ensure that the prospectus
contained in the Exchange Offer Registration Statement is available for sales of
Series B Notes by Broker-Dealers, the Company and the Guarantors agree to use
their respective best efforts to keep the Exchange Offer Registration Statement
continuously effective, supplemented and amended as required by and subject to
the provisions of Section 6(c) hereof and in conformity with the requirements of
this Agreement, the Act and the policies, rules and regulations of the
Commission as announced from time to time, for a period of one year from the
date on which the Exchange Offer is Consummated. The Company and the Guarantors
shall provide sufficient copies of the latest version of such Prospectus to such
Broker-Dealers, promptly upon request, and in no event later than one day after
such request, at any time during such one year period.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Exchange Offer is not permitted by
------------------
applicable law (after the Company and the Guarantors have complied with the
procedures set forth in Section 6(a)(i) below) or (ii) if any Holder of Transfer
Restricted Securities shall notify the Company within 20 Business Days following
the Consummation of the Exchange Offer that (A) such Holder was prohibited by
law or Commission policy from participating in the Exchange Offer or (B) such
Holder may not resell the Series B Notes acquired by it in the Exchange Offer to
the public without delivering a prospectus and the Prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales by such Holder or (C) such Holder is a Broker-Dealer and holds Series A
Notes acquired directly from the Company or any of its Affiliates, then the
Company and the Guarantors shall:
(x) cause to be filed, on or prior to (i) 30 days after the date on which the
Company determines that the Exchange Offer Registration Statement cannot be
filed as a result of clause (a)(i) above or (ii) 60 days after the date on which
the Company receives the notice specified in clause (a)(ii) above, (each such
date, the "FILING DEADLINE"), a shelf registration statement pursuant to Rule
---------------
415 under the Act (which may be an amendment to the Exchange Offer Registration
Statement in either event (the "SHELF REGISTRATION STATEMENT")), the Holders of
----------------------------
which shall have provided the information required pursuant to Section 4(b)
hereof, relating to all Transfer Restricted Securities, the holders of which
shall have provided the information required pursuant to Section 4(b) hereof,
and
(y) shall use their respective best efforts to cause such Shelf Registration
Statement to become effective on or prior to 150 days after the Filing Deadline
for the Shelf Registration Statement (such 150th day the "EFFECTIVENESS
-------------
DEADLINE").
- ---------
If, after the Company has filed an Exchange Offer Registration Statement
that satisfies the requirements of Section 3(a) above, the Company is required
to file and make effective a Shelf Registration Statement solely because the
Exchange Offer is not permitted under applicable federal law (i.e., pursuant to
clause (a)(i) above), then the filing of the Exchange Offer Registration
5
<PAGE>
Statement shall be deemed to satisfy the requirements of clause (x) above;
provided that, in such event, the Company and the Guarantors shall remain
obligated to meet the Effectiveness Deadline set forth in clause (y) above.
To the extent necessary to ensure that the Shelf Registration Statement is
available for sales of Transfer Restricted Securities by the Holders thereof
entitled to the benefit of this Section 4(a) and the other securities required
to be registered therein pursuant to Section 6(b)(ii) hereof, the Company and
the Guarantors shall use their respective best efforts to keep any Shelf
Registration Statement required by this Section 4(a) continuously effective,
supplemented and amended as required by and subject to the provisions of
Sections 6(b) and (c) hereof and in conformity with the requirements of this
Agreement, the Act and the policies, rules and regulations of the Commission as
announced from time to time, for a period of at least two years (as extended
pursuant to Section 6(c)(i)) following the Closing Date, or such shorter period
as will terminate when all Transfer Restricted Securities covered by such Shelf
Registration Statement have been sold pursuant thereto.
(b) Provision by Holders of Certain Information in Connection with the
------------------------------------------------------------------
Shelf Registration Statement. No Holder of Transfer Restricted Securities may
- ----------------------------
include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, the
information specified in Item 507 or 508 of Regulation S-K, as applicable, of
the Act for use in connection with any Shelf Registration Statement or
Prospectus or preliminary Prospectus included therein. No Holder of Transfer
Restricted Securities shall be entitled to liquidated damages pursuant to
Section 5 hereof unless and until such Holder shall have provided all such
information. Each selling Holder agrees to promptly furnish all additional
information required to be disclosed in order to make the information previously
furnished to the Company by such Holder not materially misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not filed
with the Commission on or prior to the applicable Filing Deadline, (ii) any such
Registration Statement has not been declared effective by the Commission on or
prior to the applicable Effectiveness Deadline, (iii) the Exchange Offer, if
applicable, has not been Consummated on or prior to the Consummation Deadline or
(iv) any Registration Statement required by this Agreement is filed and declared
effective but shall thereafter cease to be effective or fail to be usable for
its intended purpose without being succeeded immediately by a post-effective
amendment to such Registration Statement that cures such failure and that is
itself declared effective immediately (each such event referred to in clauses
(i) through (iv) above, a "REGISTRATION DEFAULT"), then the Company and the
--------------------
Guarantors hereby jointly and severally agree to pay to each Holder of Transfer
Restricted Securities affected thereby liquidated damages in an amount equal to
$.05 per week per $1,000 in principal amount of Transfer Restricted Securities
held by such Holder for each week or portion thereof that the Registration
Default continues for the first 90-day period immediately following the
occurrence of such Registration Default. The amount of the liquidated damages
shall increase by an additional $.05 per week per $1,000 in principal amount of
Transfer Restricted Securities with
6
<PAGE>
respect to each subsequent 90-day period until all Registration Defaults have
been cured, up to a maximum amount of liquidated damages of $.30 per week per
$1,000 in principal amount of Transfer Restricted Securities; provided that the
Company and the Guarantors shall in no event be required to pay liquidated
damages for more than one Registration Default at any given time.
Notwithstanding anything to the contrary set forth herein, (1) upon filing of
the Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement), in the case of (i) above, (2) upon the effectiveness of
the Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement), in the case of (ii) above, (3) upon Consummation of the
Exchange Offer, in the case of (iii) above, or (4) upon the filing of a post-
effective amendment to the Registration Statement or an additional Registration
Statement that causes the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement) to again be declared effective or
made usable in the case of (iv) above, the liquidated damages payable with
respect to the Transfer Restricted Securities as a result of such clause (i),
(ii), (iii) or (iv), as applicable, shall cease.
All accrued liquidated damages shall be paid to the Holders entitled
thereto, in the manner provided for the payment of interest in the Indenture, on
each Interest Payment Date, as more fully set forth in the Indenture and the
Notes. Notwithstanding the fact that any securities for which liquidated
damages are due cease to be Transfer Restricted Securities, all obligations of
the Company and the Guarantors to pay liquidated damages with respect to such
securities shall survive until such time as such obligations with respect to
such securities shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the Exchange
-------------------------------------
Offer, the Company and the Guarantors shall (x) comply with all applicable
provisions of Section 6(c) below, (y) use their respective best efforts to
effect such exchange and to permit the resale of Series B Notes by Broker-
Dealers that tendered in the Exchange Offer Series A Notes that such Broker-
Dealer acquired for its own account as a result of its market making activities
or other trading activities (other than Series A Notes acquired directly from
the Company or any of its Affiliates) being sold in accordance with the intended
method or methods of distribution thereof, and (z) comply with all of the
following provisions:
(i) If, following the date hereof there has been published a change
in Commission policy with respect to exchange offers such as the Exchange
Offer, that in the reasonable opinion of counsel to the Company raises a
substantial question as to whether the Exchange Offer is permitted by
applicable federal law, the Company and the Guarantors hereby agree to seek
a no-action letter or other favorable decision from the Commission allowing
the Company and the Guarantors to Consummate an Exchange Offer for such
Transfer Restricted Securities. The Company and the Guarantors hereby agree
to pursue the issuance of such a decision to the Commission staff level. In
connection with the foregoing, the Company and the Guarantors hereby agree
to take all such other actions as are requested by the Commission or
otherwise required in connection with the issuance of such decision,
including without limitation (A)
7
<PAGE>
participating in telephonic conferences with the Commission, (B) delivering
to the Commission staff an analysis prepared by counsel to the Company
setting forth the legal bases, if any, upon which such counsel has
concluded that such an Exchange Offer should be permitted and (C)
diligently pursuing a resolution (which need not be favorable) by the
Commission staff.
(ii) As a condition to its participation in the Exchange Offer, each
Holder of Transfer Restricted Securities (including, without limitation,
any Holder that is a Broker Dealer) shall furnish, upon the request of the
Company, prior to the Consummation of the Exchange Offer, a written
representation to the Company and the Guarantors (which may be contained in
the letter of transmittal contemplated by the Exchange Offer Registration
Statement) to the effect that (A) it is not an Affiliate of the Company,
(B) it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution of the Series B Notes to be issued in the Exchange Offer and
(C) it is acquiring the Series B Notes in its ordinary course of business.
As a condition to its participation in the Exchange Offer, each Holder
(including, without limitation, any Holder that is a Broker Dealer) using
the Exchange Offer to participate in a distribution of the Series B Notes
shall acknowledge and agree that, if the resales are of Series B Notes
obtained by such Holder in exchange for Series A Notes acquired directly
from the Company or an Affiliate thereof, it (1) could not, under
Commission policy as in effect on the date of this Agreement, rely on the
position of the Commission enunciated in Exxon Capital Holdings Corporation
----------------------------------
(available May 13, 1988), and Morgan Stanley and Co., Inc. (available June
----------------------------
5, 1991), as interpreted in the Commission's letter to Shearman & Sterling
-------------------
dated July 2, 1993, and similar no-action letters (including, if
applicable, any no-action letter obtained pursuant to clause (i) above),
and (2) must comply with the registration and prospectus delivery
requirements of the Act in connection with a secondary resale transaction
and that such a secondary resale transaction must be covered by an
effective registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation S-K.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company and the Guarantors shall provide a supplemental
letter to the Commission (A) stating that the Company and the Guarantors
are registering the Exchange Offer in reliance on the position of the
Commission enunciated in Exxon Capital Holdings Corporation (available May
----------------------------------
13, 1988), Morgan Stanley and Co., Inc. (available June 5, 1991), as
----------------------------
interpreted in the Commission's letter to Shearman & Sterling dated July 2,
-------------------
1993, and, if applicable, any no-action letter obtained pursuant to clause
(i) above, (B) including a representation that neither the Company nor any
Guarantor has entered into any arrangement or understanding with any Person
to distribute the Series B Notes to be received in the Exchange Offer and
that, to the best of the Company's and each Guarantor's information and
belief, each Holder participating in the Exchange Offer is acquiring the
Series B Notes in its ordinary course of business and has no arrangement or
understanding with any Person to participate in the distribution of the
Series B Notes received in the Exchange Offer and (C) any other undertaking
or representation required
8
<PAGE>
by the Commission as set forth in any no-action letter obtained pursuant to
clause (i) above, if applicable.
(iv) Shelf Registration Statement. In connection with the Shelf
----------------------------
Registration Statement, the Company and the Guarantors shall comply with all
the provisions of Section 6(c) below and use their respective best efforts to
effect such registration to permit the sale of the Transfer Restricted
Securities being sold in accordance with the intended method or methods of
distribution thereof (as indicated in the information furnished to the Company
pursuant to Section 4(b) hereof), and pursuant thereto the Company and the
Guarantors will prepare and file with the Commission a Registration Statement
relating to the registration on any appropriate form under the Act, which form
shall be available for the sale of the Transfer Restricted Securities in
accordance with the intended method or methods of distribution thereof within
the time periods and otherwise in accordance with the provisions hereof, and
(v) issue, upon the request of any Holder or purchaser of Series A
Notes covered by any Shelf Registration Statement contemplated by this
Agreement, Series B Notes having an aggregate principal amount equal to the
aggregate principal amount of Series A Notes sold pursuant to the Shelf
Registration Statement and surrendered to the Company for cancellation; the
Company shall register Series B Notes on the Shelf Registration Statement for
this purpose and issue the Series B Notes to the purchaser(s) of securities
subject to the Shelf Registration Statement in the names as such purchaser(s)
shall designate.
(b) General Provisions. In connection with any Registration Statement and
------------------
any related Prospectus required by this Agreement, the Company and the
Guarantors shall:
(i) use their respective best efforts to keep such Registration
Statement continuously effective and provide all requisite financial
statements for the period specified in Section 3 or 4 of this Agreement, as
applicable. Upon the occurrence of any event that would cause any such
Registration Statement or the Prospectus contained therein (A) to contain
an untrue statement of material fact or omit to state any material fact
necessary to make the statements therein not misleading or (B) not to be
effective and usable for resale of Transfer Restricted Securities during
the period required by this Agreement, the Company and the Guarantors shall
file promptly an appropriate amendment to such Registration Statement
curing such defect, and, if Commission review is required, use their
respective best efforts to cause such amendment to be declared effective
and such Registration Statement and the related Prospectus to become usable
for their intended purpose(s) as soon as practicable thereafter.
Notwithstanding anything to the contrary set forth in this Agreement, the
Company's and the Guarantors' obligations to use their respective best
efforts to keep the Shelf Registration Statement continuously effective,
supplemented and amended shall be suspended in the event continued
effectiveness of the Shelf Registration Statement would, in the opinion of
counsel to the Company, require the Company to disclose a material
financing, acquisition or other corporate transaction, and the Board of
Directors shall have determined in good faith that such disclosure is not
in the best interests of the Company,
9
<PAGE>
but in no event will any such suspension, individually or in the aggregate,
exceed ninety (90) days since the Closing Date.
(ii) prepare and file with the Commission such amendments and post-
effective amendments to the applicable Registration Statement as may be
necessary to keep such Registration Statement effective for the applicable
period set forth in Section 3 or 4 hereof, or such shorter period as will
terminate upon the earlier of the following (A) when all Transfer
Restricted Securities covered by such Registration Statement have been sold
and (B) when, in the written opinion of counsel to the Company, all
outstanding Transfer Restricted Securities held by Persons that are not
Affiliates of the Company may be resold without registration under the Act
pursuant to Rule 144(k) under the Act or any successor provision thereto;
cause the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 under
the Act, and to comply fully with Rules 424, 430A and 462, as applicable,
under the Act in a timely manner; and comply with the provisions of the Act
with respect to the disposition of all securities covered by such
Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the sellers thereof set forth
in such Registration Statement or supplement to the Prospectus;
(iii) advise each Holder and each Initial Purchaser who is required to
deliver a prospectus in connection with sales or market making activities
(an "AFFILIATED MARKET MAKER") promptly and, if requested by such Holders,
-----------------------
confirm such advice in writing, (A) when the Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect to
any applicable Registration Statement or any post-effective amendment
thereto, when the same has become effective, (B) of any request by the
Commission for amendments to the Registration Statement or amendments or
supplements to the Prospectus or for additional information relating
thereto, (C) of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement under the Act or of the
suspension by any state securities commission of the qualification of the
Transfer Restricted Securities for offering or sale in any jurisdiction, or
the initiation of any proceeding for any of the preceding purposes, (D) of
the existence of any fact or the happening of any event that makes any
statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto or any document
incorporated by reference therein untrue, or that requires the making of
any additions to or changes in the Registration Statement in order to make
the statements therein not misleading, or that requires the making of any
additions to or changes in the Prospectus in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, or any state
securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption from qualification of the
Transfer Restricted Securities under state securities or Blue Sky laws, the
Company and the Guarantors shall use their respective best efforts to
obtain the withdrawal or lifting of such order at the earliest possible
time;
10
<PAGE>
(iv) subject to Section 6(c)(i), if any fact or event contemplated
by Section 6(c)(iii)(D) above shall exist or have occurred, prepare a
supplement or post-effective amendment to the Registration Statement or
related Prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Securities, the Prospectus will not
contain 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;
(v) furnish to each Holder and each Affiliated Market Maker in
connection with such exchange or sale, if any, before filing with the
Commission, copies of any Registration Statement or any Prospectus included
therein or any amendments or supplements to any such Registration Statement
or Prospectus (including all documents incorporated by reference after the
initial filing of such Registration Statement), which documents will be
subject to the review and comment of such Holders in connection with such
sale, if any, for a period of at least five Business Days, and the Company
will not file any such Registration Statement or Prospectus or any
amendment or supplement to any such Registration Statement or Prospectus
(including all such documents incorporated by reference) to which such
Holders shall reasonably object within five Business Days after the
receipt thereof. A Holder shall be deemed to have reasonably objected to
such filing if such Registration Statement, amendment, Prospectus or
supplement, as applicable, as proposed to be filed, contains an untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein not misleading or fails to comply with the
applicable requirements of the Act;
(vi) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus,
provide copies of such document to each Holder and each Affiliated Market
Maker in connection with such exchange or sale, if any, make the Company's
and the Guarantors' representatives available for discussion of such
document and other customary due diligence matters, and include such
information in such document prior to the filing thereof as such Holders
may reasonably request;
(vii) make available, at reasonable times, for inspection by each
Holder and each Affiliated Market Maker and any attorney or accountant
retained by such Holders, all financial and other records, pertinent
corporate documents of the Company and the Guarantors and cause the
Company's and the Guarantors' officers, directors and employees to supply
all information reasonably requested by any such Holder, attorney or
accountant in connection with such Registration Statement or any post-
effective amendment thereto subsequent to the filing thereof and prior to
its effectiveness;
(viii) if requested by any Holders in connection with such exchange or
sale or any Affiliated Market Maker, promptly include in any Registration
Statement or Prospectus, pursuant to a supplement or post-effective
amendment if necessary, such information as such Holders may reasonably
request to have included therein, including, without
11
<PAGE>
limitation, information relating to the "Plan of Distribution" of the
Transfer Restricted Securities, information with respect to the principal
amount of Transfer Restricted Securities being sold to such underwriter(s),
the purchase price being paid therefor and any other terms of the offering
of the Transfer Restricted Securities to be sold in such offering and the
use of the Registration Statement or Prospectus for market making
activities; and make all required filings of such Prospectus supplement or
post-effective amendment as soon as practicable after the Company is
notified of the matters to be included in such Prospectus supplement or
post-effective amendment;
(ix) furnish to each Holder in connection with such exchange or sale
and each Affiliated Market Maker, without charge, at least one copy of the
Registration Statement, as first filed with the Commission, and of each
amendment thereto, including all documents incorporated by reference
therein and all exhibits (including exhibits incorporated therein by
reference);
(x) deliver to each Holder and each Affiliated Market Maker without
charge, as many copies of the Prospectus (including each preliminary
prospectus) and any amendment or supplement thereto as such Persons
reasonably may request; the Company and the Guarantors hereby consent to
the use (in accordance with law) of the Prospectus and any amendment or
supplement thereto by each selling Holder in connection with the offering
and the sale of the Transfer Restricted Securities covered by the
Prospectus or any amendment or supplement thereto and all lawful market
making activities of such Affiliated Market Maker, as the case may be;
(xi) upon the request of any Holder, enter into such agreements
(including underwriting agreements) and make such representations and
warranties and take all such other actions in connection therewith in order
to expedite or facilitate the disposition of the Transfer Restricted
Securities pursuant to any applicable Registration Statement contemplated
by this Agreement as may be reasonably requested by any Holder in
connection with any sale or resale pursuant to any applicable Registration
Statement. In such connection, and also in connection with market making
activities by any Affiliated Market Maker, the Company and the Guarantors
shall:
(A) upon request of any Holder, furnish (or in the case of paragraphs
(2) and (3), use its best efforts to cause to be furnished) to each
Holder, upon Consummation of the Exchange Offer or upon the effectiveness
of the Shelf Registration Statement, as the case may be:
(1) a certificate, dated such date, signed on behalf of the
Company and each Guarantor by (x) the President or any Vice President
and (y) a principal financial or accounting officer of the Company and
such Guarantor, confirming, as of the date thereof, the matters set
forth in Sections 6(x), 9(a) and 9(b) of the Purchase Agreement and
such other similar matters as such Holders may reasonably request;
12
<PAGE>
(2) an opinion, dated the date of Consummation of the Exchange
Offer or the date of effectiveness of the Shelf Registration
Statement, as the case may be, of counsel for the Company and the
Guarantors covering matters similar to those set forth in paragraph
(e) of Section 9 of the Purchase Agreement and such other matter as
such Holder may reasonably request, and in any event including a
statement to the effect that such counsel has participated in
conferences with officers and other representatives of the Company and
the Guarantors, representatives of the independent public accountants
for the Company and the Guarantors and have considered the matters
required to be stated therein and the statements contained therein,
although such counsel has not independently verified the accuracy,
completeness or fairness of such statements; and that such counsel
advises that, on the basis of the foregoing (relying as to materiality
to the extent such counsel deems appropriate upon the statements of
officers and other representatives of the Company and the Guarantors)
and without independent check or verification), no facts came to such
counsel's attention that caused such counsel to believe that the
applicable Registration Statement, at the time such Registration
Statement or any post-effective amendment thereto became effective
and, in the case of the Exchange Offer Registration Statement, as of
the date of Consummation of the Exchange Offer, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or that the Prospectus contained in such
Registration Statement as of its date and, in the case of the opinion
dated the date of Consummation of the Exchange Offer, as of the date
of Consummation, contained an untrue statement of a material 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. Without limiting the foregoing, such
counsel may state further that such counsel assumes no responsibility
for, and has not independently verified, the accuracy, completeness or
fairness of the financial statements, notes and schedules and other
financial and statistical data included in any Registration Statement
contemplated by this Agreement or the related Prospectus; and
(3) a customary comfort letter, dated the date of Consummation
of the Exchange Offer, or as of the date of effectiveness of the Shelf
Registration Statement, as the case may be, from the Company's
independent accountants, in the customary form and covering matters of
the type customarily covered in comfort letters to underwriters in
connection with underwritten offerings, and affirming the matters set
forth in the comfort letters delivered pursuant to Section 9(g) of the
Purchase Agreement; and
(B) set forth in full or incorporate by reference in the underwriting
agreement, if any, in connection with the sale or resale pursuant to any
Shelf Registration Statement
13
<PAGE>
the indemnification provisions and procedures of Section 8 hereof with
respect to all parties to be indemnified pursuant to said Section; and
(C) deliver such other documents and certificates as may be
reasonably requested by such Holders to evidence compliance with the
matters covered in clause (A) above and with any customary conditions
contained in the any agreement entered into by the Company and the
Guarantors pursuant to this clause (xi);
The above shall be done at each closing under such underwriting or
similar agreement, as and to the extent required thereunder, and if at any time
the representations and warranties of the Company and the Guarantors
contemplated in (A)(1) above cease to be true and correct, the Company and the
Guarantors shall so advise the underwriter(s), if any, the selling Holders and
each Restricted Broker Dealer promptly and if requested by such Person, shall
confirm such advice in writing;
(xii) prior to any public offering of Transfer Restricted Securities,
cooperate with the Holders and their counsel in connection with the
registration and qualification of the Transfer Restricted Securities under
the securities or Blue Sky laws of such jurisdictions as such Holders may
request and do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Transfer Restricted
Securities covered by the applicable Registration Statement; provided,
however, that neither the Company nor any Guarantor shall be required to
register or qualify as a foreign corporation where it is not now so
qualified or to take any action that would subject it to the service of
process in suits or to taxation, other than as to matters and transactions
relating to the Registration Statement, in any jurisdiction where it is not
now so subject;
(xiii) in connection with any sale of Transfer Restricted Securities
that will result in such securities no longer being Transfer Restricted
Securities, cooperate with the Holders to facilitate the timely preparation
and delivery of certificates representing Transfer Restricted Securities to
be sold and not bearing any restrictive legends; and to register such
Transfer Restricted Securities in such denominations and such names as the
Holders may request at least two Business Days prior to such sale of
Transfer Restricted Securities;
(xiv) use their respective best efforts to cause the disposition of
the Transfer Restricted Securities covered by the Registration Statement to
be registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof to
consummate the disposition of such Transfer Restricted Securities, subject
to the proviso contained in clause (xii) above;
(xv) provide a CUSIP number for all Transfer Restricted Securities
not later than the effective date of a Registration Statement covering such
Transfer Restricted Securities and provide the Trustee under the Indenture
with printed certificates for the Transfer
14
<PAGE>
Restricted Securities which are in a form eligible for deposit with the
Depository Trust Company;
(xvi) cooperate and assist in any filings required to be made with
the NASD and in the performance of any due diligence investigation by any
underwriter (including any "qualified independent underwriter") that is
required to be retained in accordance with the rules and regulations of the
NASD, and use their respective best efforts to cause such Registration
Statement to become effective and approved by such governmental agencies or
authorities as may be necessary to consummate the disposition of such
Transfer Restricted Securities;
(xvii) otherwise use their respective best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders with regard to any applicable
Registration Statement, within 90 days after the end of the Company's
fiscal year and within 45 days after the end of each such fiscal quarter, a
consolidated earnings statement meeting the requirements of Rule 158 (which
need not be audited) covering a twelve-month period beginning after the
effective date of the Registration Statement (as such term is defined in
paragraph (c) of Rule 158 under the Act);
(xviii) cause the Indenture to be qualified under the TIA not later
than the effective date of the first Registration Statement required by
this Agreement and, in connection therewith, cooperate with the Trustee and
the Holders to effect such changes to the Indenture as may be required for
such Indenture to be so qualified in accordance with the terms of the TIA;
and execute and use its best efforts to cause the Trustee to execute, all
documents that may be required to effect such changes and all other forms
and documents required to be filed with the Commission to enable such
Indenture to be so qualified in a timely manner; and
(xix) provide promptly to each Holder and Affiliated Market Maker,
upon request, a copy of each document filed with the Commission pursuant to
the requirements of Section 13 or Section 15(d) of the Exchange Act.
(c) Restrictions on Holders. Each Holder agrees by acquisition of a
-----------------------
Transfer Restricted Security and each Affiliated Market Maker agrees that, upon
receipt of the notice referred to in Section 6(c)(i) or 6(c)(iii)(C) or any
notice from the Company of the existence of any fact of the kind described in
Section 6(c)(iii)(D) hereof (in each case, a "SUSPENSION NOTICE"), such Holder
-----------------
will forthwith discontinue disposition of Transfer Restricted Securities
pursuant to the applicable Registration Statement until (i) such Person has
received copies of the supplemented or amended Prospectus contemplated by
Section 6(c)(iv) hereof, or (ii) such Person is advised in writing by the
Company that the use of the Prospectus may be resumed, and has received copies
of any additional or supplemental filings that are incorporated by reference in
the Prospectus (in each case, the "RECOMMENCEMENT DATE"). Each Person receiving
-------------------
a Suspension Notice hereby agrees that it will either (i) destroy any
Prospectuses, other than permanent file copies, then in such Person's possession
or (ii) deliver to the Company (at the Company's expense) all copies, other
15
<PAGE>
than permanent file copies, then in such Person's possession of the Prospectus
covering such Transfer Restricted Securities that was current at the time of
receipt of the Suspension Notice. The time period regarding the effectiveness of
such Registration Statement set forth in Section 3 or 4 hereof, as applicable,
shall be extended by a number of days equal to the number of days in the period
from and including the date of delivery of the Suspension Notice to the date of
delivery of notice of the Recommencement Date.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's and the Guarantors' performance
of or compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees and expenses; (ii) all fees and
expenses (including filings made by any Purchaser or Holder with the NASD (and,
if applicable, the fees and expenses of any "qualified independent underwriter")
and its counsel that may be required by the rules and regulations of the NASD);
(ii) all fees and expenses of compliance with federal securities and state Blue
Sky or securities laws; (iii) all expenses of printing (including printing
certificates for the Series B Notes to be issued in the Exchange Offer and
printing of Prospectuses whether for exchanges, sales, market making or
otherwise), messenger and delivery services and telephone; (iv) all fees and
disbursements of counsel for the Company, the Guarantors and the Holders of
Transfer Restricted Securities; (v) all application and filing fees in
connection with listing the Series B Notes on an automated quotation system
pursuant to the requirements hereof; and (vi) all fees and disbursements of
independent certified public accountants of the Company and the Guarantors
(including the expenses of any special audit and comfort letters required by or
incident to such performance).
The Company will, in any event, bear its and the Guarantors' internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expenses of
any annual audit and the fees and expenses of any Person, including special
experts, retained by the Company or the Guarantors.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company and the Guarantors
will reimburse the Initial Purchasers and the Holders of Transfer Restricted
Securities who are tendering Series A Notes into in the Exchange Offer and/or
selling or reselling Series A Notes or Series B Notes pursuant to the "Plan of
Distribution" contained in the Exchange Offer Registration Statement or the
Shelf Registration Statement, as applicable, for the reasonable fees and
disbursements of not more than one counsel, who shall be Latham and Watkins,
unless another firm shall be chosen by the Holders of a majority in principal
amount of the Transfer Restricted Securities for whose benefit such Registration
Statement is being prepared.
SECTION 8. INDEMNIFICATION
(a) The Company and the Guarantors agree, jointly and severally, to
indemnify and hold harmless each Holder, its directors, officers and each
Person, if any, who controls such
16
<PAGE>
Holder (within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act), from and against any and all losses, claims, damages, liabilities
and judgments, (including without limitation, any legal or other expenses
incurred in connection with investigating or defending any matter, including any
action that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement, preliminary prospectus or
Prospectus (or any amendment or supplement thereto) provided by the Company to
any Holder or any prospective purchaser of Series B Notes or registered Series A
Notes, or caused by any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as such losses, claims, damages, liabilities or
judgments are caused by an untrue statement or omission or alleged untrue
statement or omission that is based upon information relating to any of the
Holders furnished in writing to the Company by any of the Holders expressly for
use therein; provided, however, that the foregoing indemnification with respect
to any untrue statement or alleged untrue statement or omission or alleged
omission in any preliminary prospectus or Prospectus, shall not inure to the
benefit of any Indemnified Holder from whom the person asserting such loss,
claim, damage, liability or expense purchased any of the Notes if a copy of the
Prospectus (or any amendment or supplement thereto) was not sent or given on
behalf of such Indemnified Holder to such person at or prior to the written
confirmation of the sale of such Notes to such person and if the Prospectus (or
the Prospectus, as so amended or supplemented) would have cured the defect
giving rise to such loss, claim, damage, liability or expense.
(b) Each Holder of Transfer Restricted agrees, severally and not jointly,
to indemnify and hold harmless the Company and the Guarantors, and their
respective directors and officers, and each person, if any, who controls (within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act) the
Company, or the Guarantors to the same extent as the foregoing indemnity from
the Company and the Guarantors set forth in section (a) above, but only with
reference to information relating to such Holder furnished in writing to the
Company by such Holder expressly for use in any Registration Statement.
(c) In case any action shall be commenced involving any person in respect
of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person
- ------------------
against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing
------------------
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 8(a) and 8(b), a Holder shall not be required to assume the
defense of such action pursuant to this Section 8(c), but may employ separate
counsel and participate in the defense thereof, but the fees and expenses of
such counsel, except as provided below, shall be at the expense of the Holder).
Any indemnified party shall have the right to employ separate counsel in any
such action and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of the indemnified party unless (i) the
employment of such counsel shall have been specifically authorized in writing by
the indemnifying party, (ii) the indemnifying party shall have failed to assume
the defense of such action or employ counsel reasonably satisfactory to the
17
<PAGE>
indemnified party or (iii) the named parties to any such action (including any
impleaded parties) include both the indemnified party and the indemnifying
party, and the indemnified party shall have been advised by such counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the indemnifying party (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the indemnified party). In any such case, the indemnifying party
shall not, in connection with any one action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
all indemnified parties and all such fees and expenses shall be reimbursed as
they are incurred. Such firm shall be designated in writing by a majority of
the Holders, in the case of the parties indemnified pursuant to Section 8(a),
and by the Company and Guarantors, in the case of parties indemnified pursuant
to Section 8(b). The indemnifying party shall indemnify and hold harmless the
indemnified party from and against any and all losses, claims, damages,
liabilities and judgments by reason of any settlement of any action (i) effected
with its written consent or (ii) effected without its written consent if the
settlement is entered into more than 20 Business Days after the indemnifying
party shall have received a request from the indemnified party for reimbursement
for the fees and expenses of counsel (in any case where such fees and expenses
are at the expense of the indemnifying party) and, prior to the date of such
settlement, the indemnifying party shall have failed to comply with such
reimbursement request. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement or compromise of, or
consent to the entry of judgment with respect to, any pending or threatened
action in respect of which the indemnified party is or could have been a party
and indemnity or contribution may be or could have been sought hereunder by the
indemnified party, unless such settlement, compromise or judgment (i) includes
an unconditional release of the indemnified party from all liability on claims
that are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent that the indemnification provided for in this Section 8
is unavailable to an indemnified party in respect of any losses, claims,
damages, liabilities or judgments referred to therein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or judgments (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Guarantors, on the one hand, and the Holders, on the other hand, from their sale
of Transfer Restricted Securities or (ii) if the allocation provided by clause
8(d)(i) is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause 8(d)(i) above
but also the relative fault of the Company and the Guarantors, on the one hand,
and of the Holder, on the other hand, in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The relative
benefits received by the Company, on the one hand, and the Initial Purchasers,
on the other hand, shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Series A Notes (before deducting expenses)
received by the Company, and the
18
<PAGE>
total discounts and commissions received by the Initial Purchasers bear to the
total price to investors of Series A Notes, in each case as set forth in the
table on the cover page of the Offering Memorandum. The relative fault of the
Company and the Guarantors, on the one hand, and of the Holder, on the other
hand, shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or such Guarantor, on the one hand, or by the Holder, on the other hand, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company, the Guarantors and each Holder agree that it would not be just
and equitable if contribution pursuant to this Section 8(d) were determined by
pro rata allocation (even if the Holders were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any matter, including any
action that could have given rise to such losses, claims, damages, liabilities
or judgments. Notwithstanding the provisions of this Section 8, no Holder, its
directors, its officers or any Person, if any, who controls such Holder shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the total received by such Holder with respect to the sale of Transfer
Restricted Securities pursuant to a Registration Statement exceeds the sum of
(i) the amount paid by such Holder for such Transfer Restricted Securities plus
(ii) the amount of any damages which such Holder has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Holders'
obligations to contribute pursuant to this Section 8(c) are several in
proportion to the respective principal amount of Transfer Restricted Securities
held by each Holder hereunder and not joint.
(e) The Company and Guarantors agree that the indemnity and contribution
provisions of this Section 8 shall apply to Affiliated Market Makers to the same
extent, on the same conditions, as it applies to Holders.
SECTION 9. RULE 144A AND RULE 144
The Company and each Guarantor agrees with each Holder, for so long as any
Transfer Restricted Securities remain outstanding and during any period in which
the Company or such Guarantor (i) is not subject to Section 13 or 15(d) of the
Exchange Act, to make available, upon request of any Holder, to such Holder or
beneficial owner of Transfer Restricted Securities in connection with any sale
thereof and any prospective purchaser of such Transfer Restricted Securities
designated by such Holder or beneficial owner, the information required by Rule
144A(d)(4) under the Act in order to permit resales of such Transfer Restricted
Securities pursuant to Rule 144A, and (ii) is subject to Section 13 or 15 (d) of
the Exchange Act, to make all filings
19
<PAGE>
required thereby in a timely manner in order to permit resales of such Transfer
Restricted Securities pursuant to Rule 144.
SECTION 10. MISCELLANEOUS
(a) Remedies. The Company and the Guarantors acknowledge and agree that
--------
any failure by the Company and/or the Guarantors to comply with their respective
obligations under Sections 3 and 4 hereof may result in material irreparable
injury to the Initial Purchasers or the Holders or Affiliated Market Makers for
which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of any such
failure, the Initial Purchasers or any Holder or Affiliated Market Makers may
obtain such relief as may be required to specifically enforce the Company's and
the Guarantor's obligations under Sections 3 and 4 hereof. The Company and the
Guarantors further agree to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any Guarantor
--------------------------
will, on or after the date of this Agreement, enter into any agreement with
respect to its securities that is inconsistent with the rights granted to the
Holders in this Agreement or otherwise conflicts with the provisions hereof.
Except as set forth on Exhibit B hereto, neither the Company nor any Guarantor
has previously entered into any agreement granting any registration rights with
respect to its securities to any Person. The rights granted to the Holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to the holders of the Company's and the Guarantors' securities
under any agreement in effect on the date hereof.
(c) Amendments and Waivers. The provisions of this Agreement may not be
----------------------
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless (i) in the case of Section 5
hereof and this Section 10(c)(i), the Company has obtained the written consent
of Holders of all outstanding Transfer Restricted Securities and (ii) in the
case of all other provisions hereof, the Company has obtained the written
consent of Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities (excluding Transfer Restricted Securities held by the
Company or its Affiliates). Notwithstanding the foregoing, a waiver or consent
to departure from the provisions hereof that relates exclusively to the rights
of Holders whose Transfer Restricted Securities are being tendered pursuant to
the Exchange Offer, and that does not affect directly or indirectly the rights
of other Holders whose Transfer Restricted Securities are not being tendered
pursuant to such Exchange Offer, may be given by the Holders of a majority of
the outstanding principal amount of Transfer Restricted Securities subject to
such Exchange Offer.
(d) Third Party Beneficiary. The Holders shall be third party
-----------------------
beneficiaries to the agreements made hereunder between the Company and the
Guarantors, on the one hand, and the Initial Purchasers, on the other hand, and
Holders of at least 25% in principal amount of the then outstanding Notes shall
have the right to enforce such agreements directly to the extent they may deem
such enforcement necessary or advisable to protect their rights or the rights of
Holders hereunder.
20
<PAGE>
(e) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Company or the Guarantors:
Diamond Brands Operating Corp.
1800 Cloquet Avenue
Cloquet, Minnesota 55720-2141
Telecopier No.: (218) 879-6369
Attention: Chief Executive Officer
With a copy to:
Seaver Kent & Company, LLC
3000 Sand Hill Road
Building A, Suite 230
Menlo Park, California 92045
Telecopier No.: (650) 233-9130
Attention: Alexander M. Seaver and Bradley R. Kent
And with a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York
Telecopier No.: (212) 225-3999
Attention: Paul J. Shim, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next Business Day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
Upon the date of filing of the Exchange Offer or a Shelf Registration
Statement, as the case may be, notice shall be delivered to Donaldson, Lufkin &
Jenrette Securities Corporation, on behalf of the Initial Purchasers (in the
form attached hereto as Exhibit A) and shall be addressed to: Attention: Louise
Guarneri (Compliance Department), 277 Park Avenue, New York, New York 10067.
21
<PAGE>
(f) 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 limitation and without the need for an express assignment, subsequent
Holders; provided, that nothing herein shall be deemed to permit any assignment,
transfer or other disposition of Transfer Restricted Securities in violation of
the terms hereof or of the Purchase Agreement or the Indenture. If any
transferee of any Holder shall acquire Transfer Restricted Securities in any
manner, whether by operation of law or otherwise, such Transfer Restricted
Securities shall be held subject to all of the terms of this Agreement, and by
taking and holding such Transfer Restricted Securities such Person shall be
conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement, including the restrictions on resale set
forth in this Agreement and, if applicable, the Purchase Agreement, and such
Person shall be entitled to receive the benefits hereof.
(g) 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.
(h) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
22
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
DIAMOND BRANDS OPERATING CORP.
By:_________________________________________
Name: Thomas W. Knuesel
Title: Vice President of Finance and
Chief Financial Officer
EMPIRE CANDLE, INC.
By:_________________________________________
Name: Thomas W. Knuesel
Title: Vice President of Finance and
Chief Financial Officer
FORSTER, INC.
By:_________________________________________
Name: Thomas W. Knuesel
Title: Vice President of Finance and
Chief Financial Officer
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
By:_________________________________
Name:
Title:
MORGAN STANLEY & CO. INCORPORATED
By:_________________________________
Name:
Title:
23
<PAGE>
EXHIBIT A
NOTICE OF FILING OF
A/B EXCHANGE OFFER REGISTRATION STATEMENT
To: Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10067
Attention: Louise Guarneri (Compliance Department)
Fax: (212) 892-7272
From: Diamond Brands Operating Corp.
10 1/8% Senior Subordinated Notes due 2008
Date: _______ __, 199_
For your information only (NO ACTION REQUIRED):
Today, ______, 199_, we filed [an A/B Exchange Registration Statement/a
Shelf Registration Statement] with the Securities and Exchange Commission. We
currently expect this registration statement to be declared effective within __
business days of the date hereof.
24
<PAGE>
EXHIBIT B
LIST OF CONTRACTS AND AGREEMENTS
--------------------------------
Stockholders Agreement, dated as of April 21, 1998 among Diamond Brands
Incorporated, Seaver Kent - TPG Partners, L.P., Seaver Kent I Parallel, L.P. and
the other parties named therein.
25
<PAGE>
Exhibit 5.1
Conformed Copy
[Letterhead of Cleary, Gottlieb, Steen & Hamilton]
June 30, 1998
Diamond Brands Operating Corp.
1800 Cloquet Avenue
Cloquet, Minnesota 55720
Ladies and Gentlemen:
We have acted as your counsel in connection with a
Registration Statement on Form S-4 (the "Registration Statement")
filed today with the Securities and Exchange Commission pursuant
to the Securities Act of 1933, as amended (the "Act"), in respect
of the Series B 10-1/8% Senior Subordinated Notes due 2008 (the
"New Notes") of Diamond Brands Operating Corp., a Delaware
corporation (the "Issuer"), to be offered in exchange for all
outstanding Series A 10-1/8% Senior Subordinated Notes due 2008
(the "Old Notes") of the Issuer. The New Notes will be issued
pursuant to an indenture (the "Indenture"), dated as of April 21,
1998, among Forster Inc., a Maine corporation, Empire Candle,
Inc., a Kansas corporation, as guarantors (collectively, the
"Guarantors"), the Issuer and State Street Bank and Trust
Company, as trustee (the "Trustee"). The obligations of the
Issuer pursuant to the New Notes are unconditionally guaranteed
on a senior subordinated basis by the Guarantors (the
"Guarantees").
We have participated in the preparation of the
Registration Statement and have reviewed originals or copies,
certified or otherwise identified to our satisfaction, of such
documents and records of the Issuer and each of the Guarantors
and such other instruments and other certificates of public
officials, officers and representatives of the Issuer and each of
the Guarantors and such other persons, and we have made such
investigations of law, as we have deemed appropriate as a basis
for the opinions expressed below.
<PAGE>
Diamond Brands Operating Corp., p. 2
In rendering the opinions expressed below, we have assumed the
authenticity of all documents submitted to us as originals and
the conformity to the originals of all documents submitted to us
as copies. In addition, we have assumed and have not verified (i)
the accuracy as to factual matters of each document we have
reviewed and (ii) that the Old Notes and the New Notes conform or
will conform to the forms thereof that we have reviewed and have
been or will be duly authenticated in accordance with their terms
and the terms of the Indenture.
Based on the foregoing, and subject to the further
assumptions and qualifications set forth below, it is our opinion
that:
1. When the New Notes have been duly executed and
authenticated in accordance with their terms and the terms of the
Indenture, and duly issued and delivered by the Issuer in
exchange for an equal principal amount of Old Notes pursuant to
the terms of the Registration Rights Agreement (in the form filed
as an exhibit to the Registration Statement), the New Notes will
constitute valid, binding and enforceable obligations of the
Issuer, entitled to the benefits of the Indenture.
2. The Indenture (including, without limitation, the
Guarantees included therein) has been duly executed and delivered
by the Issuer and the Guarantors under the law of the State of
New York, and upon the exchange of New Notes for an equal
principal amount of Old Notes pursuant to the Registration Rights
Agreement (in the form filed as an exhibit to the Registration
Statement), the Guarantees will constitute the valid, binding and
enforceable obligation of the respective Guarantors.
Insofar as the foregoing opinions relate to the
validity, binding effect or enforceability of any agreement or
obligation of the Issuer or any of the Guarantors, (a) we have
assumed that the Issuer, each of the Guarantors and each other
party to such agreement or obligation has satisfied those legal
requirements that are applicable to it to the extent necessary to
make such agreement or obligation enforceable against it (except
that no such assumption is made as to the Issuer or any of the
Guarantors regarding matters of the law of the State of New
York); (b) such opinions are subject to applicable bankruptcy,
insolvency, fraudulent conveyance and similar laws affecting
creditors' rights generally and to general principles of equity;
and (c) we express no opinion as to sections of the Indenture
which pertain to severability of illegal provisions or waiver of
protection under stay, extension or usury laws.
The foregoing opinion is limited to the law of the
State of New York.
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 heading "Legal Matters" in the Prospectus
included in the Registration Statement. In giving such consent,
we do not thereby admit that we are "experts" within the meaning
of the Act or the rules and regulations of the Securities and
Exchange Commission issued thereunder with respect to any part of
the Registration Statement, including this exhibit.
<PAGE>
Diamond Brands Operating Corp., p. 3
Very truly yours,
CLEARY, GOTTLIEB, STEEN & HAMILTON
By /s/ Paul J. Shim
--------------------------------
Paul J. Shim, a Partner
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement") is hereby entered into on and as of
April 21, 1998, by and between Diamond Brands Operating Corp., a Minnesota
corporation ("Employer"), and Naresh K. Nakra ("Employee").
RECITALS
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WHEREAS, Employee has, over the period of his business career, compiled
extensive experience in acting as the senior executive of various domestic and
international enterprises which are engaged in the domestic and international
food industry; and
WHEREAS, Employer is desirous of engaging the services of Employee as Chief
Executive Officer of Employer, on the terms and conditions set forth in this
Agreement; and
WHEREAS, Employee is desirous of accepting such employment, title and
attendant responsibilities on the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, for and in consideration of the foregoing recitals and the
mutual covenants and obligations set forth in this Agreement, Employer and
Employee hereby agree as follows:
AGREEMENT
---------
1. Employment. Employer hereby employs Employee and Employee hereby
----------
accepts employment with Employer, upon the terms and conditions set forth in
this agreement.
2. Term of Employment. Employer's employment of Employee, pursuant to
------------------
the terms of this Agreement, shall commence on and as of the date hereof
(hereinafter, the "Commencement Date") and shall continue until terminated as
provided herein.
3. Duties.
------
(a) Duties. Employee shall serve as Chief Executive Officer of
------
Employer and Employee shall assume all responsibilities ordinarily
attendant to that position. In addition, Employee shall be duly elected as
a full voting member to the Board of Directors of Employer.
(b) Time Devoted to Employment. During the term of this Agreement,
--------------------------
Employee shall work for Employer on a full-time basis and shall not accept
other employment of any kind without Employer's prior written consent.
Employee may,
<PAGE>
however, with the consent of Employer's Board of Directors, participate in
such trade associations as Employee reasonably deems is advantageous to
Employer's businesses.
4. Compensation.
------------
(a) Salary. As compensation for services rendered under this
------
Agreement, Employer shall pay Employee an initial base salary of Three
Hundred Seventy-Five Thousand Dollars ($375,000.00) per year, payable in
equal bi-weekly or semi-monthly installments in accordance with Employer's
payroll practice for executives as in effect from time to time.
(b) Annual Bonus. In addition to the salary referenced in Section
------------
4(a) of this Agreement, Employee shall be entitled to an annual bonus of
30-40% of base salary at the base case level (see attached base case model
dated February 10, 1997) and 50-60% of base salary at the upside case level
(see attached upside case model dated February 23, 1998).
(c) Benefits. During the term of this Agreement, Employer shall
--------
provide Employee with the following benefits:
(i) health insurance coverage for Employee and his immediate
family equivalent to that currently provided other executive personnel
of Employer;
(ii) term life insurance coverage on Employee's life in an
amount equal to four (4) times Employee's annual base salary; Employee
shall have the sole right to designate (and to amend his designation
of) the beneficiary of such coverage;
(iii) the use of an automobile owned or leased by Employer
equivalent in value to the automobiles provided to other executives of
Employer, for which automobile Employer shall pay and/or reimburse
Employee for, as the case may be, all costs and expenses incurred in
connection with the use of such automobile (including without
limitation, lease, fuel, maintenance and insurance costs);
(iv) paid vacation which shall accrue at the rate of one and
two-thirds (1-2/3) days per month together with allowances of sick
leave similar to those afforded to other executive personnel of
Employer;
(v) reimbursement for travel and entertainment expenses
incurred in connection with Employer's business, as authorized by
Employer's Board of Directors from time to time, provided, however,
that Employee shall provide Employer with such receipts and/or other
documentation of expenses or other
2
<PAGE>
amounts reimbursable or payable to Employee pursuant to this Section 4
as Employer may reasonably require from time to time; and
(vi) such other employee benefits as are made available from
time to time to or for the benefit of employees of the Company.
(d) Common Stock Investment. Employee agrees that, at the closing of
-----------------------
the DBI Recapitalization, Employee shall purchase $1,000,000 of the same
securities of Employer as other new equity investors in the DBI
Recapitalization for a purchase price equal to the value of such securities
reflected in the DBI Recapitalization (the "Recapitalization Value"). At
Employee's option, up to $666,666 of such purchase price may be provided
through a full recourse five-year promissory note (accelerated upon a
change in control of Employer) in principal amount equal to such amount and
bearing interest at 6.75% per annum. The balance of the purchase price will
be paid by Employee in cash.
(e) Stock Options. Employee shall be entitled to receive the
-------------
following rights to acquire stock in the Employer:
(i) As of the Commencement Date, Employer grants to Employee, a
ten-year option to purchase six percent (6%) of the common stock of
Employer as of the consummation of the DBI Recapitalization at an
exercise price equal to the Recapitalization Value of such stock.
Such percentage shall be calculated on a fully-diluted basis, after
taking into consideration any and all conversion rights, stock
options, warrants, and other right to purchase stock which are
outstanding as of the consummation of the DBI Recapitalization. On
the 180th day after the Commencement Date, one quarter of such option
shall vest and become exercisable. On the first day of each of the
subsequent thirty (30) consecutive calendar months, one-thirtieth
(1/30) of the balance of such option shall vest and become
exercisable;
(ii) As of the Commencement Date, Employer grants to Employee, a
ten-year option to purchase two percent (2%) of the common stock of
Employer as of the consummation of the DBI Recapitalization at a price
per share equal to two (2) times the Recapitalization Value of such
stock. Such percentage shall be calculated on a fully-diluted basis,
after taking into consideration any and all conversion rights, stock
options, warrants, and other rights to purchase stock which are
outstanding as of consummation of the DBI Recapitalization. On the
180th day after the Commencement Date, one-quarter of such option
shall vest and become exercisable. On the first day of each of the
subsequent thirty (30) consecutive calendar months, one-thirtieth
(1/30) of the balance of such options shall vest and become
exercisable; and
3
<PAGE>
(iii) in the event that Employer sells stock to provide funds for
future acquisitions, Employer shall grant to Employee (A) a ten-year
option to purchase four percent (4%) of such newly-issued stock at the
same price paid by other investors and (B) a ten-year option to
purchase one percent (1%) of such newly issued stock for a price equal
to two (2) times the price paid by other investors. Employee's right
to exercise these options shall fully vest in forty-eight (48) equal
portions over the forty-eight month period following grant of the
options.
(f) Registration Rights. In connection with each registration of any
-------------------
of common stock of Employer in preparation for a public offering of any
portion thereof (other than on Form S-4 or S-8), Employer shall extend to
Employee the same rights to register Employee's stock as are afforded to
other stockholders of Employer.
(g) Sale of Employer Stock. In the event that the shareholders of
----------------------
Employer determine to sell the majority of the outstanding stock of
Employer, Employee agrees to use its best efforts to allow Employee the
right to include his stock in such sale at a value equivalent to that
received by other stockholders.
(h) Accelerated Vesting. Any unvested portion of the options granted
-------------------
to Employee pursuant to Section (f) which, at the time of the death or
disability of Employee or at the time of any change in control, (as defined
below), are not yet fully vested shall automatically become fully vested in
Employee or his estate, as the case may be. For purposes of this section,
the term "change in control" shall mean and refer to any change in the
equityholders of Employer which results in the majority of the outstanding
stock of Employer no longer being held by Seaver, Kent & Company, LLC or
affiliates thereof; and
(i) Transaction Fees. In addition to all other sums payable by
----------------
Employer to Employee under this Agreement, upon the Commencement Date,
Employer shall pay to Employee a cash bonus equal to ten percent (10%) of
the aggregate fees paid to equity investors with respect to the DBI
Recapitalization. Additionally, Employer agrees to pay to Employee a bonus
equal to ten percent (10%) of the aggregate fees paid to equity investors
with respect any subsequent acquisition by Employer.
5. Termination of Employment.
-------------------------
(a) Automatic Termination of Employment. This Agreement, and the
-----------------------------------
employment of Employee hereunder, shall automatically terminate, without
notice, upon the occurrence of any one or more of the following events:
(i) the death of Employee; or
4
<PAGE>
(ii) the loss by Employee of legal capacity.
(b) Termination for Cause. Employer may, at its option upon notice to
---------------------
Employee immediately terminate this Agreement, and the employment of
Employee hereunder, upon the occurrence of any one or more of the following
events:
(i) the willful breach of a material duty by Employee in the
course of his employment;
(ii) the material neglect by Employee of his employment duties,
provided that Employer has delivered written notice to Employee of the
perceived neglect and a reasonable opportunity to cure such perceived
neglect, if subject to cure; or
(iii) the reasonable determination by a competent physician
satisfactory to Employer that Employee will be unable, for a period of
six (6) consecutive months or more, to perform his duties under this
Agreement.
Prior to termination pursuant to Section 5(b)(i) or (ii) Employee shall be
given the opportunity to present his view to Employer's Board of Directors or
its designee.
(c) Termination without Cause. Either Employer or Employee may, at
-------------------------
any time and without cause, and without thereby incurring any liability to
the other (except as provided in Section 5(e) hereof), terminate this
Agreement and the employment of Employee hereunder, upon thirty (30) days
prior written notice to the other.
(d) Termination by Employee for Good Reason. Employee may, at his
---------------------------------------
option upon notice to Employer, immediately terminate this Agreement and
the employment of Employee hereunder, upon the occurrence of any material
breach by Employer under this Agreement which continues without cure for a
period of 30 days after Employee shall have given Employer written notice
specifying such breach.
(e) Effect of Termination On Compensation. In the event of any
-------------------------------------
termination of this Agreement, Employee shall not be entitled to any
compensation in addition to that fully earned by him under this Agreement
prior to the date of said termination, except that should Employer
terminate this Agreement and the employment of Employee hereunder pursuant
to Section 5(c) hereof, or should Employee terminate this Agreement and the
employment of Employee hereunder, pursuant to Section 5(d) hereof, Employer
shall pay Employee a severance amount equal to one year's base salary. The
severance amount shall be paid to Employee during the one year period
following such termination in payments and on dates on which Employee would
have received salary payments had his employment not terminated.
Additionally, should Employer terminate this Agreement
5
<PAGE>
and the employment of Employee hereunder pursuant to Section 5(c) hereof,
or should Employee terminate this Agreement and the employment of Employee
hereunder, pursuant to Section 5(d) hereof, Employee shall have the right,
exercisable by written notice to Employer delivered within thirty (30) days
of the effective date of any such termination, to exercise any fully vested
but previously unexercised stock options granted under this Agreement.
6. Non-Disclosure. Except as may be required by law, Employee will not
--------------
at any time after the date of this Agreement, divulge, furnish or make
accessible, or otherwise transfer to anyone (other than in the regular course of
business of the Employer) who is not an employee, agent or representative of
Employer, without the consent of the Board of Directors of Employer, any
knowledge or information which has not been publicly disclosed by Employer or
otherwise is not generally known to other persons engaged in businesses similar
to that conducted by Employer ("Confidential Information"), with respect to any
(i) confidential or secret processes, inventions, discoveries, improvements,
formulae, recipes, plans, material, devices or ideas or other know-how, whether
patentable or not, (ii) confidential or secret development or research work or
(iii) other confidential or secret aspects of Employer's business (including,
without limitation, information relating to manufacturing, processing,
distribution and operating methods or processes, marketing or business plans,
sales techniques, service records, customer lists, supplier lists and pricing
arrangements with customers or suppliers).
7. Covenant Not To Compete. In consideration for Employer's employment
-----------------------
of Employee, during the term of this Agreement and any period during which
Employee receives any severance payments hereunder, Employee shall not, without
the consent of the Board of Directors of Employer:
(i) engage, directly or indirectly, whether as an owner,
employee, officer, director, agent, consultant or otherwise, in the
geographic area of the United States, in a business the same as or
competitive with any business conducted by Employer during the term of
this Agreement, provided, however, that the ownership of 2% or less of
the stock of a company whose shares are listed on a national
securities exchange or are quoted on the National Association of
Securities Dealers Automated Quotation System shall not be deemed
ownership or having an interest which is prohibited hereunder;
(ii) solicit or accept any business from any customer of
Employer for products or services competitive with those of Employer,
or request, induce or advise customers of Employer to withdraw,
curtail or cancel their business with Employer; or
6
<PAGE>
(iii) solicit for employment or employ any then current employee
of Employer, or request, induce or advise any then current employee to
leave the employ of Employer.
The necessity of protection against the competition of Employee and the
nature and scope of such protection have been carefully considered by the
parties hereto. The parties hereto agree and acknowledge that the duration,
scope and geographic areas applicable to the covenant not to compete described
in this Agreement are fair, reasonable and necessary, that adequate compensation
has been herewith received by Employee for such obligations, and that these
obligations do not prevent Employee from earning a livelihood. If, however, for
any reason any court determines that the restrictions in this Agreement are not
reasonable, that consideration is inadequate or that Employee has been prevented
from earning a livelihood, such restrictions shall be interpreted, modified or
rewritten to include as much of the duration, scope and geographic area
identified in this Agreement as will render such restrictions valid and
enforceable.
8. Remedies. Employee acknowledges that irreparable damage would result
--------
to Employer if the provisions of Section 6 or 7 were breached by Employee, and
Employer would not have an adequate remedy at law for such a breach or
threatened breach. In the event of such a breach or threatened breach, Employee
agrees that Employer, may, notwithstanding anything to the contrary herein
contained, and in addition to the other remedies which may be available to it,
seek to enjoin Employee, together with all those persons associated with him,
from the breach or threatened breach of such covenants.
9. Assignment. Due to the personal nature of the services to be provided
----------
by Employee hereunder, neither Employee nor Employer may assign or delegate any
of his or its rights or obligations under this Agreement without the prior
written consent of Employer.
(a) Notices. Any notices or other communications required or
-------
permitted to be given hereunder shall be given sufficiently only if in
writing and served personally or sent by registered or certified mail,
Postage prepaid and return receipt requested, addressed as follows:
If to Employer:
Diamond Brands Incorporated
1800 Cloquet Avenue
Cloquet, Minnesota 55720
If to Employee:
Naresh K. Nakra
63 Paseo de Castana
7
<PAGE>
Rancho Palos Verdes, CA 90275
Either party may change his/its address for purposes of this Agreement by giving
written notice of such change to the other party in accordance with this
section. Notices delivered personally shall be deemed effective upon actual
receipt by the addressee. Notices which are mailed shall be deemed given and
received as of three (3) business days after they are placed in the mail, first-
class postage prepaid or by prepaid overnight courier.
(b) Choice of Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Minnesota;
(c) Entire Agreement; Modification and Waiver. This Agreement
-----------------------------------------
supersedes any and all prior agreements between the parties, whether oral
or written, with respect to the employment of Employee by Employer and it
contains all covenants and agreements between the parties relating to such
employment in any manner whatsoever. Each party to this Agreement
acknowledges that no representations inducements promises, or agreements
relating to the subject matter of this Agreement, oral or written, have
been made by either party. or by anyone acting on behalf of either party,
which are not embodied herein, and that no other agreement, statement, or
promise not contained in this Agreement with respect to the subject matter
hereof shall be valid or binding. Any amendment or modification of this
Agreement shall be effective only if it is in writing signed by the party
to be charged. No waiver of any of the provisions of this Agreement shall
be deemed, or shall constitute, a waiver of any other provisions, whether
or not similar, nor shall any waiver constitute a continuing waiver. No
waiver shall be binding unless executed in writing by the party making the
waiver;
(d) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument; and
(e) Headings and Captions. Headings and captions are included for
---------------------
purposes of convenience only and are not a part of this Agreement, however
the recitals are an integral part of this Agreement.
* * *
8
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement
effective as of the day and year first above written.
EMPLOYER: EMPLOYEE:
DIAMOND BRANDS INCORPORATED
By: /s/ Thomas W. Knuesel /s/ Naresh K. Nakra
------------------------------ ------------------------------
Naresh K. Nakra
9
<PAGE>
EMPLOYMENT (CHANGE OF CONTROL) AGREEMENT
AGREEMENT made as of this 1st day of November, 1997 by and between Diamond
Brands Incorporated, a Minnesota corporation ("DBI") and Thomas Knuesel (the
"Employee").
WHEREAS, DBI considers the establishment and maintenance of a sound and
vital management to be essential to protecting and enhancing the best interests
of DBI and its shareholders; and
WHEREAS, the Employee has made and is expected to make, due to Employee's
intimate knowledge of the business and affairs of DBI, its policies, methods and
personnel, a significant contribution to the profitability, growth and financial
strength of DBI; and
WHEREAS, it is in the best interests of DBI and its shareholders to
reinforce and encourage the continued attention and dedication of management
personnel, including Employee, to their assigned duties without distraction and
to ensure the continued availability to DBI of the Employee in the event of a
Change in Control.
THEREFORE, in consideration of the foregoing and other respective covenants
and agreements of the parties herein contained, the parties hereto agree as
follows:
1. Term of Agreement. This Agreement shall commence on the date hereof
-----------------
and shall continue in effect until May 1, 1998. Nothwithstanding the preceding
------------------------------------
sentence, if a Change in Control occurs, this Agreement shall continue in effect
for a period of 36 months from the date of the occurrence of a Change in
Control. Nothwithstanding anything herein to the contrary, the Employee's
employment shall be at all times at the will of DBI, and nothing in this
Agreement shall prohibit or limit the right of DBI or Employee, prior to Change
in Control, to terminate the employment of Employee for any reason or for no
reason.
2. Change in Control. No benefits shall be payable hereunder unless
-----------------
there shall have been a Change in Control, as set forth below.
(a) For purposes of this Agreement, a "Change in Control" of DBI
shall mean (i) a corporate reorganization of DBI which results in the
shareholders of DBI immediately prior to such reorganization owning less
than 50% of the combined voting power of the capital stock of the surviving
company immediately following such reorganization, (ii) the sale of 50% or
more of the combined voting power of the capital stock of DBI, or (iii) the
sale of all or substantially all of the assets of DBI.
(b) Provided Employee is employed by DBI on the date of the
occurrence of a Change in Control (the "Effective Date"), Employee shall be
entitled to receive a bonus ("Retention Bonus") equal to .25% of the
Aggregate Consideration in excess of $160,000,000 received by DBI or its
Shareholders in the Change in Control, provided Employee shall not in any
event receive less than $250,000. Aggregate Consideration shall be equal
to the aggregate amount of consideration received by DBI or its
Shareholders plus
<PAGE>
any debt assumed, remaining outstanding or retired. DBI or its successor
shall pay such Retention Bonus to the Employee, one-half on the Effective
Date and, as long as the Employee has maintained continuous employment with
DBI or its successor from the Effective Date to the first anniversary of
the Effective Date (the "Final Payment Date"), the other one-half on the
Final Payment Date. If Employee is employed by DBI on the Effective Date
but Employee's employment with DBI or its successor is terminated prior to
the Final Payment Date by Employee for Good Reason or by DBI or its
successor without Cause, then the unpaid Retention Bonus shall become
payable within five business days after the date of such termination. No
unpaid Retention Bonus shall be payable hereunder to Employee if Employee's
employment is terminated for Cause prior to the Final Payment Date.
Employee agrees that, subject to the terms and conditions of this
Agreement, in the event of a Change in Control of DBI occurring after the
date hereof, Employee will remain in the employ of DBI for a period of 12
months from the Effective Date.
3. Termination Following Change in Control. In addition to the benefits
---------------------------------------
provided in Section 2(b) above, if a Change in Control occurs during the term of
this Agreement and if Employee's employment is thereafter terminated, Employee
shall be entitled to the benefits provided in subsection 4(d) unless such
termination is (A) because the Employee's Death or Retirement, (B) by DBI for
Cause or Disability, or (C) by Employee other than for Good Reason.
(a) Disability; Retirement. If, as a result of incapacity due to
----------------------
physical or mental illness, the Employee is absent from the full-time
performance of Employee's duties with DBI for six consecutive months, and
within 30 days after written Notice of Termination is given, the Employee
does not return to the full-time performance of the Employee's duties, DBI
may terminate Employee's employment for "Disability". Any question as to
the existence of Employee's Disability upon which Employee and DBI cannot
agree shall be determined by a qualified independent physician selected by
Employee (or, if the Employee is unable to make such selection, it shall be
made by any adult member of the Employee's immediate family), and approved
by DBI in writing. The determination of such physician made in writing to
DBI and to Employee shall be final and conclusive for all purposes of this
Agreement. Termination by Employee of Employee's employment based on
"Retirement" shall mean retirement at or after the date the Employee has
attained age 65.
(b) Cause. Termination by DBI of Employee's employment for "Cause"
-----
shall mean: (i) the willful and continued failure of Employee to perform
his essential duties; (ii) Employee's material breach of the provisions of
Section 5 or 6; (iii) the willful engaging by Employee in illegal conduct
which may adversely affect DBI, or (iv) gross misconduct materially
injurious to DBI, which, in the case of clause (i), (ii) and (iv), the
Employee has not cured, in the sole opinion of the Board, determined in
good faith, within 14 days of receipt of the Notice of Termination.
(c) Good Reason. Employee is entitled to terminate his employment
-----------
for Good Reason. For purposes of this Agreement, "Good Reason" shall mean,
without Employee's express written consent, any of the following:
-2-
<PAGE>
(i) the assignment to Employee of any duties materially
inconsistent with Employee's status or position with DBI, or a substantial
reduction in the nature or status of Employee's responsibilities from those
in effect immediately prior to the Change in Control;
(ii) a reduction by DBI in Employee's annual base salary in effect
immediately prior to a Change in Control;
(iii) the relocation of DBI's principal executive offices to a
location more than fifty miles from Cloquet, Minnesota or DBI requiring
Employee to be based anywhere other than DBI's principal executive
offices except for required travel on DBI's business to an extent
substantially consistent with Employee's prior business travel obligations;
(iv) the failure by DBI to continue to provide Employee with
benefits at least as favorable to those enjoyed by Employee under any of
DBI's life insurance, medical, health and accident, disability, or
savings plan in which Employee was participating immediately prior to the
Effective Date;
(v) the failure of DBI to obtain an agreement from any successor
to assume and agree to perform this Agreement, as required by Section 7;
or
(vi) any purported termination of Employee's employment which is not
made pursuant to a Notice of Termination satisfying the requirements of
Section 3(d) below; for purposes of this Agreement, no such purported
termination shall be effective.
(d) Notice of Termination. Any purported termination of Employee's
---------------------
employment by DBI or by Employee shall be communicated by written Notice
of Termination to the other party hereto in accordance with Section 8. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth the facts and circumstances claimed to
provide a basis for termination of Employee's employment.
4. Compensation Upon Termination or During Disability. Following a Change in
--------------------------------------------------
Control of DBI, as defined in subsection 2(a), upon termination of Employee's
employment or during a period of Disability, Employee shall be entitled to the
following benefits:
(a) During any period that Employee fails to perform full-time duties with
DBI as a result of a Disability, DBI shall pay Employee the base salary of the
Employee at the rate in effect at the commencement of any such period, until
such time as the Employee is eligible for and begins receiving long term
disability benefits in accordance with DBI's insurance programs then in
effect.
-3-
<PAGE>
(b) If Employee's employment shall be terminated by DBI for Cause or
by Employee other than for Good Reason or Retirement, DBI shall pay to
Employee his full base salary through the date of termination at the rate
in effect at the time Notice of Termination is given and DBI shall have no
further obligation to Employee under this Agreement.
(c) If Employee's employment shall be terminated by DBI for
Disability or by Employee for Retirement, or by reason of Death, DBI shall
immediately commence payment to the Employee (or Employee's designated
beneficiaries or estate, if no beneficiary is designated) any and all
benefits to which the Employee is entitled under DBI's retirement and
insurance programs then in effect.
(d) If Employee's employment by DBI shall be terminated (A) by DBI
other than for Cause or Disability or (B) by Employee for Good Reason, then
Employee shall be entitled to the benefits provided below:
(i) DBI shall pay Employee the Employee's full base salary
through the date of and at the rate in effect at the time the Notice
of Termination is given;
(ii) In lieu of any further salary payments for periods
subsequent to the date of termination, DBI shall pay a severance
payment (the "Severance Payment") equal to (X) one times Employee's
regular annual base salary in effect immediately prior to the Change
in Control or in effect at the time the Notice of Termination is
given, whichever is greater, plus (Y) an amount equal to Employee's
annual target bonus in effect immediately prior to the Change in
Control or in effect at the time the Notice of Termination is given,
whichever is greater. The Severance Payment shall be made within 30
days after the date of termination; and
(iii) For a period of 12 months after the date of termination,
Employee shall be entitled to continue participation in the health
insurance benefit plans of DBI substantially similar to those which
Employee is receiving or entitled to receive immediately prior to the
Notice of Termination. DBI and Employee shall share the cost
associated with such coverage as if Employee was still actively
employed by DBI.
(e) Employee shall not be required to mitigate the amount of any
payment provided for in this Section 4 by seeking other employment or
otherwise, nor shall the amount of any payment or benefit provided for in
this Section 4 be reduced by any compensation earned by Employee as the
result of employment by another employer or by retirement benefits after
the date of termination, or otherwise.
(f) In addition to all other amounts payable to Employee under this
Section 4, Employee shall be entitled to receive all benefits payable to
the Employee under any other plan or agreement relating to retirement
benefits or otherwise generally applicable to executive employees.
-4-
<PAGE>
5. Nondisclosure. In consideration of this Agreement, including the
-------------
Retention Bonus in Section 2, Employee represents and agrees that, except by
prior written permission from DBI, Employee shall never during his employment or
at any time thereafter, directly or indirectly use or disclose (except in the
execution of his duties as an employee consistent with this Agreement and then
only in strict accordance with his obligations of service and loyalty hereunder)
any of DBI's Confidential Information, as hereinafter defined. "Confidential
Information" shall include, but not be limited to, trade secrets, formulations,
recipes, compounds, customer lists, pricing agreements, product specifications,
credit information, production or processing know-how, or other information not
generally known to the public acquired or learned by Employee during the course,
and on account, of his employment with DBI, whether or not developed by
Employee. Confidential Information also includes any confidential information
relating to any business of any company affiliated with DBI which is disclosed
to Employee either purposely or inadvertently in the course of his employment
with DBI. Employee agrees that such information shall be considered secret and
disclosed to him in confidence. Employee further recognizes that such
information is the sole property of DBI and shall be used for the exclusive
benefit of DBI. While some of the Confidential Information may be generally
public knowledge, its compilation in a form useful to DBI and their competitors
makes it unique and valuable. Upon termination of employment, Employee agrees to
deliver to DBI all Confidential Information. Without limiting the foregoing,
Employee agrees not to disclose to any person, other than DBI's advisors, either
the fact that discussions or negotiations are taking place concerning a possible
Change in Control or any of the terms, conditions or other facts with respect to
any possible Change in Control, including the status thereof. This provision
shall survive any Change in Control and any termination of this Agreement.
6. Noncompetition.
--------------
(a) In consideration of this Agreement, including the addition of the
Retention Bonus described in Section 2, Employee represents and agrees that
during his employment and for a period of one (1) year from and after the
termination of his employment for any reason, Employee will not, directly or
indirectly, alone or in any capacity with another legal entity, (i) engage in
any activity that directly competes in any material respect with DBI, including
specifically, but without limitation, the manufacture, sale, marketing or
distribution of clothespins, toothpicks, matches, firestarters, wooden crafts,
plastic cutlery, candles or aromatherapy products; (ii) contact or in any way
interfere or attempt to interfere with the relationship of DBI with any current
or potential customers or any current vendors of DBI; (iii) employ or attempt to
employ, on behalf of Employee or any other person or entity, any employee of DBI
(other than a former employee thereof after such employee has terminated
employment with DBI).
(b) Employee acknowledges that DBI markets products throughout the
United States and Canada (the "Territory") and that DBI would be harmed if
Employee conducted any of the activities described in this Section 6 anywhere in
the Territory. Therefore, Employee agrees that the covenants contained in this
Section 6 shall apply to all portions of, and throughout, the Territory.
(c) Employee acknowledges that the duration and scope of the
covenants contained in this Section 6, as well as the Territory to which such
covenants apply are reasonable
-5-
<PAGE>
under the circumstances. Employee further acknowledges that he understands that
his willingness to enter into the covenants contained in Sections 5 and 6 were
inducements for DBI to enter into this Agreement, and that the consideration he
is receiving hereunder is fair and reasonable.
(d) Employee acknowledges that if he fails to fulfill his obligations
under Sections 5 and 6, the damages to DBI would be very difficult to determine.
Therefore, in addition to any other rights or remedies available to DBI at law,
in equity, or by statute, Employee hereby consents to the specific enforcement
of the provisions of Sections 5 and 6 by DBI through an injunction or
restraining order issued by the appropriate court.
(e) If for any reason any court of competent jurisdiction determines
any provision of Sections 5 and 6 to be unenforceable as written, the parties
expressly grant the court the authority to modify those provisions and to
enforce those provisions to the maximum extent possible. In furtherance and not
in limitation of the foregoing, should the duration or geographic extent of, or
business activities covered by, any provision of Sections 5 and 6 be in excess
of that which is valid and enforceable under applicable law, then such provision
shall be construed to cover only that duration, extent or activities which are
validly and enforceably covered. Employee acknowledges the uncertainty of the
law in this respect and expressly stipulates that this Section 6 be given the
construction which renders its provisions valid and enforceable to the maximum
extent (not exceeding its expressed terms) possible under applicable laws.
(f) Employee may make a written request for a modification of his
obligations under this Section 6 if, in his opinion, his intended activities
will not adversely affect DBI's legitimate interests. DBI will consider such
written request, determine in its sole discretion whether the request is adverse
to its legitimate business interests, and notify Employee in writing of any
approved modification to Employee's obligations under this Section 6 or its
rejection of Employee's request.
7. Successors; Binding Agreement.
-----------------------------
(a) DBI will require any successor (whether direct or indirect, by
purchase, merger (other than a merger in which DBI is the surviving
company), consolidation or otherwise) to all or substantially all of the
business and/or assets of DBI to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that DBI would be
required to perform it if no such succession had taken place. Failure of
DBI to obtain such assumption and agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle
Employee to compensation from DBI in the same amount and on the same terms
as he would be entitled hereunder if he terminated his employment for Good
Reason following a Change in Control, except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the date of termination.
(b) This Agreement shall inure to the benefit of and be enforceable
by Employee's personal or legal representatives, successors, heirs, and
designated beneficiaries. If Employee should die while any amount would
still be payable to Employee hereunder if the Employee
-6-
<PAGE>
had continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to the
Employee's designated beneficiaries, or, if there is no such designated
beneficiary, to the Employee's estate.
8. Notice. For the purpose of this Agreement, notices and all other
------
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered or certified mail, return receipt requested, postage pre-paid,
addressed to the last known residence address of the Employee or in the case of
DBI, to its principal office to the attention of the President, or to such other
address as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
receipt.
9. Miscellaneous. No provision of this Agreement may be modified, waived
-------------
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the parties. No waiver by either party thereto at anytime
of any breach by the other party to this Agreement of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or similar time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Minnesota.
10. Validity. The invalidity or unenforceability of any provision of this
--------
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
11. Arbitration and Award of Attorneys' Fees.
----------------------------------------
(a) Any dispute arising between the parties relating to this Agreement
shall be resolved by binding arbitration held in the City of Minneapolis
pursuant to the Rules of the American Arbitration Association, except as
hereinafter expressly modified. If the disputing and responding parties are
unable to agree upon a resolution within forty-five business days after the
responding party's receipt of written notice from the disputing party setting
forth the nature of the dispute, within the following ten business days the
disputing and responding parties shall select a mutually acceptable single
arbitrator to resolve the dispute or, if the parties fail or are unable to do
so, each shall within the following ten business days select a single
arbitrator, and the two so selected shall select a third arbitrator within the
following ten business days. Such single arbitrator or, as the case may be,
panel of three arbitrators acting by majority decision, shall resolve the
dispute within sixty days after the date such arbitrator, or the last of them so
selected, is selected, or as soon thereafter as practicable. If either party
-7-
<PAGE>
refuses or fails to select an arbitrator within the time therefore, the
other party may do so on such refusing or failing party's behalf. The
arbitrators shall have no power to award any punitive or exemplary damages
but may construe or interpret but shall not ignore or vary the terms of
this Agreement and shall be bound by controlling law. The parties
acknowledge the Employee's failure to comply with any confidentiality, non-
solicit, and non-compete provisions of any agreement to which the Employee
is bound will cause immediate and irreparable injury to DBI and that
therefore the arbitrators, or a court of competent jurisdiction if an
arbitration panel cannot be immediately convened, will be empowered to
provide injunctive relief, including temporary or preliminary relief, to
restrain any such failure to comply. The arbitration award or other
resolution may be entered as a judgment at the request of the prevailing
party by any court of competent jurisdiction in Minnesota or elsewhere.
(b) In the event DBI fails to pay Employee any amounts owing to
Employee under this Agreement or to provide Employee any benefits to which
Employee is ultimately determined, by settlement, mediation, arbitration,
or by any court or other decision making body with jurisdiction, to be
entitled to under this Agreement, DBI shall pay the legal expenses
(including reasonable attorneys' fees, court costs and other out-of-pocket
expenses), incurred by Employee to enforce his rights under this Agreement
and collect or obtain such amounts or benefits.
DIAMOND BRANDS INCORPORATED
By /s/ Edward A. Michael
------------------------
EMPLOYEE
/s/ Thomas Knuesel
---------------------------
Thomas Knuesel
-8-
<PAGE>
Mr. Thomas Knuesel April 21, 1998
Diamond Brands Incorporated
1800 Cloquet Avenue
Cloquet, MN 55720-2141
Dear Mr. Knuesel:
Reference is made to the Employment (Change of Control) Agreement dated as
of November 1, 1997 (the "Employment Agreement") between Diamond Brands
Incorporated, a Minnesota corporation (the "Company"), and you.
This letter is to amend the Employment Agreement as follows:
Subsection (d)(ii) of Section 4 is hereby amended to be and read in its
entirety as follows:
In lieu of any further salary payments for periods subsequent to the date
of termination, DBI shall pay a severance payment (the "Severance Payment")
equal to (X) one times Employee's regular base salary in effect immediately
prior to the Change in Control or in effect at the time the Notice of
Termination is given, whichever is greater, plus (Y) an amount equal to
Employee's annual target bonus in effect immediately prior to the Change in
Control or in effect at the time the Notice of Termination is given,
whichever is greater. The Severance Payment shall be paid on a monthly
basis without interest, and amounts due hereunder shall be satisfied by 12
consecutive monthly payments, with the first payment to occur within 30
days of Employee's termination of employment with DBI. Such Severance
Payments will be offset by any compensation received by Employee under new
employment during the 12 months after leaving DBI.
Section 1 is hereby amended to be and read in its entirety as follows:
This Agreement shall continue in effect for a period ending upon the
satisfaction in full of the DBI's obligations pursuant to Section 4 of this
Agreement, provided, however, that the provisions of Sections 5 and 6 of
this Agreement shall survive the termination of this Agreement.
Notwithstanding anything herein to the contrary, the Employee's employment
shall be at all times at the will of DBI, and nothing in this Agreement
shall prohibit or limit the right of DBI or Employee, to terminate the
employment of Employee for any reason or for no reason.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this agreement on the
date first written above.
DIAMOND BRANDS INCORPORATED
By: /s/ Edward A. Michael
------------------------------
Its: President
-----------------------------
/s/ Thomas Knuesel
---------------------------------
Thomas Knuesel
2
<PAGE>
EMPLOYMENT (CHANGE OF CONTROL) AGREEMENT
AGREEMENT made as of this 1st day of November, 1997 by and between Diamond
Brands Incorporated, a Minnesota corporation ("DBI") and John Young (the
"Employee").
WHEREAS, DBI considers the establishment and maintenance of a sound and
vital management to be essential to protecting and enhancing the best interests
of DBI and its shareholders; and
WHEREAS, the Employee has made and is expected to make, due to Employee's
intimate knowledge of the business and affairs of DBI, its policies, methods and
personnel, a significant contribution to the profitability, growth and financial
strength of DBI; and
WHEREAS, it is in the best interest of DBI and its shareholders to
reinforce and encourage the continued attention and dedication of management
personnel, including Employee, to their assigned duties without distraction and
to ensure the continued availability to DBI of the Employee in the event of a
Change in Control.
THEREFORE, in consideration of the foregoing and other respective covenants
and agreements of the parties herein contained, the parties hereto agree as
follows:
1. Term of Agreement. This Agreement shall commence on the date hereof
-----------------
and shall continue in effect until May 1, 1998. Notwithstanding the preceding
sentence, if a Change in Control occurs, this Agreement shall continue in effect
for a period of 36 months from the date of the occurrence of a Change in
Control. Notwithstanding anything herein to the contrary, the Employee's
employment shall be at all times at the will of DBI, and nothing in this
Agreement shall prohibit or limit the right of DBI or Employee, prior to a
Change in Control, to terminate the employment of Employee for any reason or for
no reason.
2. Change in Control. No benefits shall be payable hereunder unless there
-----------------
shall have been a Change in Control, as set forth below.
(a) For purposes of this Agreement, a "Change in Control" of DBI
shall mean (i) a corporate reorganization of DBI which results in the
shareholders of DBI immediately prior to such reorganization owning less
than 50% of the combined voting power of the capital stock of the surviving
company immediately following such reorganization, (ii) the sale of 50% or
more of the combined voting power of the capital stock of DBI, or (iii) the
sale of all or substantially all of the assets of DBI.
(b) Provided Employee is employed by DBI on the date of the
occurrence of a Change in Control (the "Effective Date"), Employee shall be
entitled to receive a bonus ("Retention Bonus") equal to .25% of the
Aggregate Consideration in excess of $160,000,000 received by DBI or its
Shareholders in the Change in Control, provided Employee shall not in any
event receive less than $250,000. Aggregate Consideration shall be equal to
the aggregate amount of consideration received by DBI or its Shareholders
plus
<PAGE>
any debt assumed, remaining outstanding or retired. DBI or its successor
shall pay such Retention Bonus to the Employee, one-half on the Effective
Date and, as long as the Employee has maintained continuous employment with
DBI or its successor from the Effective Date to the first anniversary of
the Effective Date (the "Final Payment Date"), the other one-half on the
Final Payment Date. If Employee is employed by DBI on the Effective Date
but Employee's employment with DBI or its successor is terminated prior to
the Final Payment Date by Employee for Good Reason or by DBI or its
successor without Cause, then the unpaid Retention Bonus shall become
payable within five business days after the date of such termination. No
unpaid Retention Bonus shall be payable hereunder to Employee if Employee's
employment is terminated for Cause prior to the Final Payment Date.
Employee agrees that, subject to the terms and conditions of this
Agreement, in the event of a Change in Control of DBI occurring after the
date hereof, Employee will remain in the employ of DBI for a period of 12
months from the Effective Date.
3. Termination Following Change in Control. In addition to the benefits
---------------------------------------
provided in Section 2(b) above, if a Change in Control occurs during the term of
this Agreement and if Employee's employment is thereafter terminated, Employee
shall be entitled to the benefits provided in subsection 4(d) unless such
termination is (A) because of Employee's Death or Retirement, (B) by DBI for
Cause or Disability, or (C) by Employee other than for Good Reason.
(a) Disability, Retirement. If, as a result of incapacity due to
----------------------
physical or mental illness, the Employee is absent from the full-time
performance of Employee's duties with DBI for six consecutive months, and
within 30 days after written Notice of Termination is given, the Employee
does not return to the full-time performance of the Employee's duties, DBI
may terminate Employee's employment for "Disability". Any question as to
the existence of Employee's Disability upon which Employee and DBI cannot
agree shall be determined by a qualified independent physician selected by
Employee (or, if the Employee is unable to make such selection, it shall be
made by any adult member of the Employee's immediate family), and approved
by DBI in writing. The determination of such physician made in writing to
DBI and to Employee shall be final and conclusive for all purposes of this
Agreement. Termination by Employee of Employee's employment based on
"Retirement" shall mean retirement at or after the date the Employee has
attained age 65.
(b) Cause. Termination by DBI of Employee's employment for "Cause"
-----
shall mean: (i) the willful and continued failure of Employee to perform
his essential duties; (ii) Employee's material breach of the provisions of
Sections 5 or 6; (iii) the willful engaging by Employee in illegal conduct
which may adversely affect DBI, or (iv) gross misconduct materially
injurious to DBI, which, in the case of clause (i), (ii) and (iv), the
Employee has not cured, in the sole opinion of the Board, determined in
good faith, within 14 days of receipt of the Notice of Termination.
(c) Good Reason. Employee is entitled to terminate his employment
-----------
for Good Reason. For purposes of this Agreement, "Good Reason" shall mean,
without Employee's express written consent, any of the following:
-2-
<PAGE>
(i) the assignment to Employee of any duties materially
inconsistent with Employee's status or position with DBI, or a
substantial reduction in the nature or status of Employee's
responsibilities from those in effect immediately prior to the Change
in Control;
(ii) a reduction by DBI in Employee's annual base salary in
effect immediately prior to a Change in Control;
(iii) the relocation of DBI's principal executive offices to a
location more than fifty miles from Minneapolis, Minnesota or DBI
requiring Employee to be based anywhere other than DBI's principal
executive offices except for required travel on DBI's business to an
extent substantially consistent with Employee's prior business travel
obligations;
(iv) the failure by DBI to continue to provide Employee with
benefits at least as favorable to those enjoyed by Employee under any
of DBI's life insurance, medical, health and accident, disability, or
savings plans in which Employee was participating immediately prior to
the Effective Date;
(v) the failure of DBI to obtain an agreement from any
successor to assume and agree to perform this Agreement, as required
by Section 7; or
(vi) any purported termination of Employee's employment which is
not made pursuant to a Notice of Termination satisfying the
requirements of Section 3(d) below, for purposes of this Agreement, no
such termination shall be effective.
(d) Notice of Termination. Any purported termination of Employee's
---------------------
employment by DBI or by Employee shall be communicated by written Notice of
Termination to the other party hereto in accordance with Section 8. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth the facts and circumstances claimed to
provide a basis for termination of Employee's employment.
4. Compensation Upon Termination or During Disability. Following a Change
--------------------------------------------------
in Control of DBI, as defined in subsection 2(a), upon termination of Employee's
employment or during a period of Disability, Employee shall be entitled to the
following benefits:
(a) During any period that Employee fails to perform full-time duties
with DBI as a result of a Disability, DBI shall pay Employee the base
salary of the Employee at the rate in effect at the commencement of any
such period, until such time as the Employee is eligible for and begins
receiving long term disability benefits in accordance with DBI's insurance
programs then in effect.
-3-
<PAGE>
(b) If Employee's employment shall be terminated by DBI for Cause or
by Employee other than for Good Reason or Retirement, DBI shall pay to
Employee his full base salary through the date of termination at the rate
in effect at the time Notice of Termination is given and DBI shall have no
further obligation to Employee under this Agreement.
(c) If Employee's employment shall be terminated by DBI for
Disability or by Employee for Retirement, or by reason of Death, DBI shall
immediately commence payment to the Employee (or Employee's designated
beneficiaries or estate, if no beneficiary is designated) any and all
benefits to which the Employee is entitled under DBI's retirement and
insurance programs then in effect.
(d) If Employee's employment by DBI shall be terminated (A) by DBI
other than for Cause or Disability or (B) by Employee for Good Reason, then
Employee shall be entitled to the benefits provided below:
(i) DBI shall pay Employee the Employee's full base salary
through the date of and at the rate in effect at the time the Notice
of Termination is given;
(ii) In lieu of any further salary payments for periods
subsequent to the date of termination, DBI shall pay a severance
payment (the "Severance Payment") equal to (X) one times Employee's
regular annual base salary in effect immediately prior to the Change
in Control or in effect at the time the Notice of Termination is
given, whichever is greater, plus (Y) an amount equal to Employee's
annual target bonus in effect immediately prior to the Change in
Control or in effect at the time the Notice of Termination is given,
whichever is greater. The Severance Payment shall be made within 30
days after the date of termination; and
(iii) For a period of 12 months after the date of termination,
Employee shall be entitled to continue participation in the health
insurance benefit plans of DBI substantially similar to those which
Employee is receiving or entitled to receive immediately prior to the
Notice of Termination. DBI and Employee shall share the cost
associated with such coverage as if Employee was still actively
employed by DBI.
(e) Employee shall not be required to mitigate the amount of any
payment provided for in this Section 4 by seeking other employment or
otherwise, nor shall the amount of any payment or benefit provided for in
this Section 4 be reduced by any compensation earned by Employee as the
result of employment by another employer or by retirement benefits after
the date of termination, or otherwise.
(f) In addition to all other amounts payable to Employee under this
Section 4, Employee shall be entitled to receive all benefits payable to
the Employee under any other plan or agreement relating to retirement
benefits or otherwise generally applicable to executive employees.
-4-
<PAGE>
5. Nondisclosure. In consideration of this Agreement, including the
-------------
Retention Bonus in Section 2, Employee represents and agrees that, except by
prior written permission from DBI, Employee shall never during his employment or
at any time thereafter, directly or indirectly use or disclose (except in the
execution of his duties as an employee consistent with this Agreement and then
only in strict accordance with his obligations of service and loyalty hereunder)
any of DBI's Confidential Information, as hereinafter defined. "Confidential
Information" shall include, but not be limited to, trade secrets, formulations,
recipes, compounds, customer lists, pricing agreements, product specifications,
credit information, production or processing know-how, or other information not
generally known to the public acquired or learned by Employee during the course,
and on account, of his employment with DBI, whether or not developed by
Employee. Confidential Information also includes any confidential information
relating to any business of any company affiliated with DBI which is disclosed
to Employee either purposely or inadvertently in the course of his employment
with DBI. Employee agrees that such information shall be considered secret and
disclosed to him in confidence. Employee further recognizes that such
information in the sole property of DBI and shall be used for the exclusive
benefit of DBI. While some of the Confidential Information may be generally
public knowledge, its compilation in a form useful to DBI and their competitors
makes it unique and valuable. Upon termination of employment, Employee agrees to
deliver to DBI all Confidential Information. Without limiting the foregoing,
Employee agrees not to disclose to any person, other than DBI's advisors, either
the fact that discussions or negotiations are taking place concerning a possible
Change in Control or any of the terms, conditions or other facts with respect to
any possible Change in Control, including the status thereof. This provision
shall survive any Change in Control and any termination of this Agreement.
6. Noncompetition.
--------------
(a) In consideration of this Agreement, including the addition of the
Retention Bonus described in Section 2, Employee represents and agrees that
during his employment and for a period of one (1) year from and after the
termination of his employment for any reason, Employee will not, directly or
indirectly, alone or in any capacity with another legal entity, (i) engage in
any activity that directly competes in any material respect with DBI, including
specifically, but without limitation, the manufacture, sale, marketing or
distribution of clothespins, toothpicks, matches, firestarters, wooden crafts,
plastic cutlery, candles or aromatherapy products; (ii) contact or in any way
interfere or attempt to interfere with the relationship of DBI with any current
or potential customers or any current vendors of DBI; (iii) employ or attempt to
employ, on behalf of Employee or any other person or entity, any employee of DBI
(other than a former employee thereof after such employee has terminated
employment with DBI).
(b) Employee acknowledges that DBI markets products throughout the
United States and Canada (the "Territory") and that DBI would be harmed if
Employee conducted any of the activities described in this Section 6 anywhere in
the Territory. Therefore, Employee agrees that the covenants contained in this
Section 6 shall apply to all portions of, and throughout, the Territory.
(c) Employee acknowledges that the duration and scope of the
covenants contained in this Section 6, as well as the Territory to which such
covenants apply are reasonable
-5-
<PAGE>
under the circumstances. Employee further acknowledges that he understands that
his willingness to enter into the covenants contained in Section 5 and 6 were
inducements for DBI to enter into this Agreement, and that the consideration he
is receiving hereunder is fair and reasonable.
(d) Employee acknowledges that if he fails to fulfill his obligations
under Sections 5 and 6, the damages to DBI would be very difficult to determine.
Therefore, in addition to any other rights or remedies available to DBI at law,
in equity, or by statute, Employee hereby consents to the specific enforcement
of the provisions of Sections 5 and 6 by DBI through an injunction or
restraining order issued by the appropriate court.
(e) If for any reason any court of competent jurisdiction determines
any provision of Sections 5 and 6 to be unenforceable as written, the parties
expressly grant the court the authority to modify those provisions and to
enforce those provisions to the maximum extent possible. In furtherance and not
in limitation of the foregoing, should the duration or geographic extent of, or
business activities covered by, any provision of Sections 5 and 6 be in excess
of that which is valid and enforceable under applicable law, then such provision
shall be construed to cover only that duration, extent or activities which are
validly and enforceably covered. Employee acknowledges the uncertainty of the
law in this respect and expressly stipulates that this Section 6 be given the
construction which renders its provisions valid and enforceable to the maximum
extent (not exceeding its expressed terms) possible under applicable laws.
(f) Employee may make a written request for a modification of his
obligations under this Section 6 if, in his opinion, his intended activities
will not adversely affect DBI's legitimate interests. DBI will consider such
written request, determine in its sole discretion whether the request is adverse
to its legitimate business interests, and notify Employee in writing of any
approved modification to Employee's obligations under this Section 6 or its
rejection of Employee's request.
7. Successors; Binding Agreement.
-----------------------------
(a) DBI will require any successor (whether direct or indirect, by
purchase, merger (other than a merger in which DBI is the surviving
company), consolidation or otherwise) to all or substantially all of the
business and/or assets of DBI to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that DBI would be
required to perform it if no such succession had taken place. Failure of
DBI to obtain such assumption and agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle
Employee to compensation from DBI in the same amount and on the same terms
as he would be entitled hereunder if he terminated his employment for Good
Reason following a Change in Control, except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the date of termination.
(b) This Agreement shall inure to the benefit of and be enforceable
by Employee's personal or legal representatives, successors, heirs, and
designated beneficiaries. If Employee should die while any amount would
still be payable to Employee hereunder if the Employee
-6-
<PAGE>
had continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to the
Employee's designated beneficiaries, or, if there is no such designated
beneficiary, to the Employee's estate.
8. Notice. For the purpose of this Agreement, notices and all other
------
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered or certified mail, return receipt requested, postage pre-paid,
addressed to the last known residence address of the Employee or in the case of
DBI, to its principal office to the attention of the President, or to such other
address as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
receipt.
9. Miscellaneous. No provisions of this Agreement may be modified,
-------------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the parties. No waiver by either party thereto at
anytime of any breach by the other party to this Agreement of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or similar time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Minnesota.
10. Validity. The invalidity or unenforceability of any provision of this
--------
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
11. Arbitration and Award of Attorneys' Fees.
----------------------------------------
(a) Any dispute arising between the parties relating to this
Agreement shall be resolved by binding arbitration held in the City of
Minneapolis pursuant to the Rules of the American Arbitration Association,
except as hereinafter expressly modified. If the disputing and responding
parties are unable to agree upon a resolution within forty-five business
days after the responding party's receipt of written notice from the
disputing party setting forth the nature of the dispute, within the
following ten business days the disputing and responding parties shall
select a mutually acceptable single arbitrator to resolve the dispute or,
if the parties fail or are unable to do so, each shall within the following
ten business days select a single arbitrator, and the two so selected shall
select a third arbitrator within the following ten business days. Such
single arbitrator or, as the case may be, panel of three arbitrators acting
by majority decision, shall resolve the dispute within sixty days after the
date such arbitrator, or the last of them so selected, is selected, or as
soon thereafter as practicable. If either party
-7-
<PAGE>
refuses or fails to select an arbitrator within the time therefore, the
other party may do so on such refusing or failing party's behalf. The
arbitrators shall have no power to award any punitive or exemplary damages
but may construe or interpret but shall not ignore or vary the terms of
this Agreement and shall be bound by controlling law. The parties
acknowledge the Employee's failure to comply with any confidentiality, non-
solicit, and non-compete provisions of any agreement to which the Employee
is bound will cause immediate and irreparable injury to DBI and that
therefore the arbitrators, or a court of competent jurisdiction if an
arbitration panel cannot be immediately convened, will be empowered to
provide injunctive relief, including temporary or preliminary relief, to
restrain any such failure to comply. The arbitration award or other
resolution may be entered as a judgment at the request of the prevailing
party by any court of competent jurisdiction in Minnesota or elsewhere.
(b) In the event DBI fails to pay Employee any amounts owing to
Employee under this Agreement or to provide Employee any benefits to which
Employee is ultimately determined, by settlement, mediation, arbitration,
or by any court or other decision making body with jurisdiction, to be
entitled to under this Agreement, DBI shall pay the legal expenses
(including reasonable attorneys' fees, court costs and other out-of-pocket
expenses), incurred by Employee to enforce his rights under this Agreement
and collect or obtain such amounts or benefits.
DIAMOND BRANDS INCORPORATED
By /s/ Edward A. Michael
-----------------------------
EMPLOYEE
--------------------------------
John Young
-8-
<PAGE>
Mr. John Young April 21, 1998
Diamond Brands Incorporated
1800 Cloquet Avenue
Cloquet, MN 55720-2141
Dear Mr. Young:
Reference is made to the Employment (Change of Control) Agreement dated as
of November 1, 1997 (the "Employment Agreement") between Diamond Brands
Incorporated, a Minnesota corporation (the "Company"), and you.
This letter is to amend the Employment Agreement as follows:
Subsection (d)(ii) of Section 4 is hereby amended to be and read in its
entirety as follows:
In lieu of any further salary payments for periods subsequent to the date
of termination, DBI shall pay a severance payment (the "Severance Payment")
equal to (X) one times Employee's regular base salary in effect immediately
prior to the Change in Control or in effect at the time the Notice of
Termination is given, whichever is greater, plus (Y) an amount equal to
Employee's annual target bonus in effect immediately prior to the Change in
Control or in effect at the time the Notice of Termination is given,
whichever is greater. The Severance Payment shall be paid on a monthly
basis without interest, and amounts due hereunder shall be satisfied by 12
consecutive monthly payments, with the first payment to occur within 30
days of Employee's termination of employment with DBI. Such Severance
Payments will be offset by any compensation received by Employee under new
employment during the 12 months after leaving DBI.
Section 1 is hereby amended to be and read in its entirety as follows:
This Agreement shall continue in effect for a period ending upon the
satisfaction in full of the DBI's obligations pursuant to Section 4 of this
Agreement, provided, however, that the provisions of Sections 5 and 6 of
this Agreement shall survive the termination of this Agreement.
Notwithstanding anything herein to the contrary, the Employee's employment
shall be at all times at the will of DBI, and nothing in this Agreement
shall prohibit or limit the right of DBI or Employee, to terminate the
employment of Employee for any reason or for no reason.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this agreement on the
date first written above.
DIAMOND BRANDS INCORPORATED
By: /s/ Edward A. Michael
-----------------------------
Its: President
----------------------------
/s/ John Young
--------------------------------
John Young
2
<PAGE>
EMPLOYMENT (CHANGE OF CONTROL) AGREEMENT
AGREEMENT made as of this 1st day of November, 1997 by and between Diamond
Brands Incorporated, a Minnesota corporation ("DBI") and Christopher Matthews
(the "Employee").
WHEREAS, DBI considers the establishment and maintenance of a sound and
vital management to be essential to protecting and enhancing the best interests
of DBI and its shareholders; and
WHEREAS, the Employee has made and is expected to make, due to Employee's
intimate knowledge of the business and affairs of DBI, its policies, methods and
personnel, a significant contribution to the profitability, growth and financial
strength of DBI; and
WHEREAS, it is in the best interest of DBI and its shareholders to
reinforce and encourage the continued attention and dedication of management
personnel, including Employee, to their assigned duties without distraction and
to ensure the continued availability to DBI of the Employee in the event of a
Change in Control.
THEREFORE, in consideration of the foregoing and other respective covenants
and agreements of the parties herein contained, the parties hereto agree as
follows:
1. Term of Agreement. This Agreement shall commence on the date hereof
-----------------
and shall continue in effect until May 1, 1998. Notwithstanding the preceding
sentence, if a Change in Control occurs, this Agreement shall continue in effect
for a period of 36 months from the date of the occurrence of a Change in
Control. Notwithstanding anything herein to the contrary, the Employee's
employment shall be at all times at the will of DBI, and nothing in this
Agreement shall prohibit or limit the right of DBI or Employee, prior to a
Change in Control, to terminate the employment of Employee for any reason or for
no reason.
2. Change in Control. No benefits shall be payable hereunder unless there
-----------------
shall have been a Change in Control, as set forth below.
(a) For purposes of this Agreement, a "Change in Control" of DBI
shall mean (i) a corporate reorganization of DBI which results in the
shareholders of DBI immediately prior to such reorganization owning less
than 50% of the combined voting power of the capital stock of the surviving
company immediately following such reorganization, (ii) the sale of 50% or
more of the combined voting power of the capital stock of DBI, or (iii) the
sale of all or substantially all of the assets of DBI.
(b) Provided Employee is employed by DBI on the date of the
occurrence of a Change in Control (the "Effective Date"), Employee shall be
entitled to receive a bonus ("Retention Bonus") equal to .25% of the
Aggregate Consideration in excess of $160,000,000 received by DBI or its
Shareholders in the Change in Control, provided Employee shall not in any
event receive less than $250,000. Aggregate Consideration shall be equal to
the aggregate amount of consideration received by DBI or its Shareholders
plus
<PAGE>
(i) the assignment to Employee of any duties materially
inconsistent with Employee's status or position with DBI, or a
substantial reduction in the nature or status of Employee's
responsibilities from those in effect immediately prior to the Change
in Control;
(ii) a reduction by DBI in Employee's annual base salary in
effect immediately prior to a Change in Control;
(iii) the relocation of DBI's principal executive offices to a
location more than fifty miles from Cloquet, Minnesota or DBI
requiring Employee to be based anywhere other than DBI's principal
executive offices except for required travel on DBI's business to an
extent substantially consistent with Employee's prior business travel
obligations;
(iv) the failure by DBI to continue to provide Employee with
benefits at least as favorable to those enjoyed by Employee under any
of DBI's life insurance, medical, health and accident, disability,
or savings plan in which Employee was participating immediately prior
to the Effective Date;
(v) the failure of DBI to obtain an agreement from any
successor to assume and agree to perform this Agreement, as required
by Section 7; or
(vi) any purported termination of Employee's employment which
is not made pursuant to a Notice of Termination satisfying the
requirements of Section 3(d) below; for purpose of this Agreement, no
such purported termination shall be effective.
(d) Notice of Termination. Any purported termination of Employee's
---------------------
employment by DBI or by Employee shall be communicated by written Notice of
Termination to the other party hereto in accordance with Section 8. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth the facts and circumstances claimed to
provide a basis for termination of Employee's employment.
4. Compensation Upon Termination or During Disability. Following a Change
--------------------------------------------------
in Control of DBI, as defined in subsection 2(a), upon termination of Employee's
employment or during a period of Disability, Employee shall be entitled to the
following benefits:
(a) During any period that Employee fails to perform full-time duties
with DBI as a result of a Disability, DBI shall pay Employee the base
salary of the rate in effect at the commencement of any such period, until
such time as the Employee is eligible for and begins receiving long term
disability benefits in accordance with DBI's insurance programs then in
effect.
-3-
<PAGE>
(b) If Employee's employment shall be terminated by DBI for Cause or
by Employee other than for Good Reason or Retirement, DBI shall pay to
Employee his full base salary through the date of termination at the rate
in effect at the time Notice of Termination is given and DBI shall have no
further obligation to Employee under this Agreement.
(c) If Employee's employment shall be terminated by DBI for
Disability or by Employee for Retirement, or by reason of Death, DBI shall
immediately commence payment to the Employee (or Employee's designated
beneficiaries or estate, if no beneficiary is designated) any and all
benefits to which the Employee is entitled under DBI's retirement and
insurance programs then in effect.
(d) If Employee's employment by DBI shall be terminated (A) by DBI
other than for Cause or Disability or (B) by Employee for Good Reason, then
Employee shall be entitled to the benefits provided below:
(i) DBI shall pay Employee the Employee's full base salary
through the date of and at the rate in effect at the time the Notice
of Termination is given;
(ii) In lieu of any further salary payments for periods
subsequent to the date of termination, DBI shall pay a severance
payment (the "Severance Payment") equal to (X) one times Employee's
regular annual base salary in effect immediately prior to the Change
in Control or in effect at the time the Notice of Termination is
given, whichever is greater, plus (Y) an amount equal to Employee's
annual target bonus in effect immediately prior to the Change in
Control or in effect at the time the Notice of Termination is given,
whichever is greater. The Severance Payment shall be made within 30
days after the date of termination; and
(iii) For a period of 12 months after the date of termination,
Employee shall be entitled to continue participation in the health
insurance benefit plans of DBI substantially similar to those which
Employee is receiving or entitled to receive immediately prior to the
Notice of Termination. DBI and Employee shall share the cost
associated with such coverage as if Employee was still actively
employed by DBI.
(e) Employee shall not be required to mitigate the amount of any
payment provided for in this Section 4 by seeking other employment or
otherwise, nor shall the amount of any payment or benefit provided for in
this Section 4 be reduced by any compensation earned by Employee as the
result of employment by another employer or by retirement benefits after
the date of termination, or otherwise.
(f) In addition to all other amounts payable to Employee under this
Section 4, Employee shall be entitled to receive all benefits payable to
the Employee under any other plan or agreement relating to retirement
benefits or otherwise generally applicable to executive employees.
-4-
<PAGE>
5. Nondisclosure. In consideration of this Agreement, including the
-------------
Retention Bonus in Section 2, Employee represents and agrees that, except by
prior written permission from DBI, Employee shall never during his employment or
at any time thereafter, directly or indirectly use or disclose (except in the
execution of his duties as an employee consistent with this Agreement and then
only in strict accordance with his obligations of service and loyalty hereunder)
any of DBI's Confidential Information, as hereinafter defined. "Confidential
Information" shall include, but not be limited to, trade secrets, formulations,
recipes, compounds, customer lists, pricing agreements, product specifications,
credit information, production or processing know-how, or other information not
generally known to the public acquired or learned by Employee during the course,
and on account, of his employment with DBI, whether or not developed by
Employee. Confidential Information also includes any confidential information
relating to any business of any company affiliated with DBI which is disclosed
to Employee either purposely or inadvertently in the course of his employment
with DBI. Employee agrees that such information shall be considered secret and
disclosed to him in confidence. Employee further recognizes that such
information in the sole property of DBI and shall be used for the exclusive
benefit of DBI. While some of the Confidential Information may be generally
public knowledge, its compilation in a form useful to DBI and their competitors
makes it unique and valuable. Upon termination of employment, Employee agrees to
deliver to DBI all Confidential Information. Without limiting the foregoing,
Employee agrees not to disclose to any person, other than DBI's advisors, either
the fact that discussions or negotiations are taking place concerning a possible
Change in Control or any of the terms, conditions or other facts with respect to
any possible Change in Control, including the status thereof. This provision
shall survive any Change in Control and any termination of this Agreement.
6. Noncompetition.
--------------
(a) In consideration of this Agreement, including the addition of the
Retention Bonus described in Section 2, Employee represents and agrees that
during his employment and for a period of one (1) year from and after the
termination of his employment for any reason, Employee will not, directly or
indirectly, alone or in any capacity with another legal entity, (i) engage in
any activity that directly competes in any material respect with DBI, including
specifically, but without limitation, the manufacture, sale, marketing or
distribution of clothespins, toothpicks, matches, firestarters, wooden crafts,
plastic cutlery, candles or aromatherapy products; (ii) contact or in any way
interfere or attempt to interfere with the relationship of DBI with any current
or potential customers or any current vendors of DBI; (iii) employ or attempt to
employ, on behalf of Employee or any other person or entity, any employee of DBI
(other than a former employee thereof after such employee has terminated
employment with DBI).
(b) Employee acknowledges that DBI market products throughout the
United States and Canada (the "Territory") and that DBI would be harmed if
Employee conducted any of the activities described in this Section 6 anywhere in
the Territory. Therefore, Employee agrees that the covenants contained in this
Section 6 shall apply to all portions of, and throughout, the Territory.
(c) Employee acknowledges that the duration and scope of the
covenants contained in this Section 6, as well as the Territory to which such
covenants apply are reasonable
-5-
<PAGE>
under the circumstances. Employee further acknowledges that he understands that
his willingness to enter the covenants contained in Sections 5 and 6 were
inducements for DBI to enter into this Agreement, and that the consideration he
is receiving hereunder is fair and reasonable.
(d) Employee acknowledges that if he fails to fulfill his obligations
under Sections 5 and 6, the damages to DBI would be very difficult to determine.
Therefore, in addition to any other rights or remedies available to DBI at law,
in equity, or by statute, Employee hereby consents to the specific enforcement
of the provisions of Sections 5 and 6 by DBI through an injunction or
restraining order issued by the appropriate court.
(e) If for any reason any court of competent jurisdiction determines
any provision of Sections 5 and 6 to be unenforceable as written, the parties
expressly grant the court the authority to modify those provisions and to
enforce those provisions to the maximum extent possible. In furtherance and not
in limitation of the foregoing, should the duration or geographic extent of, or
business activities covered by, any provisions of Sections 5 and 6 be in excess
of that which is valid and enforceable under applicable law, then such
provision shall be construed to cover only that duration, extent or activities
which are validly and enforceably covered. Employee acknowledges the uncertainty
of the law in this respect and expressly stipulates that this Section 6 be given
the construction which renders its provisions valid and enforceable to the
maximum extent (not exceeding its expressed terms) possible under applicable
laws.
(f) Employee may make a written request for a modification of his
obligations under this Section 6 if, in his opinion, his intended activities
will not adversely affect DBI's legitimate interests, DBI will consider such
written request, determine in its sole discretion whether the request is adverse
to its legitimate business interests, and notify Employee in writing of any
approved modification to Employee's obligations under this Section 6 or its
rejection of Employee's request.
7. Successors; Binding Agreement.
-----------------------------
(a) DBI will require any successor (whether direct or indirect, by
purchase, merger (other than a merger in which DBI is the surviving
company), consolidation or otherwise) to all or substantially all of the
business and/or assets of DBI to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that DBI would be
require to perform it if no such succession had taken place. Failure of DBI
to obtain such assumption and agreement prior to the effectiveness of any
such succession shall be a breach of this Agreement and shall entitle
Employee to compensation from DBI in the same amount and on the same terms
as he would be entitle hereunder if he terminated his employment for Good
Reason following a Change in Control, except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the date of termination.
(b) This Agreement shall inure to the benefit of and be enforceable
by Employee's personal or legal representatives, successors, heirs, and
designated beneficiaries. If Employee should die while any amount would
still be payable to Employee hereunder if the Employee
-6-
<PAGE>
had continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to the
Employee's designated beneficiaries, or, if there is no such designated
beneficiary, to the Employee's estate.
8. Notice. For the purpose of this Agreement, notices and all other
------
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered or certified mail, return receipt requested, postage pre-paid,
addressed to the last known residence address of the Employee or in the case of
DBI, to its principal office to the attention of the President, or to such other
address as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
receipt.
9. Miscellaneous. No provision of this Agreement may be modified, waived
-------------
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the parties. No waiver by either party thereto at anytime
of any breach by the other party to this Agreement of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or similar time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Minnesota.
10. Validity. The invalidity or unenforceability of any provision of this
--------
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
11. Arbitration and Award of Attorneys' Fees.
----------------------------------------
(a) Any dispute arising between the parties relating to this Agreement
shall be resolved by binding arbitration held in the City of Minneapolis
pursuant to the Rules of the American Arbitration Association, except as
hereinafter expressly modified. If the disputing and responding parties are
unable to agree upon a resolution within forty-five business days after the
responding party's receipt of written notice from the disputing party setting
forth the nature of the dispute, within the following ten business days the
disputing and responding parties shall select a mutually acceptable single
arbitrator to resolve the dispute or, if the parties fail or are unable to do
so, each shall within the following ten business days select a single
arbitrator, and the two so selected shall select a third arbitrator within the
following ten business days. Such single arbitrator or, as the case may be,
panel of three arbitrators acting by majority decision, shall resolve the
dispute within sixty days after the date such arbitrator, or the last of them so
selected, is selected, or as soon thereafter as practicable. If either party
-7-
<PAGE>
refuses or fails to select an arbitrator within the time therefor, the
other party may do so on such refusing or failing party's behalf. The
arbitrators shall have no power to award any punitive or exemplary damages
but may construe or interpret but shall not ignore or vary the terms of
this Agreement and shall be bound by controlling law. The parties
acknowledge the Employee's failure to comply with any confidentiality, non-
solicit, and non-compete provisions of any agreement to which the Employee
is bound will cause immediate and irreparable injury to DBI and that
therefore the arbitrators, or a court of competent jurisdiction if an
arbitration panel cannot be immediately convened, will be empowered to
provide injunctive relief, including temporary or preliminary relief, to
restrain any such failure to comply. The arbitration award or other
resolution may be entered as a judgment at the request of the prevailing
party by any court of competent jurisdiction in Minnesota or elsewhere.
(b) In the event DBI fails to pay Employee any amounts owing to
Employee under this Agreement or to provide Employee any benefits to which
Employee is ultimately determined, by settlement, mediation, arbitration,
or by any court or other decision making body with jurisdiction, to be
entitled to under this Agreement, DBI shall pay the legal expenses
(including reasonable attorneys' fees, court costs and other out-of-pocket
expenses), incurred by Employee to enforce his rights under this Agreement
and collect or obtain such amounts or benefits.
DIAMOND BRANDS INCORPORATED
By /s/ Edward A. Michael
----------------------------
EMPLOYEE
/s/ Christopher Mathews
-------------------------------
Christopher Mathews
-8-
<PAGE>
Mr. Christopher Mathews
Diamond Brands Incorporated April 21, 1998
1800 Cloquet Avenue
Cloquet, MN 55720-2141
Dear Mr. Mathews:
Reference is made to the Employment (Change of Control) Agreement dated as
of November 1, 1997 (the "Employment Agreement") between Diamond Brands
Incorporated, a Minnesota corporation (the "Company"), and you.
This letter is to amend the Employment Agreement as follows:
Subsection (d)(ii) of Section 4 is hereby amended to be and read in its
entirety as follows:
In lieu of any further salary payments for periods subsequent to the date
of termination, DBI shall pay a severance payment (the "Severance Payment")
equal to (X) one times Employee's regular base salary in effect immediately
prior to the Change in Control or in effect at the time the Notice of
Termination is given, whichever is greater, plus (Y) an amount equal to
Employee's annual target bonus in effect immediately prior to the Change in
Control or in effect at the time the Notice of Termination is given,
whichever is greater. The Severance Payment shall be paid on a monthly
basis without interest, and amounts due hereunder shall be satisfied by 12
consecutive monthly payments, with the first payment to occur within 30
days of Employee's termination of employment with DBI. Such Severance
Payments will be offset by any compensation received by Employee under new
employment during the 12 months after leaving DBI.
Section 1 is hereby amended to be and read in its entirety as follows:
This Agreement shall continue in effect for a period ending upon the
satisfaction in full of the DBI's obligations pursuant to Section 4 of this
Agreement, provided, however, that the provisions of Sections 5 and 6 of
this Agreement shall survive the termination of this Agreement.
Notwithstanding anything herein to the contrary, the Employee's employment
shall be at all times at the will of DBI, and nothing in this Agreement
shall prohibit or limit the right of DBI or Employee, to terminate the
employment of Employee for any reason or for no reason.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this agreement on the
date first written above.
DIAMOND BRANDS INCORPORATED
By: /s/ Edward A. Michael
----------------------------
Its: President
---------------------------
/s/ Christopher Mathews
-------------------------------
Christopher Mathews
2
<PAGE>
EMPLOYMENT, NON-COMPETITION, AND CONFIDENTIALITY AGREEMENT
Employment and Non-Competition and Confidentiality Agreement ("Agreement")
entered into as of May 26, 1992, by and among Forster Mfg. Co., Inc., a Maine
corporation with its principal business at Wilton, Maine ("Company"), and
Richard S. Campbell, Wilton, Maine ("Employee").
W I T N E S S E T H
WHEREAS, the Company desires to employ Employee as Director of Operations
and Employee desires such employment.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter set forth, and of other good and valuable consideration, the receipt
of which is hereby acknowledged by each party to the other, the parties hereto
agree as follows:
1.0 Employment and Term of Agreement.
--------------------------------
1.1 Employment as Director of Operations. Commencing with the effective
------------------------------------
date (as defined in Section 7.5) of this Agreement, Company will employ Employee
as Director of Operations of the Company and Employee will accept such
employment.
1.2 Duties. During the term of his employment pursuant to this agreement,
------
Employee shall serve the Company faithfully and to the best of his ability and
shall devote his full business and professional time, energy, and diligence to
the performance of the duties of such office and shall perform such services and
duties in connection with the business and affairs of the Company as may be
assigned or delegated to him from time to time by the President of the Company.
1.3 Other Business Activities. During the term of his employment pursuant
-------------------------
to this Agreement, Employee will not, without the prior written consent of the
Company, directly or indirectly engage in any other business activities or
pursuits whatsoever, except activities in connection with any charitable or
civic activities, personal investments and serving as an executor, trustee or in
other similar fiduciary capacity; provided, however, that such activities do not
interfere with his performance of his responsibilities and obligations pursuant
to this Agreement.
1.4 Term of Employment. Unless earlier terminated pursuant to the
------------------
provisions hereof, and unless extended by mutual agreement of the parties, the
term of Employee's employment under this Agreement shall be for the period of
two years commencing with the Effective Date of this Agreement and ending on the
second anniversary of such date.
2.0 Compensation, Benefits, and Other Entitlements.
----------------------------------------------
2.1 Basic Salary. As compensation for his services hereunder and as
------------
compensation for his covenant not to compete provided for in Section 4 hereof,
Employee shall be paid a base annual compensation at the rate of $86,000 per
year, which rate of compensation shall be in effect from the Effective Date to
the end of the Company's 1993 fiscal year. The base annual compensation shall
be subject to annual review based upon performance and after the initial
<PAGE>
year hereof shall be at the rate determined by the Company's President. The base
annual compensation shall be payable at such periodic intervals, not less than
monthly, as from time to time are applicable with respect to salaried executive
personnel of the Company, and shall be inclusive of all applicable income,
social security, and other taxes and charges which are required by law to be
withheld by the Company or which are requested to be withheld by Employee.
2.2 Insurance.
---------
(a) The Company shall purchase and own a policy of life insurance insuring
the life of Campbell in the face amount of $175,000, with the beneficiary
to be designated by Campbell. Upon termination of employment, Campbell
shall be entitled to purchase any policies of insurance on his life owned
by the Company for an amount equal to the cash surrender value thereof,
less an amount equal to twenty (20) percent thereof for each full year, up
to five (5), that Campbell is employed with the Company.
(b) The Company shall also provide to Campbell the standard package of
other insurance benefits which are from time to time provided to executive
employees of the Company, including medical, major medical, dental and
disability coverage.
2.3 Miscellaneous Benefits. The Company shall provide Campbell the
----------------------
following additional benefits:
(a) Reimbursement of all reasonable expenses incurred for
Company business, provided the same are a type which are allowable for
deductions under applicable federal tax law;
(b) Vacation time of three weeks per year, or such greater amount as may
be permitted from time to time by the Company's vacation policy.
2.4 Bonus. Employee shall be entitled to such bonuses as are determined
------
by the Company from time to time, and if the term of this Agreement expires
other than at the end of the Company's fiscal year, any bonus for the year
of termination shall be based upon and be payable within 30 days of receipt
by the Company of its audited financial statements for such year. The
amount of the bonus shall be pro-rated in accordance with the portion of
the fiscal year for which the Employee is employed hereunder.
2.5 Allocation of Compensation. The parties agree that 92 percent of
--------------------------
Employee's base annual compensation and bonus shall be deemed to be
compensation for services rendered and eight percent thereof shall be
compensation for the covenant not to compete set forth in Section 4 hereof.
3.0 Termination of Employment.
-------------------------
3.1 Termination by Company. The Company shall have the
----------------------
right to terminate Campbell's employment at any time during the term of
this Agreement upon the occurrence of any one of the following events:
<PAGE>
(a) Campbell's death or the inability of Campbell to adequately perform
his obligations to the Company, as determined in good faith by, but at the
sole discretion of, the Company's President; or
(b) Conduct of Campbell involving the willful misconduct, gross
negligence, illegality or fraud in connection with his employment, or
willful violation of instructions, insubordination or refusal to follow
Company rules or regulations imposed by any governmental authority; or
(c) Failure by Campbell to perform satisfactorily the duties assigned to
him, determination of which shall rest solely in the discretion of the
Company's President.
(d) A decision by the Company to (i) eliminate Campbell's position, (ii)
substantially change the duties or responsibilities of, or qualifications
for, the position, or (iii) consolidate the position or its duties with
another position.
3.2 Payment of Salary Upon Termination. (a) Campbell shall be entitled to
----------------------------------
separation pay in the event of termination of his employment only in
accordance with the Company's Senior Staff Level Employee Separation Policy
as in effect at the time of such termination.
3.3 Outplacement Service. In the event of termination of Employee's
--------------------
employment by the Company, the Company shall, upon request of the Employee,
provide outplacement service for the Employee; such agency and fee to be
approved by the President. Additional costs for outplacement such as
travel and postage will be reimbursed as approved in an amount not to
exceed $2,000, unless termination is pursuant to Section 3.1(b).
4.0 Non-competition. The parties recognize that in the course of
---------------
Employee's employment hereunder, Employee will have access to a substantial
amount of confidential and proprietary information and trade secrets
relating to the business of the Company, and that it would be detrimental
to the business of the Company, and have a substantial detrimental effect
on the value to the Company of Employee's employment if Employee were to
compete with the Company upon termination of his employment. Employee
therefore agrees, in consideration of the Company entering this Agreement
and establishing the base annual compensation and other compensation and
benefits at the level herein provided for, that during the period of the
term of his employment with the Company, whether pursuant to this Agreement
or otherwise, and for a period of three (3) years thereafter, he shall not,
without the prior written consent of the Company, directly or indirectly,
for himself or for any other person, whether as principal, agent or
employee, partner, director or consultant or through any corporation,
partnership or other entity, himself compete with the Company for business
from the Company's customers existing at the time of termination, whether
through direct solicitation of such customers or otherwise, and shall not,
for a period equal to the lesser of (a) one year following termination of
his employment or (b) the period for which severance benefits are payable
to Employee following termination, be employed by or associated in any
manner with (including, without limitation, a sole proprietorship), any
person, firm, corporation, association or other entity located anywhere in
the United States and engaged in any business competing with the business
of the Company or any subsidiary of the Company as such business exists or
as it is planned as of the date of termination of employment; provided,
however, that the foregoing shall not prevent Employee from owning up to
one percent (1%) of the outstanding securities of a publicly-held
corporation which may compete with the Company.
<PAGE>
The parties believe, in light of the facts known as of the date hereof, and
after considering the nature and extent of the Company's business, the
amount of compensation and other benefits provided herein, the severance
benefits payable to employee upon termination, and the damage that could be
done to the Company's business by Employee's competing with the Company,
that the foregoing covenant not to compete is reasonable in time, scope and
geographical limitation. However, if any court should construe the time,
scope or geographical limitation of the covenant not to compete to be too
broad or extensive, it is the intention of the parties that the contract be
automatically reformed, and as so reformed, enforced, to the maximum limits
which may be found to be reasonable by such court.
5.0 Confidentiality.
---------------
5.1 Non-Disclosure or Proprietary of Confidential. Information. Employee
-----------------------------------------------------------
recognizes and acknowledges the interest of the Company in maintaining the
confidential nature of its proprietary and confidential information and
trade secrets to which he may have access, and he agrees that he will not
for any reason or at any time, whether before or after termination of his
employment, directly or indirectly, disclose or use, except as required in
the course of, and in connection with, his employment with the Company or
when and as authorized in writing to do so by the Company's President, any
proprietary or confidential information or trade secrets of the Company, or
of any subsidiary or affiliate of the Company, including, but not limited
to, records, files, data, methods, formulae, products, samples, apparatus,
customer lists, supplier lists, customer requirements, designs, trademarks,
activity reports, documents, equipment, plans, drawings, specifications,
price lists, marketing programs and plans, notebooks and logbooks (and
similar information received from third parties) which is, in fact,
proprietary or confidential to or constitutes a trade secret of the Company
or any subsidiary or affiliate of the Company (hereinafter referred to as
"Proprietary Information").
5.2 Ownership of Proprietary information. All Proprietary Information
------------------------------------
shall be and remain the sole property of the Company and not be removed by
Employee from the premises, except as may be required in the course of his
employment, without written consent of a person duly authorized to take
such action by the President of the Company, and upon termination of his
employment hereunder shall be delivered promptly to the Company, and
Employee shall not make, retain, or distribute any copies thereof.
6.0 Remedies for Breach.
-------------------
Employee agrees that because any breach of the provisions contained in
Sections 4 and 5 hereof will result in an immediate and irreparable injury
to the Company, for which the Company will not have an adequate remedy at
law, the Company shall be entitled to sue in equity and to enjoin such
breach, in addition to any and all legal and equitable remedies to which
the Company may be entitled, including, without limitation the right to a
refund of all amounts paid for the covenant not to compete.
7.0 Miscellaneous Provision.
-----------------------
7.1 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the Laws of the State of Maine.
<PAGE>
7.2 Entire Agreement. This Agreement constitutes the entire understanding
----------------
of the Company and Employee with respect to its subject matter, supersedes
any prior agreement or arrangement relative to Employee's employment by the
Company, and no modification or waiver of any provision hereof shall be
valid unless made in writing and signed by the parties.
7.3 Successors and Assigns; Permitted Assignments. This Agreement shall
---------------------------------------------
inure to the benefit of and be binding upon the Company and Employee and
their respective successors, executors, administrators, heirs and/or
permitted assigns provided, however, that neither employee nor the Company
may make any assignment of this Agreement or any interest therein, by
operation of law or otherwise, without the prior written consent of the
other parties hereto, except that, without such consent, the Company may
assign this Agreement to any successor to all or substantially all of its
assets and business by means of dissolution, merger, consolidation,
transfer of assets, or otherwise, provided that such successor assumes in
writing all of the obligations of the Company under this Agreement.
7.4 Captions. The captions set forth in this Agreement are for
--------
convenience only and shall not be considered as part of this Agreement or
as IN any way limiting or amplifying the terms and provisions hereof.
7.5 Effective Date. This Agreement shall be effective as of May 26, 1992,
--------------
(herein referred to as the "Effective Date").
7.6 No Conflicting Obligations. Employee represents and warrants to the
--------------------------
Company that he is not now under, or bound to be under in the future, any
obligation to any person, firm, or corporation which is or would be
inconsistent or in conflict with this Agreement or would prevent, limit, or
impair in any way the performance by him of his obligations hereunder.
7.7 Waivers. The failure of any party to require the performance or
-------
satisfaction of any term or obligation of this Agreement, or the waiver by
any party of any breach of this Agreement, shall not prevent subsequent
enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
7.8 Severability. In the event that any court having jurisdiction shall
------------
determine that any restrictive covenant or other provision contained in
this Agreement shall be unreasonable or unenforceable in any respect, then
such covenant or other provision shall be deemed limited to the extent that
such court deems it reasonable or enforceable, and as so limited shall
remain in full force and effect. In the event that such court shall deem
any such covenant or other provision wholly unenforceable, the remaining
covenants and other provisions of the Agreement shall nevertheless remain
in full force and effect.
7.9 Counterparts. More than one counterpart of this Agreement may be
------------
executed by the parties hereto, and each fully executed counterpart shall
be deemed an original.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed under seal and delivered as of the date first above written.
WITNESS: FORSTER MFG. CO., INC.
/s/ Richard S. Campbell
---------------------------
Richard S. Campbell
Director of Operations
FORSTER MFG. CO., INC.
/s/ Richard J. Corbin
- ------------------------
Richard J. Corbin
President & CEO
<PAGE>
Richard J. Corbin
President & CEO
May 7, 1992
Mr. Richard Campbell
11 Easy Street
North Andover, MA 01845
Dear Rich:
We are pleased to offer you the position of Director of Operations for Forster
Mfg. Co. The purpose of this letter is to set forth your compensation
arrangements and relocation plan.
Your beginning salary will be $86,000 with annual salary performance reviews.
You will be a full participant in all Forster Mfg.'s benefits programs as the
eligibility provides (enclosed is a summary of our benefits plan).
We will offer a performance bonus potential of up to 25% of your annual salary.
Since we are on a fiscal year ending August, we would like you to join Forster
by May 25, 1992, then we would view September 1, 1992, as the "start date,, for
your bonus package. The bonus will be based upon the sales and profit goals for
the corporation as well as management objectives.
Rich, as it relates to relocation, we will pay for your physical move, real
estate selling fees, and miscellaneous expenses incurred by you, not to exceed
$25,000, as well as temporary living expenses for 60 days. We will try to
assist you in coordinating the relocation to Maine.
On your joining the Company, we will ask you to sign a contract which includes a
non-compete agreement. If you are in agreement with the foregoing, please sign
in the space provided and return to me.
Again, Rich, we are delighted to make you this offer and are enthusiastic about
your joining our team. We're going to continue to grow Forster's profitably and
will be pleased to have contribute toward our continued success.
Sincerely,
Accepted:
Richard Campbell Date
<PAGE>
FIRST AMENDMENT TO EMPLOYMENT, NON-COMPETITION AND
CONFIDENTIALITY AGREEMENT
The Employment, Non-Competition and Confidentiality Agreement between
Forster Inc. (formerly known as Forster Mfg. Co., Inc.), a Maine corporation
with its principal place of. business at Wilton, Maine, and Richard S. Campbell
dated May 26, 1992, is hereby amended as follows:
1. Section 1.4 of the Agreement is hereby amended in its entirety to read
as follows:
1.4 Term of Employment. Unless earlier terminated pursuant to the
------------------
provisions hereof, the term of Employee's employment under this Agreement
shall be for the period of two (2) years commencing with the effective date
of this Agreement and ending on the second anniversary of such date.
Thereafter such term shall automatically be renewed for successive one (1)
year periods unless either party notifies the other of that party's intent
not to renew, such notice to be given no later than ninety (90) days prior
to the end of the then current term.
2. In all other respects said Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Amendment Agreement this 27th
day of April 1994.
FORSTER INC.
By:
Its
Employee
<PAGE>
FIST AMENDMENT TO EMPLOYMENT, NON-COMPETITION AND
CONFIDENTIALITY AGREEMENT
The Employment, Non-Competition and Confidentiality Agreement between
Forster Inc. (formerly known as Forster Mfg. Co., Inc.), a Maine corporation
with its principal place of business at Wilton, Maine, and Richard S. Campbell
dated May 26, 1992, is hereby amended as follows:
1. Section 1.4 of the Agreement is hereby amended in its entirety to read
as follows:
1.4 Term of Employment. Unless earlier terminated pursuant to the
------------------
provisions hereof, the term of Employee's employment under this Agreement
shall be for the period of two (2) years commencing with the effective date
of this Agreement and ending on the second anniversary of such date.
Thereafter such term shall automatically be renewed for successive one (1)
year periods unless either party notifies the other of that party's intent
not to renew, such notice to be given no later than ninety (90) days prior
to the end of the then current term.
2. In all other respects said Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Amendment Agreement this
27TH day of April, 1994.
FORSTER INC.
By:
Employee
<PAGE>
October 8, 1988
Page No. EXEC. 2
(Replaces Page
Dated 11/20/86)
Subject: SEPARATION POLICY SENIOR STAFF LEVEL EMPLOYEE
----------------- ------------
The policy outlined below is to be used as a guide to assist in processing a
Senior Staff Level Employee termination.
The separation of a Senior Staff Level Employee from the payroll must be
classified under one of the separation classifications listed below. This
classification is the responsibility of the President.
TYPES OF SEPARATIONS
--------------------
RESIGNATION: This classification should be used if the separation is initiated
- -----------
by the employee, regardless of whether notice is given.
DISCHARGE: Release as the result of misconduct (i.e., dishonesty, willful
- ----------
negligence in the conduct of duties, willful violation of instructions,
insubordination, conduct reflecting adversely upon the Company, or refusal to
comply with Company rules or with regulations imposed by government authority).
RELEASE: Separation resulting from an inability or failure to perform
- --------
satisfactorily work assignments for which the employee is responsible or
assigned.
RETIREMENT
- ----------
REDUCTION IN FORCE: Separation which results from a declining volume of business
- ------------------
or from the discontinuance of operations or positions when the services of an
employee must be discontinued. This classification applies regardless of
whether the Company would or would not consider the employee for re-employment.
DEATH SEPARATION
- ----------------
NOTIFICATION TO EMPLOYEE
------------------------
<PAGE>
In the case of a non-voluntary separation the employee shall be informed
verbally by the President, and given the reasons for the separation and
resulting status.
SEPARATION PAY
--------------
October 8, 1988
Page No. EXEC-2a
(Replaces Page
Dated 11/20/86)
A Senior Staff Level Employee will receive separation pay, payable in monthly
increments, if his/her employment is terminated for reason other than retirement
----------
discharge, resignation, or death.
The amount of separation pay will be equal to six months base pay if employee
has worked for less than one and a half years. After which the separation pay
will equal 12 months base salary. This separation pay will be paid in monthly
equal installments unless otherwise provided.
In addition, outplacement services may be made available at the discretion of
the President.
The term "pay" as used in the preceding paragraphs means the applicable
percentage of the employee's current annual base salary.
<PAGE>
1997 - 2003
AGREEMENT BETWEEN
DIAMOND
BRANDS
INCORPORATED
CLOQUET, MINNESOTA
AND
MATCHMAKERS LOCAL
NO. 970
UNITED PAPERWORKERS
INTERNATIONAL UNION
AFL-CIO
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 -- AGREEMENT 1
ARTICLE 2 -- NONDISCRIMINATION 1
ARTICLE 3 -- RECOGNITION AND UNION SECURITY 1
ARTICLE 4 -- CHECK-OFF 2
ARTICLE 5 -- HOURLY RATE INCREASES 3
ARTICLE 6 -- HOURS OF WORK AND OVERTIME PREMIUMS 4
ARTICLE 7 -- HOLIDAYS 7
ARTICLE 8 -- NEW JOBS AND JOB BULLETINING 8
ARTICLE 9 -- JOB TRANSFERS 12
ARTICLE 10 -- JOB PERFORMANCE REVIEW 13
ARTICLE 11 -- JOB SIGN-OFF 13
ARTICLE 12 -- TIME OFF FOR UNION ACTIVITY 13
ARTICLE 13 -- ABSENCE AND SENIORITY 14
ARTICLE 14 -- LAYOFFS AND REHIRING 17
ARTICLE 15 -- LONG SERVICE EMPLOYEES 17
ARTICLE 16 -- PAYDAYS 18
ARTICLE 17 -- ADJUSTMENT OF COMPLAINTS 18
ARTICLE 18 -- ARBITRATION 19
ARTICLE 19 -- NO STRIKE - NO LOCKOUT 20
ARTICLE 20 -- BULLETIN BOARDS 20
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE 21 -- REPORT AND CALL IN TIME 20
ARTICLE 22 -- EMPLOYMENT STABILIZATION 21
ARTICLE 23 -- SERVICES OF COMMITTEE MEMBERS 21
ARTICLE 24 -- PAID VACATION 21
ARTICLE 25 -- PENSION 24
ARTICLE 26 -- SUPERVISORS WORKING 24
ARTICLE 27 -- SAFETY 25
ARTICLE 28 -- CONTRAVENTION OF LAW 26
ARTICLE 29 -- TOOL ALLOWANCE 26
ARTICLE 30 -- CLOTHING ALLOWANCE 27
ARTICLE 31 -- SCOPE OF AGREEMENT 27
ARTICLE 32 -- REQUEST FOR MEETINGS 27
ARTICLE 33 -- UNION - MANAGEMENT COOPERATION 27
ARTICLE 34 -- SHIFT PREMIUM PAY 27
ARTICLE 35 -- COMMITMENT AND COOPERATION TASK FORCE 27
ARTICLE 36 -- CONTRACT PERIOD 29
EMPLOYEES JOB CLASSIFICATION AND WAGE RATES 30
GROUP INSURANCE BENEFITS ACTIVE EMPLOYEES AND ELIGIBLE DEPENDENTS 33
COMPANY CONTRIBUTION TO GROUP HEALTH INSURANCE PLAN PREMIUM 34
GENERAL RULES 35
ATTENDANCE 36
PERSONAL BUSINESS 37
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SEXUAL HARASSMENT POLICY 38
LETTERS OF AGREEMENT AND OTHER INFORMATION 38
</TABLE>
<PAGE>
ARTICLE 1 -- AGREEMENT
This AGREEMENT made and entered into between DIAMOND BRANDS INCORPORATED
hereinafter referred to as the Company, and the MATCHMAKERS' LOCAL 970, UNITED
PAPERWORKERS INTERNATIONAL UNION AFL-CIO, hereinafter referred to as the Union,
for the employees of the Cloquet Plant of the Company other than those covered
by an agreement with the International Union of Operating Engineers, Local #36,
covering Power House employees. This Agreement can be changed or amended only by
mutual consent of the parties hereto. The term "Employees" as used in this
Agreement shall not include Foreperson, Assistant Foreperson, or Supervisors (as
defined in the Labor Relations Act of 1947, whether paid on a salary or hourly
basis) or any salaried employee.
In the event of a strike or work stoppage, plant protection employees will carry
on their usual duties at the plant without interference.
ARTICLE 2 -- NONDISCRIMINATION
The Company and the Union agree to abide by all of the applicable state and
federal laws regarding discrimination against any employee, and to cooperate
with each other in this regard. Masculine nouns and pronouns, when used in this
Agreement are not meant to connotate sex, but rather are used to refer, without
discrimination, to both male and female employees.
ARTICLE 3 -- RECOGNITION AND UNION SECURITY
The Company recognizes the Union as the sole bargaining agency on wages, hours
and working conditions for all employees in its Cloquet, Minnesota plant, not
excluded by Article 1 of this Agreement.
There shall be no solicitation of membership on the Company's time.
All employees who are members of the Union in good standing on the date of
signature of this contract, shall as a condition of employment remain members of
the Union in good standing; and all new employees shall as a condition of
employment become and remain members of the Union after they have completed
their probationary period of forty-five (45) active working days. These
provisions shall take effect on the date of signature of this contract, but only
to the extent that they may take effect in accordance and consist with
provisions of Federal and State laws and shall not be construed to operate
contrary to the National Labor-Management Act of 1947.
The Union shall promptly furnish to the Company a notarized list of members now
in good
1
<PAGE>
standing. If any employee named on that list asserts that he or she is not a
member and any dispute arises, the assertion or dispute shall be adjudicated by
an Arbitration Board appointed in accordance with the provision of Article 18 of
this Agreement, whose decision shall be final and binding upon the Union and the
employees.
Should any Union member fail to be in good standing, and face suspension for any
reason permitted by law, he or she shall be given not less than seven (7)
calendar days advance notice thereof in writing (stating the suspension date) by
the Union which shall also send a copy of such notice to the Company. If the
member's good standing is not re-established, and such member is suspended, both
the member and the Company will be notified to the effect in writing by the
Union. His or her employment shall be terminated by the Company not later than
seven (7) calendar days thereafter.
The Union agrees that neither it nor any of its officers or members will
intimidate or coerce employees into membership in the Union. If any dispute
arises (as to whether there has been any violation of the pledge or whether any
employee affected by this clause has been deprived of good standing in any way
contrary to the constitution and by-laws of the Union), the dispute shall be
regarded as a grievance and submitted to the provision of Article 18 of this
Agreement.
Each new employee will be given a copy of this Agreement by the Company at the
time of their hiring. A copy will likewise be given to all present employees.
The effective rates of pay for the respective jobs shall be set forth in a
schedule and attached to the printed form of this contract.
ARTICLE 4 -- CHECK-OFF
For the convenience of its' employees in paying regular monthly Union dues,
Union initiation fees, if any, and such assessments as may be generally levied,
the Company will accept and honor requests made by the individual employees in
the following form:
CHECK-OFF AUTHORIZATION
Paperworkers International Union from any wages earned or to be earned by me,
the amount of my monthly membership dues in said Union. I authorize and direct
my employer to deduct such amounts from my pay each month and to remit the same
to the order of the Financial Secretary of my Local Union in accordance with the
terms of this Agreement.
This assignment, authorization and direction shall be irrevocable for a period
of one year from the effective date of the Agreement, or until the termination
date of said Agreement, whichever occurs
2
<PAGE>
sooner; and I further agree and direct that this assignment, authorization and
direction shall be automatically renewed and shall be irrevocable for successive
periods of one year each, or for the period of each succeeding applicable
collective bargaining agreement with the Union whichever shall be shorter,
unless written notice is given by me to the Company and the Union not more than
thirty (30) days or less than ten (10) days prior to the expiration of each
period of one year or of each applicable collective bargaining Agreement,
whichever occurs sooner.
Date: _______________ Signature of Employee: _____________________
Name (Print):_________________ UPIU Local No.:_____________________
Address:______________________ City and State:_____________________
Social Security No.:_______________________________________________
Employed by:__________________ Department:_________________________
The Union will give notice in writing to the Company of the person officially
designated by the Union to whom such regular monthly Union dues, Union
initiation fees, and assessments deducted from employees earned wages shall be
transmitted. The Union agrees that transmission such dues, initiation fees, and
assessments, to such person shall fully discharge the liability of the Company
to the Union and to the individual employee in respect to such dues, initiation
fees and assessments.
The Union agrees that the Company shall deduct from the wages of an employee the
amount designated by the Union as regular monthly Union dues and, where
required, the amount indicated in writing by the Financial Secretary of the
Local Union as the proper amount for the Union initiation fee and assessments.
ARTICLE 5 -- HOURLY RATE INCREASES
Basic hourly rates in effect immediately prior to these dates shall be increased
by the indicated percentage figure as of these dates for all employees covered
by this Agreement:
5-1-97 Two and nine-tenths percent (2.90%)
5-1-98 Two and nine-tenths percent (2.90%)
5-1-99 Two and nine-tenths percent (2.90%)
The parties shall negotiate for a "gain sharing" plan to take effect on May 1,
2000. If agreement is reached by that date, basic hourly rates in effect
immediately prior to these dates shall be increased by the indicated percentage
figure and by the "gain sharing" amount, if any, as of these dates for all
3
<PAGE>
employees covered by this Agreement:
5-1-2000 Two and nine-tenths percent (2.90%)
plus whatever the "gain sharing" formula
yields, if anything
5-1-2001 Two and nine-tenths percent (2.90%)
plus whatever the "gain sharing" formula
yields, if anything
5-1-2002 Two and nine-tenths percent (2.90%)
plus whatever the "gain sharing" formula
yields, if anything
If agreement is not reached by May 1, 2000, basic hourly rates in effect
immediately prior to these dates shall be increased by the indicated percentage
figure as of these dates for all employees covered by this Agreement:
5-1-2000 Three and four-tenths percent (3.40%)
5-1-2001 Three and four-tenths percent (3.40%)
5-1-2002 Three and four-tenths percent (3.40%)
Each party shall nominate five (5) persons to sit on the "gain sharing"
bargaining committee. Each party shall have the right to strike up to two (2)
nominees from the other party's list.
The hourly rates as so increased shall remain in effect for the life of this
Agreement. Inexperienced help may be hired at five (5) cents under the minimum
rate for a period not to exceed forty-five (45) days of active work.
ARTICLE 6 -- HOURS OF WORK AND OVERTIME PREMIUMS
Eight (8) hours shall constitute a normal day's work and forty (40) hours shall
constitute a normal week's work. Overtime at the rate of time and one-half shall
be paid for time worked in excess of eight (8) consecutive hours, or in excess
of eight (8) hours in any calendar day, or forty hours a week, whichever will
result in the greater overtime payment, but there shall be no use of the same
hours twice in the calculation of overtime.
For all hours worked in excess of twelve (12) consecutive hours the employee
shall be paid at the rate of double time.
Except as otherwise mutually agreed, the normal work week shall begin on Monday.
4
<PAGE>
The payroll schedule begins at 11:00 p.m., Sunday night and ends at 11:00 p.m.
the following Sunday night.
An employee shall not be required to take time off during his or her regular
assigned work week to avoid payment of overtime.
The Company agrees to a sign-up procedure for overtime purposes. A daily sign-up
sheet will be available for a sufficient time period in order that employees on
all shifts have an opportunity to sign-up for overtime. Employees may sign up
for all three daily weekend overtime shifts but will be scheduled to work only
one shift per day. Overtime will be distributed in the following manner:
A. Unscheduled Overtime
1. Senior qualified employees on the sign-up sheet.
2. Employees on the job will be forced to work, this includes
employees reassigned during the shift.
B. Scheduled Overtime (Scheduled overtime is defined as overtime posted
on the weekly staffing list according to designated machine crew and
shift).
Any employee so scheduled and desires not to work will inform their foreperson
which days they do not want to work. The Company will attempt to fill the
request in the following manner:
1. Senior qualified employees on the unscheduled overtime sheet.
2. Any qualified employee wishing to work.
3. Employee scheduled as such will work.
In the event an employee indicates on the overtime sign-up sheet that he/she is
available for less than a full shift and the position available requires an
eight (8) hour shift be worked, that employee will not be considered to fill
that position.
C. Weekends
All overtime work to be performed on a Saturday and/or Sunday shall be
according to the following procedure:
1. The Saturday and/or Sunday schedule shall be posted on the Wednesday
which is ten (10) days prior to the affected Saturday and/or Sunday.
5
<PAGE>
2. By 7:00 p.m. on the second full day (Friday) after the schedule is
posted, the scheduled employees may request release from the schedule by
signing a release sheet. By the same deadline other employees may sign up
to work the Saturday and/or Sunday by signing a weekend overtime sheet.
3. After that 7:00 p.m. deadline, any vacant shifts on the schedule shall
be filled by the unscheduled overtime procedure, using the weekend overtime
sheet.
4. On the Monday before the involved Saturday and/or Sunday the final
Saturday-Sunday schedule shall be posted.
5. Any employee requesting to be relieved of work after the final
schedule is posted on Monday shall notify his or her supervisor. The
supervisor shall fill the opening using the weekend overtime sheet. If no
qualified employee is on the weekend overtime sheet, the employee shall be
responsible for finding a qualified replacement on his or her own time. If
no replacement is found, the employee's request to be relieved shall be
denied and the employee shall work as scheduled.
6. In cases of emergencies which require a change to the final schedule,
the unscheduled overtime procedure shall be followed, using the weekend
overtime sheet.
Any employee who volunteers for overtime will receive the rate of the job worked
for which they volunteer. All overtime work to be performed on a holiday will be
according to the unscheduled overtime procedure.
If all employees in a maintenance craft who want to work are assigned to work
weekend overtime, and additional employees are needed, the senior Employees who
have signed the overtime sign up sheets and who are qualified for general work
rather than specific tasks, will be scheduled for the overtime.
In the event an employee who would be forced to work a weekend overtime shift,
signs up for another shift on the same day, the forced shift will take
precedence and cancel the Employee's preference for the shift for which the
Employee has signed.
If a majority of a crew which is working weekend overtime elects to work a
different open shift on the same day, the crew decision will take precedence
over the right of an employee on that crew to sign up for another shift.
All work performed on Sundays shall be paid at the rate of time and one-half.
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Employees are allowed two (2) fifteen (15) minute breaks per shift. A five
minute bathroom relief break will be allowed. However, employees will replace
each other at their work stations and the equipment will remain in operation.
In the event of a start-up of equipment or a call-in where no relief is present,
the supervisor shall first attempt to fill the shift with an employee listed on
the overtime sheet. In the event no qualified employee signed the overtime
sheet, the least senior qualified employee in the involved department shall be
forced to work.
Each Tuesday the Company shall update a rolling notice showing anticipated
production for the next four (4) weeks.
If an employee is to work less than four (4) hours beyond the employee's regular
eight (8) hour shift, the employee will be granted a five (5) minute break
around the time of shift change. If an employee is to work four (4) or more
hours beyond the employee's regular eight (8) hour shift, the employee will be
granted a fifteen (15) minute break between the 7th and 9th consecutive hours.
Except for emergencies, employees shall not be interrupted while on break.
In the event maintenance personnel are scheduled on an ongoing project, that
employee shall continue to work on that project on overtime if it would be
impracticable to assign the project to another employee without or beyond a
minimum amount of training.
ARTICLE 7 --HOLIDAYS
In order that employees may, so far as possible, not lose a day's pay, eight (8)
hours at the employee's "Regular Rate" will be paid as a Holiday Bonus for the
following eleven (11) named holidays if not worked; New Year's Eve Day, New
Year's Day, Good Friday, Memorial Day, July 4th, Labor Day, Thanksgiving Day,
day after Thanksgiving Day, December 24th, Christmas Day, and a floating holiday
subject to the following conditions:
1. For employees on a normal five (5) day production schedule, if the
holiday falls on Sunday and it is celebrated on another day, such other
day will be considered as the holiday for all purposes.
2. For employees on a seven (7) day production schedule, a Sunday holiday
and it is celebrated on that Sunday.
3. An employee may schedule his or her floating holiday by giving notice
to the Company prior to the posting of the affected schedule, unless an
emergency
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forces a shorter notice. Floating holidays shall be scheduled on a
first come, first served basis. No more than two (2) floating holidays
(not in the same job classification or department) per day shall be
scheduled, unless circumstances permit otherwise. In the event of a
conflict between an employee's vacation and another employee's
floating holiday, the vacation shall take precedence. Any unused
floating holidays shall be paid at the end of the calendar year.
4. Regular rate specified above shall be the regular rate of the job the
employee would have been working on if the day had been worked,
excluding overtime, but including shift bonus.
5. If the active employee does not work or leaves early from his or her
last scheduled shift before the holiday, or does not work or is late
for his or her first scheduled shift after the holiday, he or she
shall lose one (1) and only one (1) day's holiday pay. The Manager of
Human Resources shall excuse (for holiday pay purposes) any such
absence, early departure, or tardiness for extenuating circumstances,
documented in writing if possible by the employee or supervisor. A
paid vacation day shall be construed as a day worked for purposes of
the holiday pay rule in this subsection five (5). An employee who has
been on layoff must perform some work in the 15 work days immediately
prior to the holiday in order to qualify for holiday pay.
6. The employee has established seniority status as provided in Article
13, Paragraph 2.
7. The Company will qualify for holiday pay employees absent from work by
reason of a disability caused by either illness or accident during the
first 30 work days of absence.
8. If a vacation is extended into the preceding or following week because
of a holiday, such day(s) in the preceding or following week will be
considered as day(s) worked for purposes of computing weekly overtime
provided the first scheduled work day thereafter is worked.
If one of the above named paid holidays (or day celebrated as such) is worked,
the employee will be paid at time and one-half his or her regular rate for all
hours actually worked on the calendar day of the holiday or the day celebrated
as such, plus the holiday bonus of eight (8) hours pay as above provided. In
lieu of the holiday bonus, maintenance employees who work a holiday may choose a
day off with eight (8) hours pay at the regular rate. The exact day off shall be
set by mutual agreement between the maintenance employee and his or her
supervisor within two (2) weeks prior to the holiday. If the day to be taken off
is in the succeeding calendar year it shall be paid at the regular rate in
advance at the end of the calendar year in which the holiday occurred.
If one of the named holidays falls within an employee's vacation in such manner
that it would have
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been paid for if not worked, he or she will be entitled to the Holiday Bonus for
such holiday, provided he or she works as provided in article seven (7),
subsection five (5).
When an employee is not scheduled to work on one of the above enumerated
holidays, and consequently does not work, the holiday shall nevertheless count
as eight (8) hours for the purpose of computing overtime for hours worked in
excess of forty (40) hours, provided that the employee works the other days
during the week for which he or she is scheduled to work.
ARTICLE 8 -- NEW JOBS AND JOB BULLETINING
All posted positions shall start as a spare position. The exception will be
progression positions and craft positions already in the progression process.
When permanent vacancies occur in these positions the trained spare moves into
the permanent position and the spare job is re-posted. On a day-to-day basis
spares will be utilized if practical and possible. Spares will be utilized to
fill vacancies of a week or more in duration.
All permanent vacancies and new jobs, except entry level operator positions,
shall be posted on the regular bulletin board for three (3) working days. In the
event a job posting is not removed from the bulletin board at the end of the
three (3) day posting period, the posting shall be considered null and void and
re-posted for the correct period. Where feasible, the Company will award the bid
to the successful bidder within ten (10) working days thereafter. Any Employee
must be able to accept and to start in the job awarded within twenty-one (21)
calendar days of the posting date or the Employee will be considered
disqualified on that posting. This twenty-one (21) day period will be extended
to twenty-eight (28) days in the event an employee with work related job
restrictions or injury desires to contact his or her physician in order to
determine whether he or she may safely be allowed to try the posted job. The
bulletin shall describe the job vacancy, including qualifications and rate. When
filling posted positions, the most senior employee applying therefor shall be
first considered for such job, if he or she is qualified to do the work and/or
has the potential to advance to the higher job classifications within the
department. Any further vacancies which develop within sixty (60) calendar days
after the date of a specified job posting will be filled from those applications
already filed provided the individual is qualified, otherwise a new bulletin
will be posted.
The job of Lead Person will be bulletined by sign-up sheet. However, the Company
reserves the right to conduct interviews and select candidates according to its
own criteria within sixty (60) days. The Lead Person can direct the activities
of others and perform bargaining unit work. The Company shall pay a Lead Person
at least the minimum rates as per the wage schedule. The Company may pay a
higher rate if it chooses, subject to a job review and determination by January
first of each year.
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Any employee placed on a new job, or a created job, for the purpose of a trial
period as to whether or not that job will become a regular job, will not have
rights to that job. The employee will have to bid on the job when it is posted
like everyone else. Their on-the-job qualifications will not give them super-
seniority to the job. A trial period shall consist of a period of ninety (90)
days, or less, and will not be extended without mutual agreement of the parties.
a. In the Woodenware Department, the lathe operator job shall be filled
by the oldest veneer stacker in point of service, and the veneer
stacker's job shall be the entry point for subsequent selection for
the job of Lathe Operator in the Woodenware Department.
b. Shipping Department: Vacancies in the position of Loader/Trucker shall
be filled from spares for that position and vacancies in the position
of Checker/Loader shall be filled first from Loader/Truckers and then
from spares for that position. The Helper position is not a posted
position. Helpers will be the senior entry level operator position
person on duty at the time and available. An additional 5c per hour
will be paid to Shipping Department employees who are qualified to
spot trucks and who do so on a regular, on-going basis.
c. Timber Handling Yard Crew: Truck drivers will progress to the position
of Mobile Equipment Operator B and Mobile Equipment Operators B will
progress to the position of Mobile Equipment Operator A. In the
future, the Company will post spares only for the Truck Driver
position and spares will not be utilized for other Yard Crew
classifications.
d. Inspectors: Inspectors B will progress to the position of Inspectors
A.
e. General: Where a job progression exists, the positions involved which
are not entry level positions, are not open to plant-wide bidding but
are instead limited to persons holding positions within the
progression involved.
f. Moulder Operator:
Step 1: Must be able to pass probationary period without any
difficulty and meet production standards. Pay: base rate of
moulder.
Step 2: Must be able to make minor adjustments to the moulders to
ensure quality and production standards. At this level,
minimal or no damage to heads and aluminum shoe and other
parts of moulders. Pay: base rate plus a progression
increment, which was $.50 per hour as of April 30, 1997.
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Step 3: Must be able to maintain and exceed quality and production
standards required. This must occur 50% of the time in between
reviews. Pay: base rate plus a progression increment, which was
$1.00 per hour as of April 30, 1997.
Step 4: Must be able to independently operate all 5 moulders with equal
efficiency and be capable of making necessary product changes on
the moulders. Pay: base rate plus a progression increment,
which was $1.50 per hour as of April 30, 1997.
Step 5: Must be able to sharpen heads on moulders, change heads, and be
able to fix most mechanical problems on moulders within a
reasonable amount of time. Must be able to exceed quality and
production standards for 60% of the time period. Must be able to
retain all the requirements as you proceed from one step to
another. Must be able to train new operators with complete
efficiency. Pay: base rate plus a progression increment, which
was $2.00 per hour as of April 30, 1997.
All operators can only proceed one step at a time. Operators will be
reviewed at least once every 6 months and can move up or down at any
time. This will be based on their performance. This decision will only
be made by management.
Effective May 1, 1997, the specified progression increments shall be
increased at the beginning of each contract year by the same percentage
increase applied to current wage rates.
g. Corn Dog Auto Sorter Technician:
Step 1: Sign up for posted auto sorter operator and meet all requirements
for posting. After 20 day break-in period, if employee meets all
requirements, this job pays sorter base rate per hour.
Step 2: Must be able to make necessary adjustments to insure quality and
production levels required without damaging any functioning
parts. Must be able to maintain and exceed quality production
levels. Should be able to recognize trouble areas before
breakdowns occur. When these requirements are met, job pays
sorter base rate plus a progression increment, which was $.50 per
hour as of April 30, 1997.
Step 3: Must be able to perform steps 1 and 2 without any difficulty.
Also must be able to fix any mechanical problem on sorters within
operator's duties. Must
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be able to exceed production and quality levels for extended
periods of time. When all requirements are met, this job pays
sorter base rate plus a progression increment, which was $1.00
per hour as of April 30, 1997.
All operators can only proceed one step at a time. Operators will be
reviewed at least once every 4 months and can step up or down at any
time. This will be based on their performance. This decision will be
made by management only.
Effective May 1, 1997, the specified progression increments shall be
increased at the beginning of each contract year by the same percentage
increase applied to current wage rates.
The employee selected by the Company for promotion shall be on a trial period
for twenty (20) work days for determination as to whether or not the employee
can meet the job requirements. If an extension is given, the Company must inform
the Employee in writing of the duties and skills he or she must improve in order
to meet the job requirements. This trial period can be extended or shortened by
mutual consent in cases requiring more or less than the twenty (20) days. At any
time during this trial period, if the employee is determined as not qualified by
the Company or at the employee's own request, the employee shall be returned to
their former job without loss of seniority. At the conclusion of the trial
period, the employee shall relinquish transfer right to their previous job
except in case of curtailment of production when they will be entitled to job
assignment by seniority.
In case the job posting is not filled by the posting procedure, the Company may
fill the vacancy by assigning the least senior employee who does not have a
posted position, and that employee will be considered as the permanent employee
in the classification.
Employees selected to fill a skilled vacancy will be given a trial period.
Duration of trial period to be mutually agreed upon by Company and Union.
No Employee shall be allowed more than two trial periods in any twelve (12)
month period for jobs that have been bulletined. If an Employee successfully
completes his or her second trial period during a particular twelve (12) month
period and remains on that job and within four (4) months thereafter, there is
an unexpected curtailment with respect to that job, that trial period will not
count as a trial period utilized by that Employee.
Any new jobs established resulting from new products differing materially from
jobs already in existence in the plant, and any job changes resulting in
material increase in work load, responsibility, or skill shall be discussed
between the Company and the Union Committee and an effort made to establish a
mutually agreeable rate within thirty (30) days by mutual agreement. If no
agreement is reached, the Company will determine the rate based on the
relationship of the job
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to other plant jobs and rates. The Union may appeal the rate through the
Grievance Procedure (Article 17).
In the event of an error in filling posted job vacancies, complaints shall be
lodged no later than ninety (90) days from the first day of the trial period of
the employee filling the vacancy. If no complaint is lodged within the ninety
day period, the posting results stand.
Within one (1) year of signing of the 1997 Agreement, the Company shall develop
written job descriptions for all positions covered by this Agreement. The job
descriptions for the jobs in a department shall be available for inspection by
the employees in the department. Any job posting shall be accompanied by a copy
of the job description for the position posted. Whenever the Company calls into
question an employee's work performance and reviews that issue with the
employee, the review shall include reference to the job description and
recommendations for improvement.
The Company shall post three (3) full-time maintenance/craft helper positions.
The postings shall state the specific craft for which help is anticipated. When
filling the positions the bidders shall be tested as to aptitude using a test
selected by mutual agreement of the Company and the Union. Successful bidders
shall receive in-house training and shall be reimbursed for the cost of training
elsewhere if the outside training was approved in advance by the Company.
Maintenance/craft helpers shall have the same tool requirements and allowances
as maintenance employees. Maintenance/craft helpers will progress into
maintenance/craft positions if qualified as such positions become available.
ARTICLE 9 -- JOB TRANSFERS
When employees are required temporarily to work on a different job, they shall
receive the rate of the new job or their regular rate, whichever is higher.
When returning to their regular job, the employee shall return to the rate of
their job.
Any employee on the payroll or seniority list as of 9/18/84 that is required to
work or be transferred to a new job shall be grandfathered in at the base rate
of the match machine operator for the time worked on the new job. If employees
sign up for new jobs they shall receive the rate of the new job or position.
ARTICLE 10 -- JOB PERFORMANCE REVIEW
The performance of Mechanics, skilled Maintenance and Printing employees,
regardless of class or
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rank, shall be reviewed in writing at least annually between February 1 and
March 31. Written skills criteria shall be used as part of the reviews. The
reviews may include recommendations for improvement and training. The reviews
shall be conducted by the supervisor and department head, with input from the
employee's peer group. Among other things, it shall be the purpose of the
reviews to advise the employee about advancement and to critique the employee's
job performance.
Employees in these classifications will be expected to improve their skills and
performance so that they can advance a grade, in two years or less, until the
1st Class level is attained. Employees in these classifications may request an
on-the-job mentor for training assistance.
ARTICLE 11 -- JOB SIGN-OFF
When an employee wishes to be removed from his or her current posted position,
he/she will complete and sign the job sign-off form. The form will also be
signed by the employee's Supervisor and a union representative. The employee
will then be assigned an available entry level position.
At the time of sign-off, the Company shall inform the employee in writing of the
time frame (not to exceed six (6) months) during which the employee will be
subject to temporary recall back to the signed-off job. At the point the
employee is no longer subject to such recall, he or she also shall be removed
from the qualifications list for the signed-off job.
ARTICLE 12 -- TIME OFF FOR UNION ACTIVITY
The employees shall be permitted time off when required to attend conventions,
committee meetings, negotiations or any other pertinent business of any labor
organization, provided, however, that three (3) calendar days' notice be given
the Company stating when the employee is to be away from work, and that at least
one (1) day's prior written notice be given the Company stating on what day he
or she will be ready to resume his or her duties. Not more than six (6)
employees are to be given a leave of absence of this nature at any one time.
However, upon fourteen (14) calendar days' notice by the Union to the Company,
the Union may request that more than six (6) employees be absent at one time,
which request shall not be unreasonably denied. In an emergency where the three
(3) or fourteen (14) day notice cannot be given, not to exceed two (2)
employees, or three (3) specific employees (the Union's President, Vice
President, and Recording Secretary), will be permitted time off for such purpose
on one (1) day's written notice. The Company shall not be required to pay wages
to the employees for time off to attend such
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organization business.
ARTICLE 13 -- ABSENCE AND SENIORITY
1. Seniority Generally
Subsequent to May 1, 1989, seniority shall be construed as continuous service
with the Company, compiled by the time actually spent on the payroll plus
properly approved absences, and shall date from the last date of hire with the
Company.
Employees transferred outside the scope of the bargaining unit shall accumulate
and retain seniority for a minimum period of six (6) months. During such period
the employee will, if returned to the bargaining unit, be placed on their former
job.
A Seniority List will be posted each January in both the cafeteria and the job
posting area by the time cards. Employees who notice errors in this list should
report such errors within two (2) calendar weeks.
2. New Employees
All new employees shall serve a probationary period of forty-five (45) active
working days, and shall not accrue seniority during that period. The length of
the probationary period may be extended on a case by case basis upon the mutual
agreement of the Company and Union. If any employee is laid off prior to the
completion of such probationary period, he/she will receive credit for the time
employed prior to such layoff toward completion of his/her probationary period
provided he/she is recalled.
During the probationary period, the Company may, as its option layoff or dismiss
said probationary employee. Employees retained at the expiration of their
probationary period will become regular employees and will be ranked in
seniority according to a random selection of their names.
3. Loss of Seniority
An employee shall lose seniority if, in any of the following situations the
employee:
(a) engages without written permission in other employment while on leave of
absence
(b) is discharged
(c) quits or voluntarily leaves the employ of the Company
(d) fails to report to work from a layoff after at least eight (8) hours'
advance telephone notification or if the employee cannot be contacted in
this manner, one calendar week from a dated Post
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Office receipt from a certified letter sent to the employee's last known
address, unless in either case (telephone notice or mail notice) there are
extenuating circumstances and the employee is excused by the Company; if a
telephone call is answered by an answering machine, it shall be treated as
though the telephone rang without any answer at all
(e) accepts permanent employment elsewhere
(f) is detained from work by reason of sickness or any other reason beyond their
control and fails to get word to their foreperson or the Personnel
Department within two (2) working days and does not furnish satisfactory
proof of their inability to do so within a reasonable time thereafter.
(1) An employee detained under subparagraph (f) above is not to await the
expiration of such two working days' period is to report as aforesaid
as soon as they are able. If they are absent for any other reason,
they are expected to notify their foreperson or the Personnel
Department in advance and their failure to do so will result in
disciplinary measure and may result in their discharge.
(2) An absent employee shall arrange with the Company for their return to
work.
(g) is laid off and not recalled within:
(1) One (1) year if such employee had less than five (5) years seniority
on the date of their layoff
(2) Two (2) years if such employee had five (5) years or more seniority on
the date of their layoff
4. Leave
The maximum accumulative disability, pregnancy and voluntary leave time
available to any employee (see exception below) is two (2) years for an employee
with less than five (5) years seniority, three (3) years for an employee with
less than ten (10) years seniority, etc. Absence of one week or less, absence
for Military Service in the Armed Forces, absence due to a plant injury, and
leave time prior to May 1, 1971 shall not be counted. While on authorized leave
after May 1, 1971, employee will retain and accumulate seniority. The length of
any disability or pregnancy leave shall be as medically required, subject to the
two (2) and three (3) year maximum periods above. Except as provided with
respect to the Company's contribution to the group health insurance plan and the
case of approved leaves for injury or illness, all leaves of absence shall be
without pay, and vacation or other benefits shall not accrue during any leave.
5. Absence Due to Layoff
Any employee who is laid off shall accumulate seniority up to the maximum period
provided in
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Paragraph 3(g) above.
6. Funeral Leave
The Company shall grant an employee pay for time lost up to but not exceeding
five (5) work days when death occurs in the employee's immediate family. The
immediate family is limited to husband; wife; father or stepfather, but not
both; mother or stepmother, but not both; brothers, sisters, children,
mother-in-law, and father-in-law of the employee. Payment for such leave shall
be limited to a maximum of forty (40) hours of actual time lost from regularly
scheduled work, one of which days will include the day of the funeral, providing
that these are all scheduled working days for the employee. If the funeral or
other services or other customary practice in connection with the death does not
fall on consecutive days, the leave may be taken intermittently. One day of
funeral leave will be allowed to attend the funeral of grandparents and
grandchildren. Funeral leave shall not be considered as time worked in the
computation of weekly overtime.
7. Jury Duty
Upon receipt of the summons from the court, an employee notified of jury duty
shall give notice of the summons to the Company. While on jury duty, the
employee shall give daily notice to the Company of whether he or she is required
to be at the courthouse the next court day. An employee required to lose time to
serve on a jury on any of the calendar days Monday through Friday inclusive on
which they would otherwise have been scheduled to work, shall be paid the
difference between their pay for jury duty and their hourly rate for not more
than eight (8) hours for each day they are required to serve, upon presentation
of a statement from the court of the date and time of jury service and the
amount of their jury pay. In the event the employee works on any of the days on
which they serve on the jury, the number of hours worked shall be deducted from
the eight (8) hours for which wage payment is heretofore provided and they shall
then be paid the difference between their pay for jury duty and their hourly
rate for the remaining hours. Time served for which jury duty pay is received
from the Company shall be counted as time worked for the purpose of computing
overtime. If an employee normally scheduled to work the 11 p.m. to 7 a.m. shift
is called to the courthouse for jury duty, he or she shall be scheduled for the
7 a.m. to 3 p.m. shift for that day. If an employee working the 7 a.m. to 3 p.m.
shift is required to be at the courthouse for jury duty that day for less than
four (4) hours, the employee must report to work thereafter in order to collect
jury duty pay. If an employee working the 3 p.m. to 11 p.m. shift is required to
be at the courthouse for jury duty that day, he or she shall report for work at
3 p.m. if he or she is excused from jury duty at or before 11 a.m. that day.
Absence required by law for jury duty, or as a witness in court, shall not be
counted as a break in regular attendance.
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ARTICLE 14 -- LAYOFFS AND REHIRING
In the event of a curtailment of operations or a layoff of a week or more, the
Company will reschedule employees to accommodate the premise that the last
person hired is the first person to be laid off, provided that employees
exercising their seniority must be able to perform the work with a minimum
amount of training and orientation (minimum training is defined as three (3)
work days or less) and is paid the rate of the job. On an individual basis the
Company and the Union can discuss a longer training period.
It is recognized that certain jobs require lengthy training periods due to their
complexity and/or required skills. If a lay-off or curtailment has the
potential of exceeding three (3) months, the Company and Union will meet to work
out a training schedule for affected employees.
It is also recognized that maintenance/craft jobs require extensive training,
and these jobs are exempt from this clause.
When, due to curtailment or layoff, an employee has been placed on another job
and an opening occurs on their signed up job because of someone being sick, on
vacation, leave of absence, or any other reason for a week or more, the employee
will exercise their rights and be returned to their original job.
An employee assigned a lower rated job because of a decline in operations and/or
a layoff shall be paid the rate of the job which they are assigned.
When it becomes necessary to lay off employees according to the provisions of
this Agreement, the Company shall post the layoff list at the same time it posts
the weekly schedule, when reasonably possible, and allowing exceptions for
emergencies. At the same time a copy of the layoff list shall be given to the
Union. The Union shall likewise be given a list of all recalled employees as
soon as possible.
Each Tuesday the Company shall update a rolling notice showing the number of
possible layoffs for the next four (4) weeks, subject to revisions until the
final weekly layoff list is posted.
ARTICLE 15 -- LONG SERVICE EMPLOYEES
Employees who have given long and faithful service in the employ of the Company,
and who have become unable to handle heavy work to advantage, will be given
preference to such light work as they are able to do and is available. The rate
of pay shall be the rate of the job assigned.
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There shall be a job classification called Plant Janitor paid at the Match Mill
Sweeper wage rate. This classification shall not be subject to normal posting
and bidding requirements but instead may be used to accommodate such long-
service employees.
ARTICLE 16 -- PAYDAYS
Should the regular payday fall on a holiday or a day when the shop is closed
down, the employee will be paid on the preceding day, if possible.
ARTICLE 17 -- ADJUSTMENT OF COMPLAINTS
Should any employee covered by this Agreement believe they have been unjustly
dealt with as a result of interpretation, application or violation of this
Agreement, negotiations for settlement thereof shall be conducted in the manner
numbered below.
In the event an employee incurs disciplinary action, such action will be taken
within five (5) working days from the date of the violation. The attendance
program is excluded from the agreement, however the company will make every
effort to ensure attendance related disciplinary action is timely.
No grievance will be recognized unless presented to the Company promptly and in
no event later than five (5) working days after knowledge of the happenings
giving rise thereto.
1. The aggrieved employee shall consult with their supervisor or department
head and attempt to reach a settlement. When a union steward is available
on the premises, the steward will be asked to be present. No grievance will
be recognized or accepted by the Company unless the first step of the
grievance procedure is followed (with the exception of discharge or
suspension cases, which will proceed directly to the last step). A
resolution of the grievance at this step shall be non-precedential.
If a satisfactory settlement is not arrived at, the grievance shall be
reduced to writing stating the nature of the grievance and the article of
the contract allegedly being violated. The shop grievance committee person
shall in turn present the written grievance to the employee's supervisor or
the department head.
2. If a satisfactory settlement is not effected within forty-eight (48) hours
after the filing of the written grievance, the Shop Grievance Committee
shall then take the matter up with the department head and/or one (1) or
more of his or her designees in an interest-based problem solving setting.
The group shall appoint a chairperson to chair the IBPS process. The
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Company and the Union shall each maintain a roster of two trained IBPS
facilitators to assist at the IBPS meeting. Only one facilitator shall
assist at the meeting. Service as a facilitator shall alternate between
Company and Union appointees.
3. If a satisfactory settlement is not effected within five (5) days after the
IBPS meeting, the Shop Grievance Committee, the International Union
representative or his or her designee, and the department head and/or one
(1) or more of his or her designees shall meet to discuss the grievance.
Either party may request the participation of a mediator from the Federal
Mediation and Conciliation Service or, if mutually agreed, some other
qualified third party to serve as mediator, whose expenses shall be equally
shared by the parties.
Any time limits can be extended by mutual agreement between the two parties.
Each grievance shall have a cover sheet to track the status of the grievance,
including all deadlines, any agreed-upon extensions of the deadlines, and
resolution, if any, of the grievance.
Committee members meeting with management at regular or special meetings for the
discussion of grievances and other matters of mutual interest may do so during
regular working hours without losses of time.
All other duties of the committee members shall be performed outside of working
hours and shall in no way interfere with their plant duties. No committee
members shall be paid by the Company for attending meetings with management,
except for time taken off by them for such purpose from their regular working
hours, and not then for time spent in contract negotiations.
The Grievance meetings shall consist of not to exceed six (6) employees.
Additional witnesses, however, may be called in where their testimony is
required in meetings with management.
ARTICLE 18 -- ARBITRATION
Should any dispute arise which comes under the contract which cannot be settled
between the Union and the Company, including a claimed wrongful layoff or
discharge, then and in that event, the matter in dispute shall be submitted to
binding arbitration for settlement, and the arbitrator shall be selected
according to the rules of the Federal Mediation and Conciliation Service. Such
matters must be submitted within forty-five (45) days of the conclusion of the
procedure in Article 17, or the matter will be considered closed.
The decision of the Arbitrator shall be binding and conclusive on both parties
to this Agreement. The Arbitrator shall have no power to add to, subtract from,
or alter any terms of this Agreement.
The jurisdiction and authority of the Arbitrator shall be confined to questions
involving the
20
<PAGE>
interpretation, application, or alleged violation of this Agreement.
It is agreed that the parties shall each bear one-half the expense of the
Arbitrator.
Requests for changes in this contract, or for wage increases or negotiations
over a new contract are questions not subject to arbitration.
An employee covered by this Agreement who is found to be unjustly laid off or
discharged will be reinstated with full seniority and may be compensated for
lost time as shall be determined by the facts of the case.
ARTICLE 19 -- NO STRIKE - NO LOCKOUT
Since adequate provision has been made herein for the settlement of all disputes
and grievances such might arise hereunder, it is agreed that during the period
of this contract there shall be no strikes, sit downs, cessation of work,
picketing, boycotts or lockouts.
ARTICLE 20 -- BULLETIN BOARDS
A place will be provided within the shop in different departments where notices
of the Union business of interest to employees may be posted by the employee's
committee without being censored. No notices shall contain any controversial
matter or propaganda matter.
One bulletin board and mailbox will be located in the time card area for the
sole use of the Union. All Union articles will have the approval of two (2)
Union officers before posting. No notices shall contain any controversial
matter, propaganda items, or election materials other than materials relating to
Union elections.
ARTICLE 21 -- REPORT AND CALL IN TIME
When an employee reports to work and work is not available, the employee shall
be paid for four (4) hours at the employee's base pay. When work is not
available because of a general or emergency breakdown, a minimum of two (2)
hours of the employee's base pay, rather than four (4) hours of the employee's
base pay, will be paid to employees who have reported for work. If the Company
has made a reasonable effort to give two (2) hours notification that work is not
available, then employees whom the Company attempted to notify shall not be
entitled to receive any four (4) hour or two (2) hour reporting pay. If the
attempted notification was unsuccessful and the employee reports to work, the
Company may assign alternate work to the employee, if available.
21
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Any employee who, after clocking out, is called to perform emergency work shall
receive either four (4) hours at their base pay, or the employee's working time
figured at time and one-half, whichever method produces the greater earnings.
It shall be left to the Company's discretion how long the employee will stay on
the job, subject to a maximum of sixteen (16) hours in any twenty-four (24) hour
period.
ARTICLE 22 -- EMPLOYMENT STABILIZATION
The Company will continue to exert its best efforts in an endeavor to stabilize
employment.
In case of major layoffs, the program of production shall be discussed by the
Union Committee and the Management before definite action is taken.
ARTICLE 23 -- SERVICES OF COMMITTEE MEMBERS
When an employee requests the service of a member of the committee when called
before Management, their request shall be granted.
It is agreed that all reasonable requests by the Union for hearings or meetings
with Management will be granted without unnecessary delay.
ARTICLE 24 -- PAID VACATION
The qualification date for the purpose of vacation shall be January 1 or the
anniversary date of employment. An employee's vacation eligibility shall be
determined as of January 1 of each year. During the preceding November and
December, employees will be allowed to sign up for available vacation weeks for
the following year. Vacation sign up procedures will be as established in the
fall of each year by mutual agreement.
Anyone who has not quit or been discharged prior to their qualification date
will be considered an employee for the purpose of this vacation clause.
All those who are employees on the qualification date and who have 1100 credited
vacation hours during the year ending with such qualification date shall receive
vacations with pay as follows:
Normal working hours lost as a result of disability covered by Workers'
Compensation shall be credited towards the 1100 hours during the first vacation
year of such disability.
22
<PAGE>
Work hours lost by time actually spent in a hospital as a result of any
disability will also be credited during the first vacation year of the
disability.
Hours of work lost as a result of a disability that is compensated under the
Weekly Accident and Sickness coverage up to a maximum of 520 hours in a vacation
year, will be counted in the vacation requirement of 1100 hours.
All hours worked in a calendar year (before and after) a disability or injury
shall be accumulated and shall be used as qualifying hours for purpose of
vacation.
Any full time employee with a year or more of service who does not meet the 1100
hours requirement by January 1 or anniversary date, shall receive pro-rata
vacation pay based on the relation of credited vacation hours to 1,600.
The Company will, in the event an employee leaves for military service, carry
over vacation qualification hours accumulated during the vacation year of their
leaving and add them to the hours in the vacation year of their return with the
result total being considered toward the 1100 qualifying hours.
Paid vacation weeks shall be based on the following schedule:
1. Those with one (1) but less than five (5) years seniority shall receive forty
(40) hours vacation.
2. Those with five (5) years but less than ten (10) years seniority shall
receive eighty (80) hours vacation.
3. Those with ten (10) years but less than fifteen (15) years seniority shall
receive one hundred twenty (120) hours vacation.
4. Those with fifteen (15) years but less than twenty (20) years seniority shall
receive one hundred sixty (160) hours vacation.
5. Those with twenty (20) years but less than twenty five (25) years seniority
shall receive two hundred (200) hours vacation.
6. Those with twenty-five (25) years or more seniority shall receive two hundred
forty (240) hours vacation.
7. The amount of vacation pay will be forty (40), eighty (80), one hundred
twenty (120), one hundred sixty (160), two hundred (200), or two hundred
forty (240) times the current hourly rate of the employee (not including
overtime, but including shift bonus).
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Employees must take vacations when earned and scheduled and unless there are
unusual personal circumstances which the Company feels justifies the employee in
not taking time off or unless the Company feels that it cannot spare the
employee. The Union will be notified of these circumstances. The Company may
cancel a properly scheduled vacation only for a rare and unusual circumstance,
or for an emergency. Before such cancellation, the Company shall first exhaust
any reasonable alternative to provide the needed staffing. If the vacation
cancellation causes a hardship for the employee, the affected employee will keep
the vacation as scheduled.
Employees who are forced to work during a week of company scheduled vacation
shall be paid at a rate of time and one-half of the applicable rate during that
week. Note: This does not apply to employees who voluntarily elect to work
during scheduled vacation, or defer the week of vacation.
Preference of time in taking vacations shall be granted where possible to the
more senior employees in point of service, but in all events final decisions as
to whether time off shall be taken and the scheduling thereof shall be in the
sole discretion of Management. The Company may, however, shut down the plant
and give all eligible employees up to two weeks of their vacation at one time.
Any employee who dies or retires will receive pro-rated vacation based on the
number of hours worked since the previous January 1 qualification date.
VACATION PURCHASE PLAN
Purchase of Vacation Weeks.
Hourly employees eligible for two (2) or fewer weeks of vacation will have the
option to purchase one full, additional week of vacation from among those weeks
of vacation which the Company has designated as available for purchase.
The Company will make one (1) week of vacation available for purchase each year
by each eligible employee, subject to a maximum of 189 weeks per year in total.
Selection Procedure.
Employees bidding on regular, earned vacation weeks will choose their vacations
from the available vacation weeks first and then employees who wish to buy
vacation weeks will do so, by seniority, from the remaining weeks of available
vacation time.
The vacation option selected will remain in effect throughout the calendar year
regardless of any
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family status change that may occur. Employees are permitted to purchase only
one full week of vacation; individual, singles days cannot be purchased.
Payment.
The price or dollars for one week vacation will be determined by the employees
normal hourly wage rate, not including shift differential or premium pay, on
December 1 of the previous calendar year multiplied by 40 hours. If the
employee's wage rate is higher or lower at the time the purchased week of
vacation is taken, the employee will still receive the original computed value
of that week's vacation. Vacation pay for all other weeks of vacation for which
an employee is eligible will be determined at the time the vacation is taken.
The deduction from an employee's earnings for vacation bought will be taken
before taxes, retirement, and all other deductions are made. Vacation pay will
then become subject to taxes and deductions when the vacation pay is received by
the employee at the time vacation is taken. Deductions for vacation purchased
will be made from equal pay periods for the entire year.
New Hires.
Employees will become eligible to purchase an additional week of vacation the
first calendar year after they have completed a minimum of one year accredited
service. For example, an employee hired on June 10, 1993 would become eligible
to buy vacation for the calendar year 1995. Rehired employees will be treated
as new hires for vacation purchase purposes.
Termination/Transfer/Leave.
If an employee who has bought vacation quits, is discharged, or is on medical or
personal leave of absence, the vacation account must be balanced at the time of
termination of employment to determine whether the employee or the Company is
entitled to reimbursement.
ARTICLE 25 -- PENSION
The Diamond Brands Pension Plan will be maintained in place with benefits for
service through September, 1989 for its present members.
The Company will continue to contribute to the Paper Industry Union-Management
Pension Fund Defined Contribution Plan. The rate of contribution per hour paid,
as defined by the plan will be as
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follows:
$0.35 effective 5-1-97 (An increase of $0.02 over the $0.33)
An employee may contribute to the pension plan from his or her gross income as
much as the plan permits. The Company will match the employee's contribution at
a rate of fifty percent (50%) of any amount up to the first four percent (4%) of
gross income contributed by the employee.
If you are a member of the Diamond Brands Pension Plan, you will become a member
of this plan. If you are not already a member of the Diamond Brands Pension
Plan you must complete one year of service, as defined by the plan, and attain
age 21 to become a member of the defined contribution plan.
ARTICLE 26 -- SUPERVISORS WORKING
Supervisory employees shall not perform bargaining unit work except in
emergencies, training, and experimental work functions which are explained
before being performed. The Company shall periodically make its supervisors
aware of the provisions of this article and the chain of command with respect to
who can do what work. The Company shall also confront any supervisor found to
have violated this article. The Company and the Union shall cooperate in
monitoring compliance with this article and in considering ways to avoid
violations of this article.
ARTICLE 27 -- SAFETY
A separate booklet called Safety Rules and Instructions describes the policy of
the Cloquet Plant. It includes policies, rules and safety regulations and
procedures to which the employees, as a condition of employment, must conform.
The Company and the Union realize that it is virtually impossible to write a
rule for every conceivable situation. Therefore, good judgment must be
paramount. Employment by the Company constitutes acceptance of the Safety Rules
and Instructions, and every employee is expected to know and obey them.
Compliance with the Safety Rules and Instructions is a condition of employment.
Violations of the policies and rules set forth in that booklet are grounds for
disciplinary action, including discharge.
The Company shall follow progressive discipline when disciplining an employee
for safety violations. The progressive discipline steps are intended to correct
the employee's actions and may be:
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<PAGE>
1. awareness training
2. verbal (documented) warning and awareness training
3. three (3) days off work without pay and awareness training
4. discharge.
Safety violation discipline more than one (1) year old shall not be used for
further disciplinary action. The Company may choose to reduce the one (1) year
time frame or the discipline if the employee agrees to participate in safety
presentations. With just cause due to a serious safety violation, the Company
may skip one or more steps of progressive discipline.
The Safety Committee shall meet monthly and shall consist of four each from
Management and Union. Union members shall be appointed.
The Company will provide payment annually for one pair of prescription safety
glasses as follows:
1. 100% for glasses of a style selected by the Company.
2. 50% for glasses of a style selected by the employee from the applicable
price schedule.
The Company will provide payment of up to $50 annually for one pair of safety
shoes. This payment is made pending the submission of a receipt of purchase.
In the event an employee is injured while performing his or her regular duties
for the Company, and he or she reports an injury promptly, he or she shall be
paid for the necessary time lost during the remaining time of his or her shift
on the day of injury, or on the day he or she first received medical attention.
Following the employee's report of the injury, the Company shall give him or her
a copy of the free employees' know-your-rights worker's compensation booklet
published by the State of Minnesota.
Appointments for medical attention due to an industrial injury shall be made as
early as the provider's schedule allows. If an employee is required to leave
work, the Company will pay the employee for the time it is necessary for the
employee to be away from the job for such attention provided: (1) The employee
has made a reasonable effort to obtain such medical attention outside of their
working hours, and (2) The employee has notified their supervisor and the
personnel office at least one day in advance of such appointment. If the
Company desires to change the appointment it shall consult with the affected
employee. The affected employee can agree to change the appointment or keep the
original scheduled appointment if the change would cause a personal hardship.
If the employee is not cooperative in scheduling appointments in a timely
manner, the Company, the affected employee, and a Union representative will meet
and attempt to settle the problem.
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Unless permitted by the employee, no Company representative may be present in
the room when a health care provider examines or treats the employee for an
industrial injury.
ARTICLE 28-- CONTRAVENTION OF LAW
If a court or law makes any part of this Agreement invalid or unenforceable, the
balance of this Agreement shall remain in full force and effect and the parties
shall negotiate over the part declared invalid or unenforceable with the goal of
making it valid and enforceable or removing it from the Agreement.
ARTICLE 29 -- TOOL ALLOWANCE
The Company shall provide a tool allowance as follows for all regular and spare
Maintenance employees in order to take care of tools lost, stolen, or damaged
which are relevant to the employee's job:
Effective on ratification of the 1997 contract up to $65 per year
Effective 5-1-99 up to $70 per year
Effective 5-1-2001 up to $75 per year
Tools purchased with the tool allowance will be purchased through the Company.
Employees are required to provide adequate tools to perform all job
requirements.
ARTICLE 30 -- CLOTHING ALLOWANCE
Permanent and spare employees in the Composition Department and in the Dye Room,
the Wood Stick Printer Operator, and all Mechanics will be granted a $40.00 per
year clothing allowance, unless the Company provides uniforms in lieu of this
allowance.
ARTICLE 31 -- SCOPE OF AGREEMENT
This agreement contains the full and complete Agreement on all bargaining issues
between the Parties. Any side agreements, memoranda of understanding of any
kind, written or oral, which are not incorporated into this Agreement are null
and void. Other agreements can be made during the term of the contract, such
agreements must be reduced to writing and signed by both the Company and the
Union.
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ARTICLE 32 -- REQUEST FOR MEETINGS
It is agreed that all reasonable requests by the Union for hearings or meetings
with Management will be granted without unnecessary delay.
ARTICLE 33 -- UNION - MANAGEMENT COOPERATION
The Union and the Company will cooperate fully to produce products in the most
economical manner through increasing production and efficiency in the plant in
all departments.
Except as specifically limited by provision of the Agreement, all rights and
authority as customarily exercised by Management in the operation of the
business are retained by the Company and are not subject to arbitration.
ARTICLE 34 -- SHIFT PREMIUM PAY
A shift bonus of fifteen cents ($.15) per hour shall be paid to employees
working on the afternoon shift, and a shift bonus of twenty-three cents ($.23)
per hour shall be paid to all employees working on the midnight shift, whether
rotating or non-rotating.
ARTICLE 35 -- COMMITMENT AND COOPERATION TASK FORCE
The Union and Management of Diamond Brands Incorporated recognize that our
future success will be based largely on the efforts of all employees, and that
those efforts can most effectively be channeled through a constructive,
cooperative, Union-Management relationship. To that end the Union and
Management commit to the following principles:
1. The Company recognizes the legitimate rights and responsibilities of the
Union and agrees to cooperate in maintaining the integrity of the Union.
2. In an effort to create a cultural change and resolve problems, the parties
must work closely together in a joint partnership which extends from the shop
floor to the front office.
3. Employees are responsible and trustworthy, and the parties commit to working
to create an environment where employees are treated with dignity and in
accorded with this principle.
4. The parties recognize that employment security is of paramount importance to
any cooperative commitment; and therefore, no employee will be terminated or
laid off because of work
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<PAGE>
redesign resulting from cooperative activities or projects. Any job
reductions and corresponding staff level changes that may come about from
these efforts will be handled by normal attrition or renegotiated voluntary
severance programs. (Attrition means retirement, quits, promotions to fill
salaried positions, or termination for any reason).
Excluded from this understanding are any reductions caused by market
conditions, capital projects, shutdown of equipment or machinery, or other
conditions not related to the above.
5. The parties agree to work toward a culture in which information is freely
and willingly shared, and issues and concerns are resolved using a problem-
solving approach in an atmosphere free of hostility and confrontation.
6. The Company and Union agree that it is important to create an environment
where employees at all levels of the organization are involved in decision-
making and have an opportunity to voluntarily provide their participation,
input, commitment, and cooperation.
7. The Company and the Union commit to train and educate the Union Bargaining
Committee in regards to any questions that need to be addressed in order to
accomplish the objectives of this commitment to work with each other.
Together, they will train and educate the employees as needed to move at an
acceptable pace.
8. The parties recognize that the intended cultural change is a long term
difficult, and time-consuming process. Successful results are dependent on
the cooperative, active participation, the building of mutual trust, honest
and open communications, and encouragement by both the Company and the
Union.
9. Cooperative activities or projects undertaken as a result of this commitment
shall be in conformity with the provisions of the labor agreement.
10. This joint statement of commitment and cooperation may be modified by mutual
agreement of the parties.
TASK FORCE ACTIVITIES
Through the term of this Agreement, the Union and the Company may form task
forces, by mutual agreement, to study and make recommendations on topics of
concern to either party. The parties will also agree as to the purpose of the
task force, with defined parameters for the task force. No task force will be
able to make binding agreements on their own but will make recommendations
subject to approval and agreement between the Company and the Union. It is
understood that it is not possible for all task forces to function
simultaneously thereby depleting necessary skilled plant resources or not having
necessary resources available for assistance. The parties must therefore
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<PAGE>
carefully weigh the priorities and activate task forces accordingly.
The parties recognize that the change to a participative, high commitment
organization is a complicated process. Successful results are dependent on the
cooperation, active participation, honest and open communication, and
encouragement by the Company, Union, and employees.
ARTICLE 36 -- CONTRACT PERIOD
This contract shall remain in full force and effect without change from the date
of signature to and including April 30, 2003. At least sixty (60) days before
May 1, 2003 either party desiring to modify or change this Agreement shall give
written notice to the other party of such fact stating in said notice the change
desired. If no such notice is given by either party, then this Agreement shall
be automatically renewed for an additional year. Upon the giving of such
notice, the parties shall start negotiations promptly, looking toward
consummation of a new agreement before this one expires. If such notice is
given this Agreement shall continue in full force and effect after the giving of
such notice and during negotiations for a new Agreement until the expiration of
ten (10) days after written notice of termination shall have been served by
either party upon the other following April 30, 2003.
In the event that the Company shall desire to discontinue or to relocate any
operation covered by this Agreement, the Company will make every effort to give
not less than sixty (60) days notice in writing to the Union.
Signed at Cloquet, Minnesota, this _____ day of ____________, 1997.
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DIAMOND BRANDS INCORPORATED
____________________________
Christopher A. Mathews
Vice President of Operations
_____________________________
Carl J. Lundberg
Manager, Human Resources
_____________________________
Leonard F. Anderson
Production Manager
MATCHMAKERS LOCAL #970
UNITED PAPERWORKERS INTERNATIONAL
UNION, AFL-CIO
____________________________
Marvin J. Finendale
International Representative
_____________________________
Bradley L. Engh
President, Local #970
____________________________
Brad R. Erickson
Vice President, Local #970
______________________________
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Thomas J. Nichols
Negotiating Committee Member
______________________________
Todd K. Hautajarvi
Negotiating Committee Member
EMPLOYEES JOB CLASSIFICATION AND WAGE RATES
Night Shift Premium
3 p.m. - 11 p.m. -
11 p.m. Shift 7 a.m. Shift
.15 .23
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(1) These columns assume there is NO "gain sharing" agreement.
(2) These columns assume there IS a "gain sharing" agreement, but the wage
figures do NOT reflect wage increase (if any) due to the "gain sharing" formula.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(1) (1) (1) (2) (2) (2)
5/1/97 5/1/98 5/1/99 5/1/00 5/1/01 5/1/02 5/1/00 5/1/01 5/1/02
TIMBER HANDLING (YARD CREW)
Mobile Equipment Operator A 12.52 12.89 13.26 13.71 14.18 14.66 13.64 14.04 14.45
Mobile Equipment Operator B 12.11 12.46 12.82 13.26 13.71 14.18 13.20 13.58 13.97
Truck Driver 10.77 11.09 11.41 11.80 12.20 12.61 11.74 12.08 12.43
WOODENWARE & BARKER ROOM
Lead Utility 9.43 9.70 9.98 10.32 10.67 11.03 10.27 10.57 10.87
Debarker Operator 10.97 11.29 11.61 12.01 12.42 12.84 11.95 12.30 12.65
Sawyer 10.97 11.29 11.61 12.01 12.42 12.84 11.95 12.30 12.65
Chain Tender 10.49 10.79 11.10 11.48 11.87 12.27 11.42 11.76 12.10
Block Loader 10.49 10.79 11.10 11.48 11.87 12.27 11.42 11.76 12.10
Knife and Saw Grinder 11.72 12.06 12.41 12.83 13.27 13.72 12.77 13.14 13.52
Lathe Operator 11.48 11.82 12.16 12.57 13.00 13.44 12.51 12.87 13.25
Splint Chopper Set-up and Operator 11.33 11.66 12.00 12.40 12.83 13.26 12.34 12.70 13.07
Finisher 11.19 11.51 11.84 12.25 12.66 13.09 12.19 12.54 12.90
Veneer Stacker/Winder Operator 11.03 11.35 11.68 12.08 12.49 12.91 12.02 12.37 12.73
Trucker 10.68 10.99 11.31 11.69 12.09 12.50 11.64 11.97 12.32
Hog Tender 10.64 10.95 11.27 11.65 12.05 12.45 11.59 11.93 12.27
Splint, Shake and Pack 10.49 10.79 11.10 11.48 11.87 12.27 11.42 11.76 12.10
ICS Sorter Technician 10.35 10.65 10.96 11.33 11.72 12.12 11.28 11.61 11.94
Wood Stick Printer Operator 9.22 9.49 9.76 10.09 10.44 10.79 10.05 10.34 10.64
Color Room Technician 9.17 9.43 9.71 10.04 10.38 10.73 9.99 10.28 10.58
Toothpick Pointer Operator 8.89 9.15 9.41 9.73 10.06 10.41 9.69 9.97 10.26
Corn Dog Auto Sorter Technician
(Progressive) 8.85 9.11 9.37 9.69 10.02 10.36 9.64 9.92 10.21
ICS Chopper Technician 8.85 9.11 9.37 9.69 10.02 10.36 9.64 9.92 10.21
Moulder Operator (Progressive) 8.85 9.11 9.37 9.69 10.02 10.36 9.64 9.92 10.21
Flat Toothpick Chopper Technician 8.82 9.07 9.34 9.65 9.98 10.32 9.61 9.89 10.17
Veneer Dryer Operator 8.80 9.05 9.32 9.63 9.96 10.30 9.59 9.86 10.15
Veneer Card Saw Operator 8.80 9.05 9.32 9.63 9.96 10.30 9.59 9.86 10.15
Toothpick Packer Operator 8.74 8.99 9.25 9.56 9.89 10.23 9.52 9.79 10.08
MATCH MILL
Pocket Box Match Machine Tender/
Wrapper Operator 11.48 11.82 12.16 12.57 13.00 13.44 12.51 12.87 13.25
Wrapper Operator 11.63 11.96 12.31 12.73 13.16 13.61 12.67 13.04 13.41
Match Machine Tender 11.26 11.58 11.92 12.32 12.74 13.18 12.27 12.62 12.99
Match Box Forming Operator 10.64 10.95 11.27 11.65 12.05 12.45 11.59 11.93 12.27
Sweeper 10.49 10.79 11.10 11.48 11.87 12.27 11.42 11.76 12.10
Plant Janitor 10.49 10.79 11.10 11.48 11.87 12.27 11.42 11.76 12.10
Pocket Box Forming Machine 10.45 10.76 11.07 11.45 11.84 12.24 11.39 11.72 12.06
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operators
Match Machine Operators 10.26 10.56 10.86 11.23 11.61 12.01 11.18 11.50 11.84
SuperMatch Equipment Tender 9.07 9.33 9.60 9.93 10.26 10.61 9.88 10.16 10.46
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(1) (1) (1) (2) (2) (2)
5/1/97 5/1/98 5/1/99 5/1/00 5/1/01 5/1/02 5/1/00 5/1/01 5/1/02
COMPOSITION ROOM
Powder Weigher 11.86 12.21 12.56 12.99 13.43 13.89 12.93 13.30 13.69
Mixer 11.38 11.71 12.05 12.46 12.88 13.32 12.40 12.76 13.13
PRINTING DEPARTMENT
Press Operator A-1 13.68 14.07 14.48 14.97 15.48 16.01 14.90 15.33 15.78
Press Operator 1st Class 13.06 13.44 13.83 14.30 14.78 15.29 14.23 14.64 15.06
Press Operator 2nd Class 12.21 12.57 12.93 13.37 13.83 14.30 13.31 13.69 14.09
Press Operator 3rd Class 11.88 12.23 12.58 13.01 13.45 13.91 12.95 13.32 13.71
Press Operator 4th Class 11.57 11.90 12.25 12.66 13.09 13.54 12.60 12.97 13.34
Cutter Operator 1st Class 12.09 12.44 12.80 13.24 13.69 14.15 13.17 13.56 13.95
Cutter Operator 2nd Class 11.76 12.10 12.45 12.88 13.31 13.77 12.81 13.19 13.57
Cutter Operator 3rd Class 11.47 11.81 12.15 12.56 12.99 13.43 12.50 12.86 13.24
Utility 11.19 11.51 11.84 12.25 12.66 13.09 12.19 12.54 12.90
Chambon Press Take Away 10.26 10.56 10.86 11.23 11.61 12.01 11.18 11.50 11.84
Dye Cutter Operator 10.37 10.67 10.98 11.36 11.74 12.14 11.30 11.63 11.97
SHIPPING DEPARTMENT
Checker/Loader 11.27 11.59 11.93 12.34 12.76 13.19 12.28 12.63 13.00
Loader/Trucker 11.00 11.32 11.65 12.04 12.45 12.88 11.99 12.33 12.69
Helpers 10.49 10.79 11.10 11.48 11.87 12.27 11.42 11.76 12.10
MAINTENANCE/CRAFT
Machinist Experimental 14.03 14.43 14.85 15.36 15.88 16.42 15.28 15.72 16.18
Pocket Box Lead Mechanic 13.76 14.16 14.57 15.06 15.57 16.10 14.99 15.42 15.87
Machinist A-1 13.76 14.16 14.57 15.06 15.57 16.10 14.99 15.42 15.87
Machinist 1st Class 13.36 13.74 14.14 14.62 15.12 15.63 14.55 14.97 15.41
Machinist 2nd Class 12.50 12.86 13.24 13.69 14.15 14.63 13.62 14.02 14.42
Electrician A-1 13.76 14.16 14.57 15.06 15.57 16.10 14.99 15.42 15.87
Electrician 1st Class 13.36 13.74 14.14 14.62 15.12 15.63 14.55 14.97 15.41
Electrician 2nd Class 12.50 12.86 13.24 13.69 14.15 14.63 13.62 14.02 14.42
Steam Fitter A-1 13.76 14.16 14.57 15.06 15.57 16.10 14.99 15.42 15.87
Steam Fitter 1st Class 13.02 13.39 13.78 14.25 14.74 15.24 14.18 14.59 15.02
Steam Fitter 2nd Class 12.50 12.86 13.24 13.69 14.15 14.63 13.62 14.02 14.42
Automotive Mechanic A-1 13.76 14.16 14.57 15.06 15.57 16.10 14.99 15.42 15.87
Automotive Mechanic 1st Class 13.02 13.39 13.78 14.25 14.74 15.24 14.18 14.59 15.02
Millwright Experimental 14.03 14.43 14.85 15.36 15.88 16.42 15.28 15.72 16.18
Millwright A-1 13.76 14.16 14.57 15.06 15.57 16.10 14.99 15.42 15.87
Millwright 1st Class 13.02 13.39 13.78 14.25 14.74 15.24 14.18 14.59 15.02
Millwright 2nd Class 12.14 12.49 12.86 13.29 13.75 14.21 13.23 13.61 14.01
Millwright 3rd Class 11.75 12.09 12.44 12.87 13.30 13.76 12.80 13.17 13.56
Oiler 11.75 12.09 12.44 12.87 13.30 13.76 12.80 13.17 13.56
Mechanic A-1 13.76 14.16 14.57 15.06 15.57 16.10 14.99 15.42 15.87
Mechanic 1st Class 12.97 13.34 13.73 14.20 14.68 15.18 14.13 14.54 14.96
Mechanic 2nd Class 12.49 12.85 13.23 13.68 14.14 14.62 13.61 14.01 14.41
Mechanic 3rd Class 12.05 12.40 12.76 13.19 13.64 14.10 13.13 13.51 13.90
Mechanic 4th Class 11.70 12.04 12.39 12.81 13.24 13.70 12.75 13.12 13.50
</TABLE>
36
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maintenance/Craft Helper 11.32 11.65 11.99 12.39 12.81 13.25 12.33 12.69 13.06
</TABLE>
37
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(1) (1) (1) (2) (2) (2)
5/1/97 5/1/98 5/1/99 5/1/00 5/1/01 5/1/02 5/1/00 5/1/01 5/1/02
GENERAL PLANT
Inspector A 10.53 10.83 11.15 11.53 11.92 12.32 11.47 11.80 12.14
Inspector B 10.37 10.67 10.98 11.36 11.74 12.14 11.30 11.63 11.97
Entry Level Operator Position 8.51 8.76 9.01 9.32 9.63 9.96 9.27 9.54 9.82
(ELOP)
</TABLE>
Minimum Rate For Production, Maintenance, and Yard
Lead Persons: $12.00
GROUP INSURANCE BENEFITS
ACTIVE EMPLOYEES AND ELIGIBLE DEPENDENTS
Diamond Brands Incorporated referred to as the "Company" and the Matchmakers
Local No. 970, United Paperworkers International Union, AFL-CIO, hereinafter
referred to as the "Union", do hereby agree that the Employee Benefit Insurance
Plan as herein after provided with negotiated improvements shall become
effective May 1, 1989.
Here is an explanation of the benefits that were negotiated between Diamond
Brands Incorporated and the United Paperworkers International Union, AFL-CIO,
Local Union 970.
<TABLE>
<CAPTION>
Life Insurance Maximum Amount
<S> <C>
Effective on ratification of 1997 contract $22,000
Effective 5-1-98 $23,000
Effective 5-1-99 $24,000
Effective 5-1-2000 $25,000
Effective 5-1-2001 $26,000
Effective 5-1-2002 $27,000
</TABLE>
38
<PAGE>
Accidental Death & Dismemberment
<TABLE>
<S> <C>
Effective on ratification of 1997 contract $22,000
Effective 5-1-98 $23,000
Effective 5-1-99 $24,000
Effective 5-1-2000 $25,000
Effective 5-1-2001 $26,000
Effective 5-1-2002 $27,000
</TABLE>
Weekly Accident and Sickness Benefit
Payable: 1st Day - Accident
8th Day - Sickness or Pregnancy
<TABLE>
<S> <C>
Effective on ratification of 1997 contract $185/Week
Effective 5-1-98 $195/Week
Effective 5-1-99 $205/Week
Effective 5-1-2000 $215/Week
Effective 5-1-2001 $225/Week
Effective 5-1-2002 $235/Week
</TABLE>
Maximum Benefit Period: 20 Weeks
COMPANY CONTRIBUTION TO GROUP HEALTH
INSURANCE PLAN PREMIUM
All members, their spouses and dependent children to age nineteen (19) will be
covered as agreed in the 1997 negotiations.
The Company and the Employee shall each continue to pay the same percentage of
the health insurance premium as at present, subject to a cap on the employee
contribution of $30.00 for single coverage and $125.00 for family coverage. If
either of these caps is reached, there shall be a change (carrier, benefits,
other) to lower the cost, and the parties shall negotiate over the way to do it.
Also, the parties shall jointly explore replacement health insurance coverage
before the first term of the new coverage selected during 1997 negotiations
expires.
As of May 1, 1997, the monthly premium is paid as follows:
39
<PAGE>
<TABLE>
<CAPTION>
Employee Company Total
<S> <C> <C> <C>
Single $22.74 $120.95 $143.69
Family (1 or more dependents) $92.72 $270.87 $363.59
</TABLE>
A committee will be formed and chaired by the Union and coordinated by the Human
Resources Manager. The goal of this committee is to reduce premium costs by
identifying insurance plans with better cost control features and education in
the efficient use of health insurance. Company's contribution toward all group
insurance premiums - For employees absent from work to be limited as follows:
Lay-off 2 calendar months after month of lay-off.
COBRA provisions extended at group rates.
Immediate re-instatement upon return
within labor agreement time limits.
Approved leave Up to 6 months as current practice.
of absence for
injury or illness COBRA provisions extended at group rate.
Immediate re-instatement upon return
within labor agreement time limits.
Special leave Not make any premium contribution beyond
last day worked. Employee must pay 100%
of premium if he/she wants insurance to
continue.
Immediate re-instatement upon return
within approved time.
Effective on ratification of the 1997 contract, any employee covered by this
contract at the time of normal retirement, and that person's spouse, shall
receive a payment of fifty dollars ($50.00) per month after retirement for life
to be applied towards post-retirement health insurance coverage.
40
<PAGE>
GENERAL RULES
All employees must conduct themselves in a responsible and mature way. Each
individual is required to act in a responsible and mature way in order to ensure
the safety and well-being of himself and other employees and to ensure the
security and productivity of the plant and its equipment.
Employees are expected to carry out their duties efficiently. Inattention,
loafing, and socializing during working time is prohibited.
Cooperation of all employees in carrying out their assignments is required.
Employees are required to provide the company with their telephone number and
address and to notify the company of any changes.
Any article of value that appears to be misplaced should be turned into the
Personnel Department. Every effort will be made to find the owner. (If the
article is unclaimed within a reasonable time, it will be returned to the
finder).
Stealing is prohibited (a cause for discharge).
Gambling is prohibited.
Abusive, threatening, or obscene language is prohibited.
Harassment (sexual or otherwise) is prohibited.
Pictures of naked or half-naked people will not be displayed on any of the
Company's property.
Horseplay, fighting, and disorderly conduct are also prohibited.
Running -- Employees must exercise caution when moving about the plant.
Running, except in case of emergency, is prohibited.
Reporting for work under the influence of alcohol or unlawful drugs, or in
possession of or drinking alcoholic beverages or unlawful drugs on Company
property at any time is prohibited.
41
<PAGE>
Destruction of Company property or the property of employees is prohibited.
Falsifying production or other reports is prohibited.
Smoking on Company grounds or in any building except the cafeteria or designated
smoking area is prohibited.
ATTENDANCE
Every employee is expected to report to work as scheduled unless physically
unable to work or because of emergency.
Employees must maintain a good attendance record.
Late Employees: For payroll purposes only, an employee is considered late four
(4) minutes after the beginning of the scheduled shift. This in no way affects
normal attendance requirements.
Employees are not to leave Company property during scheduled working hours
without permission from the Supervisor.
Employees are expected to be at their work place at starting time and to leave
the plant and Company property after quitting time. Employees should not be on
Company property any longer than necessary when they are not working.
All absences from work must be reported prior to the employee's scheduled
starting time. If any employee is absent for one (1) week or more, due to
disability, a physician's statement regarding the employee's ability to work
must be submitted to the employee's Supervisor upon returning to work.
Employees are assigned numbered time cards. Employees are not to mark or deface
time cards. These time cards are placed at the card racks where the employee
has been instructed to punch in and out. Employees may not punch in any sooner
than 15 minutes prior to their respective shifts. If an employee mispunches his
or her time card, he or she shall immediately notify his or her Supervisor. The
Supervisor will make the correction necessary.
Employees are prohibited from punching another employee's time card.
It is your responsibility if you cannot come to work to report the reason to the
Time Officer or your foreperson at least 1/2 hour before the 7 - 3 shift and at
least 4 hours before the 3 - 11 and 11 - 7 shift. (879-6706)
Employees must be at their assigned work stations by five (5) minutes to the
hour of shift change.
42
<PAGE>
PERSONAL BUSINESS
Personal business should not be conducted on Company time.
Employees are not to leave Company property during scheduled working hours
without permission from their Supervisors.
Employees who have been given permission by their Supervisor to leave the plant
for personal business are required to punch out when leaving and to punch in
when returning.
Only Company business is to be transacted through the telephone serviced by the
switchboard.
Employees requiring emergency telephone calls will be called to the telephone at
once. On other calls, a message will be relayed to the employee through his/her
Supervisor.
Employees may make outgoing personal telephone calls from the pay telephone in
the cafeteria during their break or with the permission of their Supervisor.
Only notices approved by the Personnel Department may be posted on the Company
bulletin boards. Employees may submit notices to the Personnel office for
approval.
No solicitations or distributions are permitted within the plant, except those
approved by the Plant Manager or the Personnel Department.
Visitors are not permitted within the plant. In an emergency situation, the
employee's Supervisor will arrange a meeting for the employee and the visitor.
Employees borrowing Company property must get written permission from the
Supervisor who has charge of it. This written permission slip must be given to
the guard. Such property must be returned promptly.
SEXUAL HARASSMENT POLICY
It is the policy of this company to maintain a working environment free from all
forms of sexual harassment or intimidation.
Unwelcome sexual advances, requests for sexual favors and other verbal or
physical conduct of a sexual nature are serious violations of our policy and
will not be condoned or permitted. Not only is sexual harassment a violation of
our policy, but is may also violate Title VII of the Civil Rights
43
<PAGE>
Act.
Any employee who is subject to sexual harassment or intimidation should
immediately contact their sexual harassment advocate, Supervisor or the
Personnel Department. All complaints of sexual harassment will be promptly and
confidentially investigated.
Any employee who violates this policy will be subject to appropriate
disciplinary action, up to and including discharge.
Note: Any harassment is covered by the above policy and can result in
disciplinary action.
LETTERS OF AGREEMENT AND OTHER INFORMATION
April 9, 1990
If an employee who had been hired exclusively into a skilled craft job is
regressed from that job for a period of a week or more, he/she will be paid at a
rate that reflects the base job rate plus half the difference between the base
job rate and their normal rate. This "halfway" rate will be paid until such
time the employee is returned to their skilled craft job.
Spare Veneer Stacker (February 1, 1996)
It is mutually agreed to fill four (4) additional Spare Veneer Stacker positions
from the posting of January 10, 1996, in anticipation of increased production to
meet orders. This will insure that a sufficient pool of trained employees are
available to safely meet production requirements.
Match Machine Operators (June 19, 1996)
Match Machine Operators working on the nester equipment by themselves will be
renamed Penny Match Box Former Operators and receive a rate of pay of $10.34 per
hour. This position will be filled by the current senior Match Machine
Operators on Penny Match. Note: The five (5) permanent Match Machine Operators
will remain in their BMAD positions per their choice. There will be a need for
three regulars and one spare position. Penny Match Box Former Operators will be
chosen by seniority from existing Match Machine Operators (commodity).
Effective January 1, 1997, the position of Kitchen Match Box Former Operator and
Penny Match Box Former Operator will be combined into one position of Match Box
Former Operator. Back pay will be paid to the individuals who were scheduled on
the nester equipment by themselves on #4 Match Machine from January 1, 1996, to
the present.
44
<PAGE>
Flat Toothpick Packer Operator (January 24, 1997)
It is agreed that a wage increase of $.15 per hour will be granted to the Flat
Toothpick Packer Operator position until such time that the re-engineering
effort of the entire finishing area is concluded. This will include back pay
for eligible employees from January, 1996 to the present.
Job Performance Reviews (eff. on signing of 1997 contract)
A committee composed of Company and Union representatives shall meet and devise:
a) written skills criteria to be used during job performance reviews of
Mechanics, skilled Maintenance and Printing employees, b) a form to be used
during such reviews, and c) written skills criteria for entrance into such
classifications. The committee shall accomplish these tasks by May 1, 1997.
The May 1, 1997 deadline may be extended by mutual agreement of the committee
members, but items a) and b) shall be completed in sufficient time so that the
criteria and forms are available for the 1998 job performance reviews.
Posting of Schedules (eff. on signing of 1997 contract)
Monday through Friday schedules shall be posted on Monday of the preceding week.
Any employee with knowledge of any personal scheduling concerns shall notify his
or her supervisor of the concerns before 7:00 a.m. on the Monday the schedule is
to be posted. Any changes desired to the posted schedule due to unforeseen
reasons shall be brought to the attention of the supervisor by 10:00 a.m. of the
following Wednesday. The Company may refuse to honor any schedule change
requested after the Wednesday deadline.
This side agreement shall take effect upon signing of the 1997 contract and
shall expire six (6) months after the signing date. Prior to expiration the
parties shall meet and confer over any problems caused by this side agreement,
how to fix those problems, whether to renew this side agreement, and, if so, for
how long.
Scheduling of Maintenance Work (eff. on signing of 1997 contract)
Effective upon signing of the 1997 contract, maintenance crew members shall be
involved in the scheduling of the maintenance work.
45
<PAGE>
This side agreement shall expire one (1) year after the signing date. Prior to
expiration the parties shall meet and confer about whether to renew this side
agreement, and, if so, for how long.
Bidding (eff. on signing of 1997 contract)
Prior to or during a contractual absence an employee may indicate in writing to
the Company that he or she wishes to bid on specified permanent vacancies and
new jobs that may arise during such absence.
Re-engineering (eff. on signing of 1997 contract)
A committee comprised of three (3) Company appointees and three (3) Union
appointees shall meet and prepare a recommendation on a direction for re-
engineering the jobs covered by the labor contract. The committee's
recommendation shall be submitted to the Company and to the Union with ninety
(90) days of the signing of the 1997 labor contact. Employees appointed by the
Union to sit on the committee shall be paid for time spent at committee
meetings.
Attendance (eff. on signing of 1997 contract)
The current attendance point system shall include a Company-Union review board
at the seven-point level. The board shall review the causes of the attendance
problem and recommend ways to solve the problem. The board need not convene in
cases of pattern attendance offenders and there may be further discipline
without involvement of the board for such offenders. The attendance point
system is as follows:
The purpose of this "no fault" absentee program is to provide a uniform
approach to the problem of absenteeism throughout the Cloquet plant. This
is called a "no fault" program because it is set up so that the employee
knows exactly where he/she stands within the program, what will occur from
continued absences and what he/she can do to upgrade their absentee record.
The excessive absence of a few hurts all of us, especially those who are
required to work overtime or assume an additional workload due to an
absence. Each employee should make every effort to show up as scheduled as
part of his/her overall job performance. Each time an employee is absent
it has a negative effect on the efficiency of the plant and service to the
customer suffers.
46
<PAGE>
As the goal of an attendance program is to address excessive absenteeism,
an employee with less than four (4) absences in a twelve (12) month period
will not come under this program.
The "no fault" absentee program progresses as follows:
<TABLE>
<CAPTION>
STEP ABSENCES ACTION TAKEN PRESENT
<S> <C> <C> <C>
1 4 Verbal counseling of employee Supervisor, Employee
to inform him/her of potential Union Rep., upon
absentee problem. request
2 5 Verbal warning of employee Supervisor, Employee,
that absentee rate is Union Rep., upon
unacceptable. request.
3 6 Written warning to employee Supervisor, Employee,
that absentee rate is Union Representative.
unacceptable.
Note: Following the Step 3 meeting, the employee is scheduled to meet with
an Employee Assistance Program Coordinator and a private meeting is
held to ascertain if there is anything that can be done to help the
employee address problems causing excessive absenteeism.
4 7 Employee is suspended for Supervisor, Employee,
one (1) day due to unacceptable Union Representative.
absenteeism.
5 8 Employee is given an additional Supervisor, Employee,
(and final) warning that Union Representative
continued absenteeism will lead
to termination.
6 9 Employee is terminated after Supervisor, Employee,
repeated warnings of the result Union Rep., Personnel
of unacceptable absenteeism Manager.
</TABLE>
In order to provide employees with the opportunity to "erase" absences, the
following procedure will be followed:
47
<PAGE>
<TABLE>
<CAPTION>
Calendar Days Without an Absence Total Absences
"Erased"
<S> <C>
60 days 1
120 days 2
180 days 3
270 days 5
360 days 8
</TABLE>
The following would not be considered as absences under the program:
Union Business Funeral Leave
Military Leave Medical Emergency (Employee/Family)
Jury/Court Appearance Snow Day (approved)
Industrial Injury 3 day advance request (approved)
S & A Situations as deemed by Human
Family and Medical Leave Resources Manager
Act leaves
In recognition of the fact that a lengthy illness could adversely affect an
otherwise good record, the following leeway is provided:
1. An employee who is ill for three (3) full consecutive days or less
will only have one absence recorded. The first full day of absence
will count as a point. (Note: If an employee leaves early because of
illness and is ill the following day, the full day missed will count
as a point.)
2. An employee who is ill for more than three (3) full consecutive days
will have one absence recorded if he/she provides a doctor's slip
verifying the reason for the extended absence. If no doctor's slip is
provided, each day thereafter will count as an absence.
Any unusual situations will be reviewed by the Human Resources Manager and
a decision made if an absence is to be recorded on an employee's file.
Vacation Scheduling Task Force (eff. on signing of 1997 contract)
The Company and the Union shall form a task force under article 35 to study and
make recommendations on the selection of vacation weeks by employees. The task
force shall be completed by November 1, 1997.
48
<PAGE>
Drug and Alcohol Policy (eff. on signing of 1997 contract)
The Company and the Union shall form a task force under article 35 to study and
make recommendations on a drug and alcohol policy, including drug and alcohol
testing. The task force shall make its recommendations by December 31, 1997.
Certain Match Machine Operators (eff. August 5, 1997)
It is mutually agreed that the last three grandfathered Match Machine Operators
(at the base rate of the Match Mill) will be allowed to move to permanent match
machine operator vacancies in the Advertising Match Department. This will be
allowed as a one-time opportunity for each employee as vacancies occur.
Splint Coloring (eff. on signing of 1997 contract)
Any employee performing splint coloring duties shall be paid at the splint,
shake and pack wage rate.
Refrigerator/Vending Machines (eff. on signing of 1997 contract)
The Company shall purchase a refrigerator for the first floor cafeteria. The
Union shall have the opportunity to participate in the selection of the vending
machine vendor.
Call-Ins (eff. on signing of 1997 contract)
The Company and the Union hereby commit to joint task force investigation into
call-ins, with the goal of minimizing last-minute call-ins, so that employees on
duty are not forced to work past normal quitting time to cover for the employee
calling in.
49
<PAGE>
DIAMOND BRANDS INCORPORATED
NON-QUALIFIED STOCK OPTION AGREEMENT
This Option Agreement is made as of the 1st day of January, 1997 between
Diamond Brands Incorporated, a Minnesota corporation (the "Company"), and Thomas
Knuesel, an employee of the Company (the "Optionee").
The Company desires, by affording the Optionee an opportunity to purchase
shares of its common stock (the "Common Stock") as hereinafter provided to carry
out the purpose of the 1997 Non-Qualified Stock Option Plan of the Company (the
"Plan").
THEREFORE, the parties hereby agree as follows:
1. Grant of Option. The Company hereby grants to the Optionee the right
---------------
and option (hereinafter call the "Option") to purchase from the Company all or
any part of an aggregate amount of 20,000 shares of the Common Stock of the
Company on the terms and conditions herein set forth.
2. Purchase Price. The purchase price of the shares of the Common Stock
--------------
covered by this Option shall be $7.50 per share.
3. Term of Option. The term of the Option shall be for a period of ten
--------------
(10) years from the date hereof (the "Option Date"), subject to earlier
termination as hereinafter provided.
4. Vesting of Option. The right to exercise the first 6,667 shares shall
-----------------
vest on January 1, 1997; the right to exercise an additional 6,667 shares shall
vest on January 1, 1998; and the right to exercise the remaining 6,666 shares
shall vest on January 1, 1999.
5. Non-Transferability. The Option shall not be transferable otherwise
-------------------
than by will or the laws of descent and distribution, and the Option may be
exercised during the lifetime of the Optionee only by the Optionee.
6. Method of Exercising Option. Subject to the terms and conditions of
---------------------------
this Option Agreement, the Option may be exercised by written notice to the
Company at the principal office of the Company. Such notice shall state the
election to exercise the Option and the number of shares in respect of which it
is being exercised, and shall be signed by the person so exercising the Option.
Such notice shall be accompanied by payment of the full purchase price of such
shares, which payment shall be made by check or bank draft payable to the
Company. In the event the Option shall be exercised by any person other than
the Optionee, such notice shall be accompanied by appropriate proof of such
right of such person to exercise the Option.
7. Termination of Employment. If an Optionee's employment by the Company
-------------------------
terminates for any reason other than death or Disability (defined in the Plan),
the Option shall terminate. If an Optionee' s employment is terminated by the
Company, the Option shall terminate immediately upon notice by the Company of
such termination. Neither the Plan nor
<PAGE>
this Agreement confers any right with respect to continuance of employment by
the Company or by a subsidiary, nor will this Plan or this Agreement interfere
in any way with the employee's right, or the Company's right, to terminate his
employment at any time.
8. Death of Optionee. If Optionee dies while in the employ of the
-----------------
Company, his Option rights may be exercised, without regard to any installment
exercise restrictions, at any time within ninety (90) days following his death
by his personal representative or by the person or persons to whom his rights
under the Option shall pass by will or by the laws of descent and distribution.
In no event, however, may any option rights be exercised by anyone after the
expiration of the term of this Option.
9. Disability. If the employment of Optionee is terminated because of
----------
Disability, the Optionee, or his legal representative, may at any time within
not more than ninety (90) days after termination of his employment, exercise his
rights, in whole or in part, without regard to any installment exercise
restrictions. In no event, however, may any option rights be exercised by
anyone after the expiration of the term of this Option.
10. Option Plan. This Option is subject to certain additional terms and
-----------
conditions set forth in the Plan pursuant to which this Option has been issued.
Optionee acknowledges receipt of a copy of the Plan on file with the Secretary
of the Company and, by acceptance hereof, agrees to and accepts this Option
subject to the terms of the Plan. Except as otherwise defined herein, defined
terms used in this Agreement shall have the meaning ascribed thereto in the
Plan.
11. Disputes. As a condition of the granting of the Option herein
--------
granted, the Optionee agrees, for the Optionee and the Optionee's personal
representatives, that any dispute or disagreement which may arise under or as a
result of or pursuant to this Agreement shall be determined by the Board of
Directors of the Company, in its sole discretion, and that any interpretation by
the Board of the terms of this Agreement shall be final, binding and conclusive.
12. Binding Effect. This Agreement shall be binding upon the heirs,
--------------
executors, administrators and successors of the parties hereto.
13. Restrictions. Optionee understands that upon exercise of this Option,
------------
the shares purchased may not be sold, transferred, pledged or otherwise disposed
of unless the shares are registered under the Securities Act of 1933 and
applicable state laws, or unless the Company has received an opinion of counsel
satisfactory to the Company that such registration is not required. Optionee
agrees that the exercise of the Option is conditional upon receipt by the
Company of a signed Subscription Agreement and Repurchase Agreement in the form
attached hereto as Exhibit A certifying that the Optionee is acquiring the
shares obtained by exercise of the option for investment purposes and not with
the view or intent to resell or otherwise distribute such option shares and
containing certain transfer restrictions and repurchase rights. The stock
certificate evidencing such shares shall bear a legend referring to such
transfer restrictions and repurchase rights.
<PAGE>
IN WITNESS WHEREOF, the Company and the Optionee have executed this
Agreement as of the date and year first above written.
DIAMOND BRANDS INCORPORATED
By__________________________
Its_________________________
____________________________
Richard Campbell
<PAGE>
EXHIBIT A
STOCK SUBSCRIPTION AND REPURCHASE AGREEMENT
-------------------------------------------
THIS AGREEMENT, made and entered into effective as of the _____ day of
___________________, 199__ by and between Diamond Brands Incorporated, a
Minnesota corporation (the "Corporation") and , an individual ("Shareholder").
RECITALS
--------
WHEREAS, Shareholder is employed by the Corporation and, pursuant to the
terms of an Option Agreement dated January 1, 1997, desires to exercise options
to purchase ________ shares of the Corporation's common stock (the "Shares" or
"Share") at an exercise price of $7.50 per share; and
WHEREAS, the parties hereto believe it to be in the best interests of the
Corporation and its shareholders to limit the transferability of the Shares to
be purchased by Shareholder hereunder, and, accordingly, such Shares shall be
subject to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, and for other good and valuable consideration, the parties hereto agree
as follows:
1. SHARE ISSUANCE.
--------------
1.1 Share Issuance. Subject to the terms and upon the conditions
--------------
hereinafter set forth, the Corporation hereby issues to Shareholder ___________
Shares.
1.2 Representations, Warranties and Covenants. Shareholder
-----------------------------------------
acknowledges and represents as follows:
(a) Shareholder has been given full and complete access to
information concerning the business and finances of the
Corporation, including the opportunity to ask questions and
receive answers, and has used such access to evaluate the merits
and risks of an investment in the Shares.
(b) Shareholder understands that (i) the purchase of the Shares is a
long-term investment; (ii) Shareholder must bear the economic
risk of investment for an indefinite period of time because the
Shares have not been registered under the Securities Act of 1933
or state securities laws and, therefore, cannot be sold unless
they are subsequently registered under said laws or an exemption
from such registration is available; (iii) there is presently no
public market for the Shares and Shareholder may not be able to
liquidate the investment in the event of an emergency or pledge
the Shares as collateral security for loans; and (iv) the
transferability of the Shares is restricted and requires
conformity with the restrictions contained in paragraph (c)
below, and will be further restricted by a legend placed on
<PAGE>
the certificates representing the Shares stating that the Shares
have not been registered under the Securities Act of 1933 or
state securities laws and referencing the restrictions on
transferability of the Shares.
(c) Shareholder represents and warrants that the Shares to be issued
will be issued for his own account and for investment and without
the intention of reselling or redistributing the same, and that
Shareholder's financial condition is such that it is not likely
that it will be necessary to dispose of any Shares in the
foreseeable future. Shareholder shall not transfer any Shares in
any manner without first obtaining the opinion of counsel
designated by the Corporation that such proposed disposition or
transfer lawfully may be made insofar as the Corporation's
liability is concerned without the registration of the Shares for
such purpose pursuant to the Securities Act of 1933 and
applicable state securities laws.
2. REPURCHASE AGREEMENT.
--------------------
2.1 Restriction on Transfer of Shares.
---------------------------------
(a) Except as otherwise provided in this Agreement, Shareholder may
not, without the written consent of the Corporation, transfer any
Shares subject to this Agreement, including additional shares
which Shareholder may acquire at a future date by purchase, stock
split, stock dividend or recapitalization, until he shall have
given the Corporation the opportunity to buy such Shares on the
terms and conditions hereinafter expressed. Any attempted
transfer in contravention of this Agreement shall be null and
void.
(b) As used in this Paragraph 2, the term "transfer" shall mean any
proposed disposition of Shareholder's Shares by any means
whatsoever, including, without limitation, the occurrence of the
following events:
(i) voluntary sale, delivery, assignment, gift, devise,
exchange or other transfer of the Shares;
(ii) pledge, hypothecation or other encumbrance of the Shares;
(iii) adjudication of Shareholder as bankrupt, Shareholder's
assignment of his interest in the Shares, or any
attachment, levy or other seizure of the Shares by any
creditor, whether or not pursuant to the judicial process;
or
(iv) passage or distribution of such Shares under judicial
order or legal process to any person other than
Shareholder, including a guardian, trustee or conservator
of such Shares.
<PAGE>
2.2 Voluntary Transfer of Shares.
----------------------------
(a) If Shareholder desires at any time during the term of this
Agreement to voluntarily transfer the Shares in any manner, then
Shareholder shall give written notice to the Corporation of such
desire and of the number of Shares he desires to transfer (such
number of Shares being hereinafter referred to as the "Sale
Shares"). Such notice shall further specify the identity of the
proposed transferee, the nature of the transfer (for example,
sale, gift or devise), and the terms thereof.
(b) For a period of thirty (30) days after receipt of the aforesaid
notice, the Corporation shall have the right to purchase the Sale
Shares at the purchase price determined under the provisions of
Paragraph 2.5; provided, however, that if the notice of desire to
transfer the Sale Shares shall be occasioned by Shareholder's
receipt of an offer from a third party to purchase the Sale
Shares, the purchase price per Share to be paid hereunder shall
be the lesser of the purchase price determined under Paragraph
2.5 or the purchase price offered by the third party. The
Corporation shall exercise its right of purchase by delivering to
Shareholder within said thirty (30) day period, written notice
specifying the number of Sale Shares to be purchased by the
Corporation.
(c) The closing on any sale of Sale Shares to the Corporation shall
occur within thirty (30) days after expiration of the option
period described in subparagraph 2.2(b). At the closing, the
Corporation shall pay, in cash, the entire purchase price for the
Shares to be purchased, and Shareholder shall deliver to the
Corporation stock certificates, duly endorsed for transfer,
representing the Sale Shares purchased, free and clear of all
liens and encumbrances.
(d) If the Corporation does not elect to purchase all of the Sale
Shares as heretofore provided, Shareholder shall be entitled, for
a period of forty-five (45) days following the expiration of the
Corporation's option period under subparagraph 2.2(b), to
transfer said unpurchased Sale Shares to the person identified,
in the manner and on the terms specified in the notice given by
Shareholder pursuant to subparagraph 2.2(a). If said transfer has
not been consummated within said forty-five (45) day period, said
Sale Shares shall remain subject to all the provisions of this
Paragraph 2. If, however, said transfer is consummated within
said forty-five (45) day period, the Shares may be transferred to
the transferee.
(e) This Section 2.2 shall be inoperative and shall not apply in
instances where a shareholder desires to transfer shares to a
purchaser, where the purchaser is acquiring all or substantially
all of the shares of the Corporation, or where a purchaser is
acquiring all of the assets of the
<PAGE>
Corporation and the Corporation is redeeming all of the shares,
or where a purchaser is acquiring the Corporation through a
merger.
2.3 Involuntary Transfer of Shares.
------------------------------
(a) In case of the involuntary sale or other involuntary transfer or
disposition of Shares (including without limitation any transfer
of title or beneficial ownership upon default, forfeiture, court
order, or otherwise than by a voluntary decision on the party of
Shareholder), the Corporation shall have the right to purchase
such Shares in the manner hereinafter set forth. Immediately upon
the acquisition of such Shares, the transferee thereof shall
furnish written notice to the Corporation indicating that said
transferee has acquired the Shares and the price and payment
terms therefore, accompanied by satisfactory evidence of the
same. Upon receipt of such notice, the Corporation shall have the
right to purchase all (but not less than all) of the Shares
acquired by the transferee, in the same manner and upon the same
terms and conditions hereinabove provided in Paragraph 2.2 with
respect to the purchase of Shares as if Shareholder had proposed
to voluntarily transfer his Shares. The purchase price for said
Shares shall be the lesser of the price determined under
Paragraph 2.5 or the price paid by the transferee.
(b) If the Corporation does not elect to purchase all of the Shares
acquired by the transferee, the options shall be deemed not to
have been exercised and all of the Shares may be transferred to
the transferee.
2.4 Transfer of Shares Upon Termination of Employment, Including
------------------------------------------------------------
Death or Disability.
-------------------
(a) In the event Shareholder's employment with the Corporation is
terminated for any reason whatsoever, including the Shareholder's
death or Disability (as defined in the 1997 Non-Qualified Stock
Option Plan), the Corporation shall have the option to purchase
Shareholder's Shares at the price provided in Paragraph 2.5 as
though Shareholder had given notice under Paragraph 2.2 that he
desired to voluntarily transfer his Shares; provided, however,
that for purposes of this Paragraph 2.4, the date specified in
Paragraph 2.2 for the commencement of the Corporation's option
shall be the date on which Shareholder's employment with the
Corporation was terminated and the period of time in which the
Corporation may exercise the option shall be twelve (12) months
from the date of such termination of employment. Notwithstanding
the foregoing, in the event of a termination of Shareholder's
employment by reason of death or Disability, the date for
commencement of the Corporation's option shall be the later of
(i) the date on which Shareholder's employment with the
Corporation was terminated by reason of death or Disability; or
(ii) the date upon
<PAGE>
which such Shareholder receives the last of
the Shares subject to this Agreement and the period of time in
which the Corporation may exercise the option shall be thirty
(30) days from such later date. The Corporation's option under
this Section 2.4 shall take precedence over any other option
hereunder and Section 2.2(e) shall only apply if the Corporation
fails to exercise its option prior to the occurrence of an event
described therein.
(b) In the event the Corporation elects not to purchase Shareholder's
Shares within the time provided in Paragraph 2.2, Shareholder
shall thereafter be entitled to sell, in accordance with
Paragraph 2.2 hereof.
2.5 Purchase Price of Shares. Except as provided in subparagraph
------------------------
2.5(b) below, the purchase price of each Share shall be equal to (i) seven times
earnings before interest, taxes, depreciation and amortization for the twelve
month period ended as of the quarter ending immediately prior to the "event of
purchase" (as defined in subparagraph 2.5(a) below), less funded debt existing
at such quarter end, divided by (ii) the total number of shares outstanding on
that date. The purchase price shall be determined by the Corporation and shall
be adjusted for any stock splits, recapitalizations or stock dividends occurring
after the date as of which the purchase price is determined and before the
Closing of the purchase and sale.
(a) For purposes of this Paragraph 2.5, "an event of purchase" shall
mean the following:
(i) In the case of the purchase of Shares under Paragraph 2.2,
the "event of purchase" shall mean the date notice is
received by the Corporation of Shareholder's desire to
transfer his Shares.
(ii) In the case of the purchase of Shares of a transferee
under Paragraph 2.3, the event of purchase shall mean the
date notice of the transferee's acquisition of Shares is
received by the Corporation.
(iii) In the case of the purchase of Shares upon the termination
of Shareholder's employment under Paragraph 2.4, the
"event of purchase" shall mean the date that Shareholder's
employment with the Corporation is terminated for any
reason whatsoever, including the Shareholder's death or
Disability.
(b) If the event of purchase shall be a termination of Shareholder's
employment with the Corporation for "Cause," as defined in the
1997 Non-Qualified Stock Option Plan, the purchase price of each
Share shall be the cash consideration paid by the Shareholder to
acquire the Shares.
2.6 Obligations of Transferees. All transferees of Shares
--------------------------
transferred in accordance with the terms of this Agreement shall take said
Shares subject to the terms,
<PAGE>
conditions and restrictions of this Agreement, except the restrictions in
Section 2.4 shall only apply to a transferee who is an employee of the
Corporation. Such transferee shall, as a condition precedent to the transfer of
Shares, sign a counterpart of this Agreement agreeing to be bound by its terms.
3. MISCELLANEOUS PROVISIONS.
------------------------
3.1 Legend on Stock Certificates. The certificate representing the
----------------------------
Shares shall contain a legend substantially as follows:
"The transfer or pledge of the Shares represented by this certificate
is restricted by, and subject to, the provisions of a certain Stock
Subscription and Repurchase Agreement dated as of __________________,
199__. A copy of said Agreement is on file with the Secretary of the
Corporation. By acceptance of this certificate, the holder hereof
agrees to be bound by the terms of said Agreement."
A copy of this Agreement shall be filed with the Secretary of the
Corporation. During the term of this Agreement, a legend as set forth above
shall be conspicuously endorsed on each certificate representing Shares issued
by the Corporation to Shareholder.
3.2 Right to Specific Performance. In recognition of the fact that
-----------------------------
the Shares subject to this Agreement are of a closely-held corporation and in
view of the purposes of this Agreement, the parties agree that in addition to
any other relief which may be afforded by law arising out of a violation of this
Agreement or a failure to perform its terms, an injured party may, at its
option, have the right to compel the specific performance of the terms and
provisions of this Agreement, the understanding of the parties being that both
damages and injunction shall be proper forms of relief and are not to be
considered alternative remedies.
3.3 Termination.
-----------
(a) This Agreement shall terminate when a registration statement of
the Corporation has been submitted to and accepted by the SEC
authorizing the public trading of the Corporation's Shares and
public trading of the Corporation's Shares is commenced on a
nationally recognized exchange or over-the-counter market.
(b) Upon the termination of this Agreement, Shareholder shall
surrender to the Corporation each certificate bearing the legend
set forth in Paragraph 3.1, and the Corporation shall issue in
lieu thereof a new certificate for an equal number of Shares
without such legend.
3.4 Notices. All notices, requests, and other communication from
-------
any of the parties hereto to another shall be in writing and shall be considered
to have been duly given or served if personally delivered, or sent by first
class, certified or registered mail, return receipt requested, postage prepaid,
to the address of the Shareholder as shown on the Share register of
<PAGE>
the Corporation (or such other address as may be known to the sender), or in the
case of the Corporation, to its registered office.
3.5 Amendment. This Agreement may be altered or amended only by a
---------
written amendment signed by the Corporation and Shareholder.
3.6 Parties in Interest. This Agreement shall be binding upon the
-------------------
heirs, executors, administrators, successors and assigns of Shareholder and the
Corporation. The parties hereby covenant and agree that they, their heirs,
executors, administrators, successors, and assigns will take all action and
execute any and all instruments, releases, assignments, and consents which may
be reasonably required of them in order to carry out the provisions of this
Agreement.
3.7 Counterparts. This Agreement may be executed in any number of
------------
counterparts each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
3.8 Severability. The invalidity or partial invalidity of any
------------
portion of this Agreement shall not invalidate the remainder thereof, and said
remainder shall remain in full force and effect.
3.9 Captions. The captions at the beginning of paragraphs of this
--------
Agreement are designed for convenience of reference only and are not to be used
for the purpose of interpreting any provision of this Agreement.
3.10 Governing Law. This Agreement shall be subject to and governed
-------------
by the laws of the State of Minnesota, and all questions concerning the meaning
and intention of the terms of this Agreement and concerning the validity hereof
and performance hereunder shall be determined and resolved in accordance with
the laws of said State notwithstanding the fact that one or more of the parties
now is or may hereafter become a resident of a different state.
3.11 Employment Rights. The Shareholder acknowledges that no right
-----------------
to employment vests in Shareholder by reason of being a Shareholder and further,
that the Corporation and its Board of Directors or Shareholders shall have no
fiduciary duty or other obligation to provide employment or continuing
employment to any Shareholder.
3.12 Dividends. The Shareholder is entitled only to such dividends
---------
as may be declared by the Board of Directors out of funds legally available
therefor. The Shareholder acknowledges that the Corporation may not pay
dividends in the future other than S corporation distributions for taxes.
Therefore, the Shareholder acknowledges that he has no entitlement to (unless
declared by the Board) nor expectation of dividends with respect to shares of
stock of the Corporation owned by such Shareholder.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
DIAMOND BRANDS INCORPORATED
By__________________________
Its_________________________
SHAREHOLDER
____________________________
<PAGE>
DIAMOND BRANDS INCORPORATED
NON-QUALIFIED STOCK OPTION AGREEMENT
This Option Agreement is made as of the 1st day of January, 1997 between
Diamond Brands Incorporated, a Minnesota corporation (the "Company"), and John
Young, an employee of the Company (the "Optionee").
The Company desires, by affording the Optionee an opportunity to purchase
shares of its common stock (the "Common Stock") as hereinafter provided to carry
out the purpose of the 1997 Non-Qualified Stock Option Plan of the Company (the
"Plan").
THEREFORE, the parties hereby agree as follows:
1. Grant of Option. The Company hereby grants to the Optionee the right
---------------
and option (hereinafter call the "Option") to purchase from the Company all or
any part of an aggregate amount of 20,000 shares of the Common Stock of the
Company on the terms and conditions herein set forth.
2. Purchase Price. The purchase price of the shares of the Common
--------------
Stock covered by this Option shall be $7.50 per share.
3. Term of Option. The term of the Option shall be for a period of ten
--------------
(10) years from the date hereof (the "Option Date"), subject to earlier
termination as hereinafter provided.
4. Vesting of Option. The right to exercise the first 6,667 shares shall
-----------------
vest on January 1, 1997; the right to exercise an additional 6,667 shares shall
vest on January 1, 1998; and the right to exercise the remaining 6,666 shares
shall vest on January 1, 1999.
5. Non-Transferability. The Option shall not be transferable otherwise
-------------------
than by will or the laws of descent and distribution, and the Option may be
exercised during the lifetime of the Optionee only by the Optionee.
6. Method of Exercising Option. Subject to the terms and conditions of
---------------------------
this Option Agreement, the Option may be exercised by written notice to the
Company at the principal office of the Company. Such notice shall state the
election to exercise the Option and the number of shares in respect of which it
is being exercised, and shall be signed by the person so exercising the Option.
Such notice shall be accompanied by payment of the full purchase price of such
shares, which payment shall be made by check or bank draft payable to the
Company. In the event the Option shall be exercised by any person other than
the Optionee, such notice shall be accompanied by appropriate proof of such
right of such person to exercise the Option.
7. Termination of Employment. If an Optionee's employment by the Company
-------------------------
terminates for any reason other than death or Disability (defined in the Plan),
the Option shall terminate. If an Optionee's employment is terminated by the
Company, the Option shall terminate immediately upon notice by the Company of
such termination. Neither the Plan nor
<PAGE>
this Agreement confers any right with respect to continuance of employment by
the Company or by a subsidiary, nor will this Plan or this Agreement interfere
in any way with the employee's right, or the Company's right, to terminate his
employment at any time.
8. Death of Optionee. If Optionee dies while in the employ of the
-----------------
Company, his Option rights may be exercised, without regard to any installment
exercise restrictions, at any time within ninety (90) days following his death
by his personal representative or by the person or persons to whom his rights
under the Option shall pass by will or by the laws of descent and distribution.
In no event, however, may any option rights be exercised by anyone after the
expiration of the term of this Option.
9. Disability. If the employment of Optionee is terminated because of
----------
Disability, the Optionee, or his legal representative, may at any time within
not more than ninety (90) days after termination of his employment, exercise his
rights, in whole or in part, without regard to any installment exercise
restrictions. In no event, however, may any option rights be exercised by
anyone after the expiration of the term of this Option.
10. Option Plan. This Option is subject to certain additional terms and
-----------
conditions set forth in the Plan pursuant to which this Option has been issued.
Optionee acknowledges receipt of a copy of the Plan on file with the Secretary
of the Company and, by acceptance hereof, agrees to and accepts this Option
subject to the terms of the Plan. Except as otherwise defined herein, defined
terms used in this Agreement shall have the meaning ascribed thereto in the
Plan.
11. Disputes. As a condition of the granting of the Option herein
--------
granted, the Optionee agrees, for the Optionee and the Optionee's personal
representatives, that any dispute or disagreement which may arise under or as a
result of or pursuant to this Agreement shall be determined by the Board of
Directors of the Company, in its sole discretion, and that any interpretation by
the Board of the terms of this Agreement shall be final, binding and conclusive.
12. Binding Effect. This Agreement shall be binding upon the heirs,
--------------
executors, administrators and successors of the parties hereto.
13. Restrictions. Optionee understands that upon exercise of this Option,
------------
the shares purchased may not be sold, transferred, pledged or otherwise disposed
of unless the shares are registered under the Securities Act of 1933 and
applicable state laws, or unless the Company has received an opinion of counsel
satisfactory to the Company that such registration is not required. Optionee
agrees that the exercise of the Option is conditional upon receipt by the
Company of a signed Subscription Agreement and Repurchase Agreement in the form
attached hereto as Exhibit A certifying that the Optionee is acquiring the
shares obtained by exercise of the option for investment purposes and not with
the view or intent to resell or otherwise distribute such option shares and
containing certain transfer restrictions and repurchase rights. The stock
certificate evidencing such shares shall bear a legend referring to such
transfer restrictions and repurchase rights.
<PAGE>
IN WITNESS WHEREOF, the Company and the Optionee have executed this
Agreement as of the date and year first above written.
DIAMOND BRANDS INCORPORATED
By /s/ Edward A. Michael
----------------------------
Its President
/s/ John Young
------------------------------
John Young
<PAGE>
EXHIBIT A
STOCK SUBSCRIPTION AND REPURCHASE AGREEMENT
-------------------------------------------
THIS AGREEMENT, made and entered into effective as of the _____ day of ___,
__________ 199__ by and between Diamond Brands Incorporated, a Minnesota
corporation (the "Corporation") and ___________, an individual ("Shareholder").
RECITALS
--------
WHEREAS, Shareholder is employed by the Corporation and, pursuant to the
terms of an Option Agreement dated January 1, 1997, desires to exercise options
to purchase ________ shares of the Corporation's common stock (the "Shares" or
"Share") at an exercise price of $7.50 per share; and
WHEREAS, the parties hereto believe it to be in the best interests of the
Corporation and its shareholders to limit the transferability of the Shares to
be purchased by Shareholder hereunder, and, accordingly, such Shares shall be
subject to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, and for other good and valuable consideration, the parties hereto agree
as follows:
1. SHARE ISSUANCE.
--------------
1.1 Share Issuance. Subject to the terms and upon the conditions
--------------
hereinafter set forth, the Corporation hereby issues to Shareholder ___________
Shares.
1.2 Representations, Warranties and Covenants. Shareholder
-----------------------------------------
acknowledges and represents as follows:
(a) Shareholder has been given full and complete access to
information concerning the business and finances of the
Corporation, including the opportunity to ask questions and
receive answers, and has used such access to evaluate the merits
and risks of an investment in the Shares.
(b) Shareholder understands that (i) the purchase of the Shares is a
long-term investment; (ii) Shareholder must bear the economic
risk of investment for an indefinite period of time because the
Shares have not been registered under the Securities Act of 1933
or state securities laws and, therefore, cannot be sold unless
they are subsequently registered under said laws or an exemption
from such registration is available; (iii) there is presently no
public market for the Shares and Shareholder may not be able to
liquidate the investment in the event of an emergency or pledge
the Shares as collateral security for loans; and (iv) the
transferability of the Shares is restricted and requires
conformity with the restrictions contained in paragraph (c)
below, and will be further restricted by a legend placed on
<PAGE>
the certificates representing the Shares stating that the Shares
have not been registered under the Securities Act of 1933 or
state securities laws and referencing the restrictions on
transferability of the Shares.
(c) Shareholder represents and warrants that the Shares to be issued
will be issued for his own account and for investment and without
the intention of reselling or redistributing the same, and that
Shareholder's financial condition is such that it is not likely
that it will be necessary to dispose of any Shares in the
foreseeable future. Shareholder shall not transfer any Shares in
any manner without first obtaining the opinion of counsel
designated by the Corporation that such proposed disposition or
transfer lawfully may be made insofar as the Corporation's
liability is concerned without the registration of the Shares for
such purpose pursuant to the Securities Act of 1933 and
applicable state securities laws.
2. REPURCHASE AGREEMENT.
--------------------
2.1 Restriction on Transfer of Shares.
---------------------------------
(a) Except as otherwise provided in this Agreement, Shareholder may
not, without the written consent of the Corporation, transfer any
Shares subject to this Agreement, including additional shares
which Shareholder may acquire at a future date by purchase, stock
split, stock dividend or recapitalization, until he shall have
given the Corporation the opportunity to buy such Shares on the
terms and conditions hereinafter expressed. Any attempted
transfer in contravention of this Agreement shall be null and
void.
(b) As used in this Paragraph 2, the term "transfer" shall mean any
proposed disposition of Shareholder's Shares by any means
whatsoever, including, without limitation, the occurrence of the
following events:
(i) voluntary sale, delivery, assignment, gift, devise,
exchange or other transfer of the Shares;
(ii) pledge, hypothecation or other encumbrance of the Shares;
(iii) adjudication of Shareholder as bankrupt, Shareholder's
assignment of his interest in the Shares, or any
attachment, levy or other seizure of the Shares by any
creditor, whether or not pursuant to the judicial process;
or
(iv) passage or distribution of such Shares under judicial
order or legal process to any person other than
Shareholder, including a guardian, trustee or conservator
of such Shares.
<PAGE>
2.2 Voluntary Transfer of Shares.
----------------------------
(a) If Shareholder desires at any time during the term of this
Agreement to voluntarily transfer the Shares in any manner, then
Shareholder shall give written notice to the Corporation of such
desire and of the number of Shares he desires to transfer (such
number of Shares being hereinafter referred to as the "Sale
Shares"). Such notice shall further specify the identity of the
proposed transferee, the nature of the transfer (for example,
sale, gift or devise), and the terms thereof.
(b) For a period of thirty (30) days after receipt of the aforesaid
notice, the Corporation shall have the right to purchase the Sale
Shares at the purchase price determined under the provisions of
Paragraph 2.5; provided, however, that if the notice of desire to
transfer the Sale Shares shall be occasioned by Shareholder's
receipt of an offer from a third party to purchase the Sale
Shares, the purchase price per Share to be paid hereunder shall
be the lesser of the purchase price determined under Paragraph
2.5 or the purchase price offered by the third party. The
Corporation shall exercise its right of purchase by delivering to
Shareholder within said thirty (30) day period, written notice
specifying the number of Sale Shares to be purchased by the
Corporation.
(c) The closing on any sale of Sale Shares to the Corporation shall
occur within thirty (30) days after expiration of the option
period described in subparagraph 2.2(b). At the closing, the
Corporation shall pay, in cash, the entire purchase price for the
Shares to be purchased, and Shareholder shall deliver to the
Corporation stock certificates, duly endorsed for transfer,
representing the Sale Shares purchased, free and clear of all
liens and encumbrances.
(d) If the Corporation does not elect to purchase all of the Sale
Shares as heretofore provided, Shareholder shall be entitled, for
a period of forty-five (45) days following the expiration of the
Corporation's option period under subparagraph 2.2(b), to
transfer said unpurchased Sale Shares to the person identified,
in the manner and on the terms specified in the notice given by
Shareholder pursuant to subparagraph 2.2(a). If said transfer has
not been consummated within said forty-five (45) day period, said
Sale Shares shall remain subject to all the provisions of this
Paragraph 2. If, however, said transfer is consummated within
said forty-five (45) day period, the Shares may be transferred to
the transferee.
(e) This Section 2.2 shall be inoperative and shall not apply in
instances where a shareholder desires to transfer shares to a
purchaser, where the purchaser is acquiring all or substantially
all of the shares of the Corporation, or where a purchaser is
acquiring all of the assets of the
<PAGE>
Corporation and the Corporation is redeeming all of the shares,
or where a purchaser is acquiring the Corporation through a
merger.
2.3 Involuntary Transfer of Shares.
------------------------------
(a) In case of the involuntary sale or other involuntary transfer or
disposition of Shares (including without limitation any transfer
of title or beneficial ownership upon default, forfeiture, court
order, or otherwise than by a voluntary decision on the party of
Shareholder), the Corporation shall have the right to purchase
such Shares in the manner hereinafter set forth. Immediately upon
the acquisition of such Shares, the transferee thereof shall
furnish written notice to the Corporation indicating that said
transferee has acquired the Shares and the price and payment
terms therefore, accompanied by satisfactory evidence of the
same. Upon receipt of such notice, the Corporation shall have the
right to purchase all (but not less than all) of the Shares
acquired by the transferee, in the same manner and upon the same
terms and conditions hereinabove provided in Paragraph 2.2 with
respect to the purchase of Shares as if Shareholder had proposed
to voluntarily transfer his Shares. The purchase price for said
Shares shall be the lesser of the price determined under
Paragraph 2.5 or the price paid by the transferee.
(b) If the Corporation does not elect to purchase all of the Shares
acquired by the transferee, the options shall be deemed not to
have been exercised and all of the Shares may be transferred to
the transferee.
2.4 Transfer of Shares Upon Termination of Employment, Including
------------------------------------------------------------
Death or Disability.
-------------------
(a) In the event Shareholder's employment with the Corporation is
terminated for any reason whatsoever, including the Shareholder's
death or Disability (as defined in the 1997 Non-Qualified Stock
Option Plan), the Corporation shall have the option to purchase
Shareholder's Shares at the price provided in Paragraph 2.5 as
though Shareholder had given notice under Paragraph 2.2 that he
desired to voluntarily transfer his Shares; provided, however,
that for purposes of this Paragraph 2.4, the date specified in
Paragraph 2.2 for the commencement of the Corporation's option
shall be the date on which Shareholder's employment with the
Corporation was terminated and the period of time in which the
Corporation may exercise the option shall be twelve (12) months
from the date of such termination of employment. Notwithstanding
the foregoing, in the event of a termination of Shareholder's
employment by reason of death or Disability, the date for
commencement of the Corporation's option shall be the later of
(i) the date on which Shareholder's employment with the
Corporation was terminated by reason of death or Disability; or
(ii) the date upon
<PAGE>
which such Shareholder receives the last of the Shares subject to
this Agreement and the period of time in which the Corporation
may exercise the option shall be thirty (30) days from such later
date. The Corporation's option under this Section 2.4 shall take
precedence over any other option hereunder and Section 2.2(e)
shall only apply if the Corporation fails to exercise its option
prior to the occurrence of an event described therein.
(b) In the event the Corporation elects not to purchase Shareholder's
Shares within the time provided in Paragraph 2.2, Shareholder
shall thereafter be entitled to sell, in accordance with
Paragraph 2.2 hereof.
2.5 Purchase Price of Shares. Except as provided in subparagraph
------------------------
2.5(b) below, the purchase price of each Share shall be equal to (i) seven times
earnings before interest, taxes, depreciation and amortization for the twelve
month period ended as of the quarter ending immediately prior to the "event of
purchase" (as defined in subparagraph 2.5(a) below), less funded debt existing
at such quarter end, divided by (ii) the total number of shares outstanding on
that date. The purchase price shall be determined by the Corporation and shall
be adjusted for any stock splits, recapitalizations or stock dividends occurring
after the date as of which the purchase price is determined and before the
Closing of the purchase and sale.
(a) For purposes of this Paragraph 2.5, "an event of purchase" shall
mean the following:
(i) In the case of the purchase of Shares under Paragraph 2.2,
the "event of purchase" shall mean the date notice is
received by the Corporation of Shareholder's desire to
transfer his Shares.
(ii) In the case of the purchase of Shares of a transferee
under Paragraph 2.3, the event of purchase shall mean the
date notice of the transferee's acquisition of Shares is
received by the Corporation.
(iii) In the case of the purchase of Shares upon the termination
of Shareholder's employment under Paragraph 2.4, the
"event of purchase" shall mean the date that Shareholder's
employment with the Corporation is terminated for any
reason whatsoever, including the Shareholder's death or
Disability.
(b) If the event of purchase shall be a termination of Shareholder's
employment with the Corporation for "Cause," as defined in the
1997 Non-Qualified Stock Option Plan, the purchase price of each
Share shall be the cash consideration paid by the Shareholder to
acquire the Shares.
2.6 Obligations of Transferees. All transferees of Shares
--------------------------
transferred in accordance with the terms of this Agreement shall take said
Shares subject to the terms,
<PAGE>
conditions and restrictions of this Agreement, except the restrictions in
Section 2.4 shall only apply to a transferee who is an employee of the
Corporation. Such transferee shall, as a condition precedent to the transfer of
Shares, sign a counterpart of this Agreement agreeing to be bound by its terms.
3. MISCELLANEOUS PROVISIONS.
------------------------
3.1 Legend on Stock Certificates. The certificate representing the
----------------------------
Shares shall contain a legend substantially as follows:
"The transfer or pledge of the Shares represented by this certificate
is restricted by, and subject to, the provisions of a certain Stock
Subscription and Repurchase Agreement dated as of ___________________
_____, 199__. A copy of said Agreement is on file with the Secretary
of the Corporation. By acceptance of this certificate, the holder
hereof agrees to be bound by the terms of said Agreement."
A copy of this Agreement shall be filed with the Secretary of the
Corporation. During the term of this Agreement, a legend as set forth above
shall be conspicuously endorsed on each certificate representing Shares issued
by the Corporation to Shareholder.
3.2 Right to Specific Performance. In recognition of the fact that
-----------------------------
the Shares subject to this Agreement are of a closely-held corporation and in
view of the purposes of this Agreement, the parties agree that in addition to
any other relief which may be afforded by law arising out of a violation of this
Agreement or a failure to perform its terms, an injured party may, at its
option, have the right to compel the specific performance of the terms and
provisions of this Agreement, the understanding of the parties being that both
damages and injunction shall be proper forms of relief and are not to be
considered alternative remedies.
3.3 Termination.
-----------
(a) This Agreement shall terminate when a registration statement of
the Corporation has been submitted to and accepted by the SEC
authorizing the public trading of the Corporation's Shares and
public trading of the Corporation's Shares is commenced on a
nationally recognized exchange or over-the-counter market.
(b) Upon the termination of this Agreement, Shareholder shall
surrender to the Corporation each certificate bearing the legend
set forth in Paragraph 3.1, and the Corporation shall issue in
lieu thereof a new certificate for an equal number of Shares
without such legend.
3.4 Notices. All notices, requests, and other communication from any
-------
of the parties hereto to another shall be in writing and shall be considered to
have been duly given or served if personally delivered, or sent by first class,
certified or registered mail, return receipt requested, postage prepaid, to the
address of the Shareholder as shown on the Share register of
<PAGE>
the Corporation (or such other address as may be known to the sender), or in the
case of the Corporation, to its registered office.
3.5 Amendment. This Agreement may be altered or amended only by a
---------
written amendment signed by the Corporation and Shareholder.
3.6 Parties in Interest. This Agreement shall be binding upon the
-------------------
heirs, executors, administrators, successors and assigns of Shareholder and the
Corporation. The parties hereby covenant and agree that they, their heirs,
executors, administrators, successors, and assigns will take all action and
execute any and all instruments, releases, assignments, and consents which may
be reasonably required of them in order to carry out the provisions of this
Agreement.
3.7 Counterparts. This Agreement may be executed in any number of
------------
counterparts each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
3.8 Severability. The invalidity or partial invalidity of any
------------
portion of this Agreement shall not invalidate the remainder thereof, and said
remainder shall remain in full force and effect.
3.9 Captions. The captions at the beginning of paragraphs of this
--------
Agreement are designed for convenience of reference only and are not to be used
for the purpose of interpreting any provision of this Agreement.
3.10 Governing Law. This Agreement shall be subject to and governed
-------------
by the laws of the State of Minnesota, and all questions concerning the meaning
and intention of the terms of this Agreement and concerning the validity hereof
and performance hereunder shall be determined and resolved in accordance with
the laws of said State notwithstanding the fact that one or more of the parties
now is or may hereafter become a resident of a different state.
3.11 Employment Rights. The Shareholder acknowledges that no right to
-----------------
employment vests in Shareholder by reason of being a Shareholder and further,
that the Corporation and its Board of Directors or Shareholders shall have no
fiduciary duty or other obligation to provide employment or continuing
employment to any Shareholder.
3.12 Dividends. The Shareholder is entitled only to such dividends as
---------
may be declared by the Board of Directors out of funds legally available
therefor. The Shareholder acknowledges that the Corporation may not pay
dividends in the future other than S corporation distributions for taxes.
Therefore, the Shareholder acknowledges that he has no entitlement to (unless
declared by the Board) nor expectation of dividends with respect to shares of
stock of the Corporation owned by such Shareholder.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
DIAMOND BRANDS INCORPORATED
By_________________________
Its________________________
SHAREHOLDER
___________________________
<PAGE>
DIAMOND BRANDS INCORPORATED
NON-QUALIFIED STOCK OPTION AGREEMENT
This Option Agreement is made as of the 1st day of January, 1997 between
Diamond Brands Incorporated, a Minnesota corporation (the "Company"), and
Christopher Mathews, an employee of the Company (the "Optionee").
The Company desires, by affording the Optionee an opportunity to purchase
shares of its common stock (the "Common Stock") as hereinafter provided to carry
out the purpose of the 1997 Non-Qualified Stock Option Plan of the Company (the
"Plan").
THEREFORE, the parties hereby agree as follows:
1. Grant of Option. The Company hereby grants to the Optionee the right
---------------
and option (hereinafter call the "Option") to purchase from the Company all or
any part of an aggregate amount of 20,000 shares of the Common Stock of the
Company on the terms and conditions herein set forth.
2. Purchase Price. The purchase price of the shares of the Common
--------------
Stock covered by this Option shall be $7.50 per share.
3. Term of Option. The term of the Option shall be for a period of ten
--------------
(10) years from the date hereof (the "Option Date"), subject to earlier
termination as hereinafter provided.
4. Vesting of Option. The right to exercise the first 6,667 shares shall
-----------------
vest on January 1, 1997; the right to exercise an additional 6,667 shares shall
vest on January 1, 1998; and the right to exercise the remaining 6,666 shares
shall vest on January 1, 1999.
5. Non-Transferability. The Option shall not be transferable otherwise
-------------------
than by will or the laws of descent and distribution, and the Option may be
exercised during the lifetime of the Optionee only by the Optionee.
6. Method of Exercising Option. Subject to the terms and conditions of
---------------------------
this Option Agreement, the Option may be exercised by written notice to the
Company at the principal office of the Company. Such notice shall state the
election to exercise the Option and the number of shares in respect of which it
is being exercised, and shall be signed by the person so exercising the Option.
Such notice shall be accompanied by payment of the full purchase price of such
shares, which payment shall be made by check or bank draft payable to the
Company. In the event the Option shall be exercised by any person other than
the Optionee, such notice shall be accompanied by appropriate proof of such
right of such person to exercise the Option.
7. Termination of Employment. If an Optionee's employment by the Company
-------------------------
terminates for any reason other than death or Disability (defined in the Plan),
the Option shall terminate. If an Optionee' s employment is terminated by the
Company, the Option shall terminate immediately upon notice by the Company of
such termination. Neither the Plan nor
<PAGE>
this Agreement confers any right with respect to continuance of employment by
the Company or by a subsidiary, nor will this Plan or this Agreement interfere
in any way with the employee's right, or the Company's right, to terminate his
employment at any time.
8. Death of Optionee. If Optionee dies while in the employ of the
-----------------
Company, his Option rights may be exercised, without regard to any installment
exercise restrictions, at any time within ninety (90) days following his death
by his personal representative or by the person or persons to whom his rights
under the Option shall pass by will or by the laws of descent and distribution.
In no event, however, may any option rights be exercised by anyone after the
expiration of the term of this Option.
9. Disability. If the employment of Optionee is terminated because of
----------
Disability, the Optionee, or his legal representative, may at any time within
not more than ninety (90) days after termination of his employment, exercise his
rights, in whole or in part, without regard to any installment exercise
restrictions. In no event, however, may any option rights be exercised by
anyone after the expiration of the term of this Option.
10. Option Plan. This Option is subject to certain additional terms and
-----------
conditions set forth in the Plan pursuant to which this Option has been issued.
Optionee acknowledges receipt of a copy of the Plan on file with the Secretary
of the Company and, by acceptance hereof, agrees to and accepts this Option
subject to the terms of the Plan. Except as otherwise defined herein, defined
terms used in this Agreement shall have the meaning ascribed thereto in the
Plan.
11. Disputes. As a condition of the granting of the Option herein
--------
granted, the Optionee agrees, for the Optionee and the Optionee's personal
representatives, that any dispute or disagreement which may arise under or as a
result of or pursuant to this Agreement shall be determined by the Board of
Directors of the Company, in its sole discretion, and that any interpretation by
the Board of the terms of this Agreement shall be final, binding and conclusive.
12. Binding Effect. This Agreement shall be binding upon the heirs,
--------------
executors, administrators and successors of the parties hereto.
13. Restrictions. Optionee understands that upon exercise of this Option,
------------
the shares purchased may not be sold, transferred, pledged or otherwise disposed
of unless the shares are registered under the Securities Act of 1933 and
applicable state laws, or unless the Company has received an opinion of counsel
satisfactory to the Company that such registration is not required. Optionee
agrees that the exercise of the Option is conditional upon receipt by the
Company of a signed Subscription Agreement and Repurchase Agreement in the form
attached hereto as Exhibit A certifying that the Optionee is acquiring the
shares obtained by exercise of the option for investment purposes and not with
the view or intent to resell or otherwise distribute such option shares and
containing certain transfer restrictions and repurchase rights. The stock
certificate evidencing such shares shall bear a legend referring to such
transfer restrictions and repurchase rights.
<PAGE>
IN WITNESS WHEREOF, the Company and the Optionee have executed this Agreement
as of the date and year first above written.
DIAMOND BRANDS INCORPORATED
By /s/ Edward A. Michael
-------------------------
Its President
------------------------
/s/ Christopher Mathews
---------------------------
Christopher Mathews
<PAGE>
EXHIBIT A
STOCK SUBSCRIPTION AND REPURCHASE AGREEMENT
THIS AGREEMENT, made and entered into effective as of the _____ day of ___
____________ 199__ by and __ between Diamond Brands Incorporated, a Minnesota
corporation (the "Corporation") and ___________, an individual ("Shareholder").
RECITALS
WHEREAS, Shareholder is employed by the Corporation and, pursuant to the
terms of an Option Agreement dated January 1, 1997, desires to exercise options
to purchase ________ shares of the Corporation's common stock (the "Shares" or
"Share") at an exercise price of $7.50 per share; and
WHEREAS, the parties hereto believe it to be in the best interests of the
Corporation and its shareholders to limit the transferability of the Shares to
be purchased by Shareholder hereunder, and, accordingly, such Shares shall be
subject to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, and for other good and valuable consideration, the parties hereto agree
as follows:
1. SHARE ISSUANCE.
--------------
1.1 Share Issuance. Subject to the terms and upon the conditions
--------------
hereinafter set forth, the Corporation hereby issues to Shareholder ___________
Shares.
1.2 Representations, Warranties and Covenants. Shareholder
-----------------------------------------
acknowledges and represents as follows:
(a) Shareholder has been given full and complete access to
information concerning the business and finances of the
Corporation, including the opportunity to ask questions and
receive answers, and has used such access to evaluate the merits
and risks of an investment in the Shares.
(b) Shareholder understands that (i) the purchase of the Shares is a
long-term investment; (ii) Shareholder must bear the economic
risk of investment for an indefinite period of time because the
Shares have not been registered under the Securities Act of 1933
or state securities laws and, therefore, cannot be sold unless
they are subsequently registered under said laws or an exemption
from such registration is available; (iii) there is presently no
public market for the Shares and Shareholder may not be able to
liquidate the investment in the event of an emergency or pledge
the Shares as collateral security for loans; and (iv) the
transferability of the Shares is restricted and requires
conformity with the restrictions contained in paragraph (c)
below, and will be further restricted by a legend placed on
<PAGE>
the certificates representing the Shares stating that the Shares
have not been registered under the Securities Act of 1933 or
state securities laws and referencing the restrictions on
transferability of the Shares.
(c) Shareholder represents and warrants that the Shares to be issued
will be issued for his own account and for investment and without
the intention of reselling or redistributing the same, and that
Shareholder's financial condition is such that it is not likely
that it will be necessary to dispose of any Shares in the
foreseeable future. Shareholder shall not transfer any Shares in
any manner without first obtaining the opinion of counsel
designated by the Corporation that such proposed disposition or
transfer lawfully may be made insofar as the Corporation's
liability is concerned without the registration of the Shares for
such purpose pursuant to the Securities Act of 1933 and
applicable state securities laws.
2. REPURCHASE AGREEMENT.
--------------------
2.1 Restriction on Transfer of Shares.
---------------------------------
(a) Except as otherwise provided in this Agreement, Shareholder may
not, without the written consent of the Corporation, transfer any
Shares subject to this Agreement, including additional shares
which Shareholder may acquire at a future date by purchase, stock
split, stock dividend or recapitalization, until he shall have
given the Corporation the opportunity to buy such Shares on the
terms and conditions hereinafter expressed. Any attempted
transfer in contravention of this Agreement shall be null and
void.
(b) As used in this Paragraph 2, the term "transfer" shall mean any
proposed disposition of Shareholder's Shares by any means
whatsoever, including, without limitation, the occurrence of the
following events:
(i) voluntary sale, delivery, assignment, gift, devise,
exchange or other transfer of the Shares;
(ii) pledge, hypothecation or other encumbrance of the Shares;
(iii) adjudication of Shareholder as bankrupt, Shareholder's
assignment of his interest in the Shares, or any
attachment, levy or other seizure of the Shares by any
creditor, whether or not pursuant to the judicial process;
or
(iv) passage or distribution of such Shares under judicial
order or legal process to any person other than
Shareholder, including a guardian, trustee or conservator
of such Shares.
<PAGE>
2.2 Voluntary Transfer of Shares.
----------------------------
(a) If Shareholder desires at any time during the term of this
Agreement to voluntarily transfer the Shares in any manner, then
Shareholder shall give written notice to the Corporation of such
desire and of the number of Shares he desires to transfer (such
number of Shares being hereinafter referred to as the "Sale
Shares"). Such notice shall further specify the identity of the
proposed transferee, the nature of the transfer (for example,
sale, gift or devise), and the terms thereof.
(b) For a period of thirty (30) days after receipt of the aforesaid
notice, the Corporation shall have the right to purchase the Sale
Shares at the purchase price determined under the provisions of
Paragraph 2.5; provided, however, that if the notice of desire to
transfer the Sale Shares shall be occasioned by Shareholder's
receipt of an offer from a third party to purchase the Sale
Shares, the purchase price per Share to be paid hereunder shall
be the lesser of the purchase price determined under Paragraph
2.5 or the purchase price offered by the third party. The
Corporation shall exercise its right of purchase by delivering to
Shareholder within said thirty (30) day period, written notice
specifying the number of Sale Shares to be purchased by the
Corporation.
(c) The closing on any sale of Sale Shares to the Corporation shall
occur within thirty (30) days after expiration of the option
period described in subparagraph 2.2(b). At the closing, the
Corporation shall pay, in cash, the entire purchase price for the
Shares to be purchased, and Shareholder shall deliver to the
Corporation stock certificates, duly endorsed for transfer,
representing the Sale Shares purchased, free and clear of all
liens and encumbrances.
(d) If the Corporation does not elect to purchase all of the Sale
Shares as heretofore provided, Shareholder shall be entitled, for
a period of forty-five (45) days following the expiration of the
Corporation's option period under subparagraph 2.2(b), to
transfer said unpurchased Sale Shares to the person identified,
in the manner and on the terms specified in the notice given by
Shareholder pursuant to subparagraph 2.2(a). If said transfer has
not been consummated within said forty-five (45) day period, said
Sale Shares shall remain subject to all the provisions of this
Paragraph 2. If, however, said transfer is consummated within
said forty-five (45) day period, the Shares may be transferred to
the transferee.
(e) This Section 2.2 shall be inoperative and shall not apply in
instances where a shareholder desires to transfer shares to a
purchaser, where the purchaser is acquiring all or substantially
all of the shares of the Corporation, or where a purchaser is
acquiring all of the assets of the
<PAGE>
Corporation and the Corporation is redeeming all of the shares,
or where a purchaser is acquiring the Corporation through a
merger.
2.3 Involuntary Transfer of Shares.
------------------------------
(a) In case of the involuntary sale or other involuntary transfer or
disposition of Shares (including without limitation any transfer
of title or beneficial ownership upon default, forfeiture, court
order, or otherwise than by a voluntary decision on the party of
Shareholder), the Corporation shall have the right to purchase
such Shares in the manner hereinafter set forth. Immediately upon
the acquisition of such Shares, the transferee thereof shall
furnish written notice to the Corporation indicating that said
transferee has acquired the Shares and the price and payment
terms therefore, accompanied by satisfactory evidence of the
same. Upon receipt of such notice, the Corporation shall have the
right to purchase all (but not less than all) of the Shares
acquired by the transferee, in the same manner and upon the same
terms and conditions hereinabove provided in Paragraph 2.2 with
respect to the purchase of Shares as if Shareholder had proposed
to voluntarily transfer his Shares. The purchase price for said
Shares shall be the lesser of the price determined under
Paragraph 2.5 or the price paid by the transferee.
(b) If the Corporation does not elect to purchase all of the Shares
acquired by the transferee, the options shall be deemed not to
have been exercised and all of the Shares may be transferred to
the transferee.
2.4 Transfer of Shares Upon Termination of Employment, Including
------------------------------------------------------------
Death or Disability.
-------------------
(a) In the event Shareholder's employment with the Corporation is
terminated for any reason whatsoever, including the Shareholder's
death or Disability (as defined in the 1997 Non-Qualified Stock
Option Plan), the Corporation shall have the option to purchase
Shareholder's Shares at the price provided in Paragraph 2.5 as
though Shareholder had given notice under Paragraph 2.2 that he
desired to voluntarily transfer his Shares; provided, however,
that for purposes of this Paragraph 2.4, the date specified in
Paragraph 2.2 for the commencement of the Corporation's option
shall be the date on which Shareholder's employment with the
Corporation was terminated and the period of time in which the
Corporation may exercise the option shall be twelve (12) months
from the date of such termination of employment. Notwithstanding
the foregoing, in the event of a termination of Shareholder's
employment by reason of death or Disability, the date for
commencement of the Corporation's option shall be the later of
(i) the date on which Shareholder's employment with the
Corporation was terminated by reason of death or Disability; or
(ii) the date upon
<PAGE>
which such Shareholder receives the last of the Shares subject to
this Agreement and the period of time in which the Corporation
may exercise the option shall be thirty (30) days from such later
date. The Corporation's option under this Section 2.4 shall take
precedence over any other option hereunder and Section 2.2(e)
shall only apply if the Corporation fails to exercise its option
prior to the occurrence of an event described therein.
(b) In the event the Corporation elects not to purchase Shareholder's
Shares within the time provided in Paragraph 2.2, Shareholder
shall thereafter be entitled to sell, in accordance with
Paragraph 2.2 hereof.
2.5 Purchase Price of Shares. Except as provided in subparagraph
------------------------
2.5(b) below, the purchase price of each Share shall be equal to (i) seven times
earnings before interest, taxes, depreciation and amortization for the twelve
month period ended as of the quarter ending immediately prior to the "event of
purchase" (as defined in subparagraph 2.5(a) below), less funded debt existing
at such quarter end, divided by (ii) the total number of shares outstanding on
that date. The purchase price shall be determined by the Corporation and shall
be adjusted for any stock splits, recapitalizations or stock dividends occurring
after the date as of which the purchase price is determined and before the
Closing of the purchase and sale.
(a) For purposes of this Paragraph 2.5, "an event of purchase" shall
mean the following:
(i) In the case of the purchase of Shares under Paragraph 2.2,
the "event of purchase" shall mean the date notice is
received by the Corporation of Shareholder's desire to
transfer his Shares.
(ii) In the case of the purchase of Shares of a transferee
under Paragraph 2.3, the event of purchase shall mean the
date notice of the transferee's acquisition of Shares is
received by the Corporation.
(iii) In the case of the purchase of Shares upon the termination
of Shareholder's employment under Paragraph 2.4, the
"event of purchase" shall mean the date that Shareholder's
employment with the Corporation is terminated for any
reason whatsoever, including the Shareholder's death or
Disability.
(b) If the event of purchase shall be a termination of Shareholder's
employment with the Corporation for "Cause," as defined in the
1997 Non-Qualified Stock Option Plan, the purchase price of each
Share shall be the cash consideration paid by the Shareholder to
acquire the Shares.
2.6 Obligations of Transferees. All transferees of Shares transferred
--------------------------
in accordance with the terms of this Agreement shall take said Shares subject to
the terms,
<PAGE>
conditions and restrictions of this Agreement, except the restrictions in
Section 2.4 shall only apply to a transferee who is an employee of the
Corporation. Such transferee shall, as a condition precedent to the transfer of
Shares, sign a counterpart of this Agreement agreeing to be bound by its terms.
3. MISCELLANEOUS PROVISIONS.
------------------------
3.1 Legend on Stock Certificates. The certificate representing the
----------------------------
Shares shall contain a legend substantially as follows:
"The transfer or pledge of the Shares represented by this certificate
is restricted by, and subject to, the provisions of a certain Stock
Subscription and Repurchase Agreement dated as of ___________________,
199__. A copy of said Agreement is on file with the Secretary of the
Corporation. By acceptance of this certificate, the holder hereof
agrees to be bound by the terms of said Agreement."
A copy of this Agreement shall be filed with the Secretary of the
Corporation. During the term of this Agreement, a legend as set forth above
shall be conspicuously endorsed on each certificate representing Shares issued
by the Corporation to Shareholder.
3.2 Right to Specific Performance. In recognition of the fact that
-----------------------------
the Shares subject to this Agreement are of a closely-held corporation and in
view of the purposes of this Agreement, the parties agree that in addition to
any other relief which may be afforded by law arising out of a violation of this
Agreement or a failure to perform its terms, an injured party may, at its
option, have the right to compel the specific performance of the terms and
provisions of this Agreement, the understanding of the parties being that both
damages and injunction shall be proper forms of relief and are not to be
considered alternative remedies.
3.3 Termination.
-----------
(a) This Agreement shall terminate when a registration statement of
the Corporation has been submitted to and accepted by the SEC
authorizing the public trading of the Corporation's Shares and
public trading of the Corporation's Shares is commenced on a
nationally recognized exchange or over-the-counter market.
(b) Upon the termination of this Agreement, Shareholder shall
surrender to the Corporation each certificate bearing the legend
set forth in Paragraph 3.1, and the Corporation shall issue in
lieu thereof a new certificate for an equal number of Shares
without such legend.
3.4 Notices. All notices, requests, and other communication from any
-------
of the parties hereto to another shall be in writing and shall be considered to
have been duly given or served if personally delivered, or sent by first class,
certified or registered mail, return receipt requested, postage prepaid, to the
address of the Shareholder as shown on the Share register of
<PAGE>
the Corporation (or such other address as may be known to the sender), or in
the case of the Corporation, to its registered office.
3.5 Amendment. This Agreement may be altered or amended only by a
---------
written amendment signed by the Corporation and Shareholder.
3.6 Parties in Interest. This Agreement shall be binding upon the
-------------------
heirs, executors, administrators, successors and assigns of Shareholder and the
Corporation. The parties hereby covenant and agree that they, their heirs,
executors, administrators, successors, and assigns will take all action and
execute any and all instruments, releases, assignments, and consents which may
be reasonably required of them in order to carry out the provisions of this
Agreement.
3.7 Counterparts. This Agreement may be executed in any number of
------------
counterparts each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
3.8 Severability. The invalidity or partial invalidity of any
------------
portion of this Agreement shall not invalidate the remainder thereof, and said
remainder shall remain in full force and effect.
3.9 Captions. The captions at the beginning of paragraphs of this
--------
Agreement are designed for convenience of reference only and are not to be used
for the purpose of interpreting any provision of this Agreement.
3.10 Governing Law. This Agreement shall be subject to and governed
-------------
by the laws of the State of Minnesota, and all questions concerning the meaning
and intention of the terms of this Agreement and concerning the validity hereof
and performance hereunder shall be determined and resolved in accordance with
the laws of said State notwithstanding the fact that one or more of the parties
now is or may hereafter become a resident of a different state.
3.11 Employment Rights. The Shareholder acknowledges that no right to
-----------------
employment vests in Shareholder by reason of being a Shareholder and further,
that the Corporation and its Board of Directors or Shareholders shall have no
fiduciary duty or other obligation to provide employment or continuing
employment to any Shareholder.
3.12 Dividends. The Shareholder is entitled only to such dividends as
---------
may be declared by the Board of Directors out of funds legally available
therefor. The Shareholder acknowledges that the Corporation may not pay
dividends in the future other than S corporation distributions for taxes.
Therefore, the Shareholder acknowledges that he has no entitlement to (unless
declared by the Board) nor expectation of dividends with respect to shares of
stock of the Corporation owned by such Shareholder.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
DIAMOND BRANDS INCORPORATED
By_________________________
Its________________________
SHAREHOLDER
___________________________
<PAGE>
DIAMOND BRANDS INCORPORATED
NON-QUALIFIED STOCK OPTION AGREEMENT
This Option Agreement is made as of the 1st day of January, 1997 between
Diamond Brands Incorporated, a Minnesota corporation (the "Company"), and
Richard Campbell, an employee of the Company (the "Optionee").
The Company desires, by affording the Optionee an opportunity to purchase
shares of its common stock (the "Common Stock") as hereinafter provided to carry
out the purpose of the 1997 Non-Qualified Stock Option Plan of the Company (the
"Plan").
THEREFORE, the parties hereby agree as follows:
1. Grant of Option. The Company hereby grants to the Optionee the right
---------------
and option (hereinafter call the "Option") to purchase from the Company all or
any part of an aggregate amount of 20,000 shares of the Common Stock of the
Company on the terms and conditions herein set forth.
2. Purchase Price. The purchase price of the shares of the Common Stock
--------------
covered by this Option shall be $7.50 per share.
3. Term of Option. The term of the Option shall be for a period of ten
--------------
(10) years from the date hereof (the "Option Date"), subject to earlier
termination as hereinafter provided.
4. Vesting of Option. The right to exercise the first 6,667 shares shall
-----------------
vest on January 1, 1997; the right to exercise an additional 6,667 shares shall
vest on January 1, 1998; and the right to exercise the remaining 6,666 shares
shall vest on January 1, 1999.
5. Non-Transferability. The Option shall not be transferable otherwise
-------------------
than by will or the laws of descent and distribution, and the Option
may be exercised during the lifetime of the Optionee only by the
Optionee.
6. Method of Exercising Option. Subject to the terms and conditions of
---------------------------
this Option Agreement, the Option may be exercised by written notice to the
Company at the principal office of the Company. Such notice shall state the
election to exercise the Option and the number of shares in respect of which it
is being exercised, and shall be signed by the person so exercising the Option.
Such notice shall be accompanied by payment of the full purchase price of such
shares, which payment shall be made by check or bank draft payable to the
Company. In the event the Option shall be exercised by any person other than the
Optionee, such notice shall be accompanied by appropriate proof of such right of
such person to exercise the Option.
7. Termination of Employment. If an Optionee's employment by the Company
-------------------------
terminates for any reason other than death or Disability (defined in the Plan),
the Option shall terminate. If an Optionee' s employment is terminated by the
Company, the Option shall terminate immediately upon notice by the Company of
such termination. Neither the Plan nor
<PAGE>
this Agreement confers any right with respect to continuance of employment by
the Company or by a subsidiary, nor will this Plan or this Agreement interfere
in any way with the employee's right, or the Company's right, to terminate his
employment at any time.
8. Death of Optionee. If Optionee dies while in the employ of the
-----------------
Company, his Option rights may be exercised, without regard to any installment
exercise restrictions, at any time within ninety (90) days following his death
by his personal representative or by the person or persons to whom his rights
under the Option shall pass by will or by the laws of descent and distribution.
In no event, however, may any option rights be exercised by anyone after the
expiration of the term of this Option.
9. Disability. If the employment of Optionee is terminated because of
----------
Disability, the Optionee, or his legal representative, may at any time within
not more than ninety (90) days after termination of his employment, exercise his
rights, in whole or in part, without regard to any installment exercise
restrictions. In no event, however, may any option rights be exercised by anyone
after the expiration of the term of this Option.
10. Option Plan. This Option is subject to certain additional terms and
-----------
conditions set forth in the Plan pursuant to which this Option has been issued.
Optionee acknowledges receipt of a copy of the Plan on file with the Secretary
of the Company and, by acceptance hereof, agrees to and accepts this Option
subject to the terms of the Plan. Except as otherwise defined herein, defined
terms used in this Agreement shall have the meaning ascribed thereto in the
Plan.
11. Disputes. As a condition of the granting of the Option herein granted,
--------
the Optionee agrees, for the Optionee and the Optionee's personal
representatives, that any dispute or disagreement which may arise under or as a
result of or pursuant to this Agreement shall be determined by the Board of
Directors of the Company, in its sole discretion, and that any interpretation by
the Board of the terms of this Agreement shall be final, binding and conclusive.
12. Binding Effect. This Agreement shall be binding upon the heirs,
--------------
executors, administrators and successors of the parties hereto.
13. Restrictions. Optionee understands that upon exercise of this Option,
------------
the shares purchased may not be sold, transferred, pledged or otherwise disposed
of unless the shares are registered under the Securities Act of 1933 and
applicable state laws, or unless the Company has received an opinion of counsel
satisfactory to the Company that such registration is not required. Optionee
agrees that the exercise of the Option is conditional upon receipt by the
Company of a signed Subscription Agreement and Repurchase Agreement in the form
attached hereto as Exhibit A certifying that the Optionee is acquiring the
shares obtained by exercise of the option for investment purposes and not with
the view or intent to resell or otherwise distribute such option shares and
containing certain transfer restrictions and repurchase rights. The stock
certificate evidencing such shares shall bear a legend referring to such
transfer restrictions and repurchase rights.
<PAGE>
IN WITNESS WHEREOF, the Company and the Optionee have executed this
Agreement as of the date and year first above written.
DIAMOND BRANDS INCORPORATED
By /s/ Edward A. Michael
-------------------------
Its President
------------------------
/s/ Richard Campbell
---------------------------
Richard Campbell
<PAGE>
EXHIBIT A
STOCK SUBSCRIPTION AND REPURCHASE AGREEMENT
THIS AGREEMENT, made and entered into effective as of the _____ day of____
199__ by and between Diamond Brands Incorporated, a Minnesota corporation (the
"Corporation") and_____________, an individual ("Shareholder").
RECITALS
WHEREAS, Shareholder is employed by the Corporation and, pursuant to the
terms of an Option Agreement dated January 1, 1997, desires to exercise options
to purchase ________ shares of the Corporation's common stock (the "Shares" or
"Share") at an exercise price of $7.50 per share; and
WHEREAS, the parties hereto believe it to be in the best interests of the
Corporation and its shareholders to limit the transferability of the Shares to
be purchased by Shareholder hereunder, and, accordingly, such Shares shall be
subject to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, and for other good and valuable consideration, the parties hereto agree
as follows:
1. SHARE ISSUANCE.
--------------
1.1 Share Issuance. Subject to the terms and upon the conditions
--------------
hereinafter set forth, the Corporation hereby issues to Shareholder ___________
Shares.
1.2 Representations, Warranties and Covenants. Shareholder
-----------------------------------------
acknowledges and represents as follows:
(a) Shareholder has been given full and complete access to
information concerning the business and finances of the
Corporation, including the opportunity to ask questions and
receive answers, and has used such access to evaluate the merits
and risks of an investment in the Shares.
(b) Shareholder understands that (i) the purchase of the Shares is a
long-term investment; (ii) Shareholder must bear the economic
risk of investment for an indefinite period of time because the
Shares have not been registered under the Securities Act of 1933
or state securities laws and, therefore, cannot be sold unless
they are subsequently registered under said laws or an exemption
from such registration is available; (iii) there is presently no
public market for the Shares and Shareholder may not be able to
liquidate the investment in the event of an emergency or pledge
the Shares as collateral security for loans; and (iv) the
transferability of the Shares is restricted and requires
conformity with the restrictions contained in paragraph (c)
below, and will be further restricted by a legend placed on
<PAGE>
the certificates representing the Shares stating that the Shares
have not been registered under the Securities Act of 1933 or
state securities laws and referencing the restrictions on
transferability of the Shares.
(c) Shareholder represents and warrants that the Shares to be
issued will be issued for his own account and for investment and
without the intention of reselling or redistributing the same,
and that Shareholder's financial condition is such that it is not
likely that it will be necessary to dispose of any Shares in the
foreseeable future. Shareholder shall not transfer any Shares in
any manner without first obtaining the opinion of counsel
designated by the Corporation that such proposed disposition or
transfer lawfully may be made insofar as the Corporation's
liability is concerned without the registration of the Shares for
such purpose pursuant to the Securities Act of 1933 and
applicable state securities laws.
2. REPURCHASE AGREEMENT.
--------------------
2.1 Restriction on Transfer of Shares.
---------------------------------
(a) Except as otherwise provided in this Agreement, Shareholder may
not, without the written consent of the Corporation, transfer any
Shares subject to this Agreement, including additional shares
which Shareholder may acquire at a future date by purchase, stock
split, stock dividend or recapitalization, until he shall have
given the Corporation the opportunity to buy such Shares on the
terms and conditions hereinafter expressed. Any attempted
transfer in contravention of this Agreement shall be null and
void.
(b) As used in this Paragraph 2, the term "transfer" shall mean any
proposed disposition of Shareholder's Shares by any means
whatsoever, including, without limitation, the occurrence of the
following events:
(i) voluntary sale, delivery, assignment, gift, devise,
exchange or other transfer of the Shares;
(ii) pledge, hypothecation or other encumbrance of the Shares;
(iii) adjudication of Shareholder as bankrupt, Shareholder's
assignment of his interest in the Shares, or any
attachment, levy or other seizure of the Shares by any
creditor, whether or not pursuant to the judicial process;
or
(iv) passage or distribution of such Shares under judicial order
or legal process to any person other than Shareholder,
including a guardian, trustee or conservator of such
Shares.
<PAGE>
2.2 Voluntary Transfer of Shares.
----------------------------
(a) If Shareholder desires at any time during the term of this
Agreement to voluntarily transfer the Shares in any manner, then
Shareholder shall give written notice to the Corporation of such
desire and of the number of Shares he desires to transfer (such
number of Shares being hereinafter referred to as the "Sale
Shares"). Such notice shall further specify the identity of the
proposed transferee, the nature of the transfer (for example,
sale, gift or devise), and the terms thereof.
(b) For a period of thirty (30) days after receipt of the aforesaid
notice, the Corporation shall have the right to purchase the Sale
Shares at the purchase price determined under the provisions of
Paragraph 2.5; provided, however, that if the notice of desire to
transfer the Sale Shares shall be occasioned by Shareholder's
receipt of an offer from a third party to purchase the Sale
Shares, the purchase price per Share to be paid hereunder shall
be the lesser of the purchase price determined under Paragraph
2.5 or the purchase price offered by the third party. The
Corporation shall exercise its right of purchase by delivering to
Shareholder within said thirty (30) day period, written notice
specifying the number of Sale Shares to be purchased by the
Corporation.
(c) The closing on any sale of Sale Shares to the Corporation shall
occur within thirty (30) days after expiration of the option
period described in subparagraph 2.2(b). At the closing, the
Corporation shall pay, in cash, the entire purchase price for the
Shares to be purchased, and Shareholder shall deliver to the
Corporation stock certificates, duly endorsed for transfer,
representing the Sale Shares purchased, free and clear of all
liens and encumbrances.
(d) If the Corporation does not elect to purchase all of the Sale
Shares as heretofore provided, Shareholder shall be entitled, for
a period of forty-five (45) days following the expiration of the
Corporation's option period under subparagraph 2.2(b), to
transfer said unpurchased Sale Shares to the person identified,
in the manner and on the terms specified in the notice given by
Shareholder pursuant to subparagraph 2.2(a). If said transfer has
not been consummated within said forty-five (45) day period, said
Sale Shares shall remain subject to all the provisions of this
Paragraph 2. If, however, said transfer is consummated within
said forty-five (45) day period, the Shares may be transferred to
the transferee.
(c) This Section 2.2 shall be inoperative and shall not apply in
instances where a shareholder desires to transfer shares to a
purchaser, where the purchaser is acquiring all or substantially
all of the shares of the Corporation, or where a purchaser is
acquiring all of the assets of the
<PAGE>
Corporation and the Corporation is redeeming all of the shares,
or where a purchaser is acquiring the Corporation through a
merger.
2.3 Involuntary Transfer of Shares.
------------------------------
(a) In case of the involuntary sale or other involuntary transfer or
disposition of Shares (including without limitation any transfer
of title or beneficial ownership upon default, forfeiture, court
order, or otherwise than by a voluntary decision on the party of
Shareholder), the Corporation shall have the right to purchase
such Shares in the manner hereinafter set forth. Immediately upon
the acquisition of such Shares, the transferee thereof shall
furnish written notice to the Corporation indicating that said
transferee has acquired the Shares and the price and payment
terms therefore, accompanied by satisfactory evidence of the
same. Upon receipt of such notice, the Corporation shall have the
right to purchase all (but not less than all) of the Shares
acquired by the transferee, in the same manner and upon the same
terms and conditions hereinabove provided in Paragraph 2.2 with
respect to the purchase of Shares as if Shareholder had proposed
to voluntarily transfer his Shares. The purchase price for said
Shares shall be the lesser of the price determined under
Paragraph 2.5 or the price paid by the transferee.
(b) If the Corporation does not elect to purchase all of the Shares
acquired by the transferee, the options shall be deemed not to
have been exercised and all of the Shares may be transferred to
the transferee.
2.4 Transfer of Shares Upon Termination of Employment, Including
------------------------------------------------------------
Death or Disability.
-------------------
(a) In the event Shareholder's employment with the Corporation is
terminated for any reason whatsoever, including the Shareholder's
death or Disability (as defined in the 1997 Non-Qualified Stock
Option Plan), the Corporation shall have the option to purchase
Shareholder's Shares at the price provided in Paragraph 2.5 as
though Shareholder had given notice under Paragraph 2.2 that he
desired to voluntarily transfer his Shares; provided, however,
that for purposes of this Paragraph 2.4, the date specified in
Paragraph 2.2 for the commencement of the Corporation's option
shall be the date on which Shareholder's employment with the
Corporation was terminated and the period of time in which the
Corporation may exercise the option shall be twelve (12) months
from the date of such termination of employment. Notwithstanding
the foregoing, in the event of a termination of Shareholder's
employment by reason of death or Disability, the date for
commencement of the Corporation's option shall be the later of
(i) the date on which Shareholder's employment with the
Corporation was terminated by reason of death or Disability; or
(ii) the date upon
<PAGE>
which such Shareholder receives the last of the Shares subject to
this Agreement and the period of time in which the Corporation
may exercise the option shall be thirty (30) days from such later
date. The Corporation's option under this Section 2.4 shall take
precedence over any other option hereunder and Section 2.2(e)
shall only apply if the Corporation fails to exercise its option
prior to the occurrence of an event described therein.
(b) In the event the Corporation elects not to purchase Shareholder's
Shares within the time provided in Paragraph 2.2, Shareholder
shall thereafter be entitled to sell, in accordance with
Paragraph 2.2 hereof.
2.5 Purchase Price of Shares. Except as provided in subparagraph
------------------------
2.5(b) below, the purchase price of each Share shall be equal to (i) seven times
earnings before interest, taxes, depreciation and amortization for the twelve
month period ended as of the quarter ending immediately prior to the "event of
purchase" (as defined in subparagraph 2.5(a) below), less funded debt existing
at such quarter end, divided by (ii) the total number of shares outstanding on
that date. The purchase price shall be determined by the Corporation and shall
be adjusted for any stock splits, recapitalizations or stock dividends occurring
after the date as of which the purchase price is determined and before the
Closing of the purchase and sale.
(a) For purposes of this Paragraph 2.5, "an event of purchase" shall
mean the following:
(i) In the case of the purchase of Shares under Paragraph 2.2,
the "event of purchase" shall mean the date notice is
received by the Corporation of Shareholder's desire to
transfer his Shares.
(ii) In the case of the purchase of Shares of a transferee under
Paragraph 2.3, the event of purchase shall mean the date
notice of the transferee's acquisition of Shares is
received by the Corporation.
(iii) In the case of the purchase of Shares upon the termination
of Shareholder's employment under Paragraph 2.4, the "event
of purchase" shall mean the date that Shareholder's
employment with the Corporation is terminated for any
reason whatsoever, including the Shareholder's death or
Disability.
(b) If the event of purchase shall be a termination of Shareholder's
employment with the Corporation for "Cause," as defined in the
1997 Non-Qualified Stock Option Plan, the purchase price of each
Share shall be the cash consideration paid by the Shareholder to
acquire the Shares.
2.6 Obligations of Transferees. All transferees of Shares transferred
--------------------------
in accordance with the terms of this Agreement shall take said Shares subject to
the terms,
<PAGE>
conditions and restrictions of this Agreement, except the restrictions in
Section 2.4 shall only apply to a transferee who is an employee of the
Corporation. Such transferee shall, as a condition precedent to the transfer of
Shares, sign a counterpart of this Agreement agreeing to be bound by its terms.
3. MISCELLANEOUS PROVISIONS.
------------------------
3.1 Legend on Stock Certificates. The certificate representing the
----------------------------
Shares shall contain a legend substantially as follows:
"The transfer or pledge of the Shares represented by this certificate
is restricted by, and subject to, the provisions of a certain Stock
Subscription and Repurchase Agreement dated as of__________, 199__. A
copy of said Agreement is on file with the Secretary of the
Corporation. By acceptance of this certificate, the holder hereof
agrees to be bound by the terms of said Agreement."
A copy of this Agreement shall be filed with the Secretary of the
Corporation. During the term of this Agreement, a legend as set forth above
shall be conspicuously endorsed on each certificate representing Shares issued
by the Corporation to Shareholder.
3.2 Right to Specific Performance. In recognition of the fact that
-----------------------------
the Shares subject to this Agreement are of a closely-held corporation and in
view of the purposes of this Agreement, the parties agree that in addition to
any other relief which may be afforded by law arising out of a violation of this
Agreement or a failure to perform its terms, an injured party may, at its
option, have the right to compel the specific performance of the terms and
provisions of this Agreement, the understanding of the parties being that both
damages and injunction shall be proper forms of relief and are not to be
considered alternative remedies.
3.3 Termination.
-----------
(a) This Agreement shall terminate when a registration statement of
the Corporation has been submitted to and accepted by the SEC
authorizing the public trading of the Corporation's Shares and
public trading of the Corporation's Shares is commenced on a
nationally recognized exchange or over-the-counter market.
(b) Upon the termination of this Agreement, Shareholder shall
surrender to the Corporation each certificate bearing the legend
set forth in Paragraph 3.1, and the Corporation shall issue in
lieu thereof a new certificate for an equal number of Shares
without such legend.
3.4 Notices. All notices, requests, and other communication from any
-------
of the parties hereto to another shall be in writing and shall be considered to
have been duly given or served if personally delivered, or sent by first class,
certified or registered mail, return receipt requested, postage prepaid, to the
address of the Shareholder as shown on the Share register of
<PAGE>
the Corporation (or such other address as may be known to the sender), or in the
case of the Corporation, to its registered office.
3.5 Amendment. This Agreement may be altered or amended only by a
---------
written amendment signed by the Corporation and Shareholder.
3.6 Parties in Interest. This Agreement shall be binding upon the
-------------------
heirs, executors, administrators, successors and assigns of Shareholder and the
Corporation. The parties hereby covenant and agree that they, their heirs,
executors, administrators, successors, and assigns will take all action and
execute any and all instruments, releases, assignments, and consents which may
be reasonably required of them in order to carry out the provisions of this
Agreement.
3.7 Counterparts. This Agreement may be executed in any number of
-----------
counterparts each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
3.8 Severability. The invalidity or partial invalidity of any portion
------------
of this Agreement shall not invalidate the remainder thereof, and said remainder
shall remain in full force and effect.
3.9 Captions. The captions at the beginning of paragraphs of this
--------
Agreement are designed for convenience of reference only and not to be used
for the purpose of interpreting any provision of this Agreement.
3.10 Governing Law. This Agreement shall be subject to and governed
-------------
by the laws of the State of Minnesota, and all questions concerning the meaning
and intention of the terms of this Agreement and concerning the validity hereof
and performance hereunder shall be determined and resolved in accordance with
the laws of said State notwithstanding the fact that one or more of the parties
now is or may hereafter become a resident of a different state.
3.11 Employment Rights. The Shareholder acknowledges that no right to
-----------------
employment vests in Shareholder by reason of being a Shareholder and further,
that the Corporation and its Board of Directors or Shareholders shall have no
fiduciary duty or other obligation to provide employment or continuing
employment to any Shareholder.
3.12 Dividends. The Shareholder is entitled only to such dividends as
---------
may be declared by the Board of Directors out of funds legally available
therefor. The Shareholder acknowledges that the Corporation may not pay
dividends in the future other than S corporation distributions for taxes.
Therefore, the Shareholder acknowledges that he has no entitlement to (unless
declared by the Board) nor expectation of dividends with respect to shares of
stock of the Corporation owned by such Shareholder.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
DIAMOND BRANDS INCORPORATED
By_________________________
Its________________________
SHAREHOLDER
___________________________
<PAGE>
DIAMOND BRANDS INCORPORATED
NON-QUALIFIED STOCK OPTION AGREEMENT
This Option Agreement is made as of the 1st day of January, 1997 between
Diamond Brands Incorporated, a Minnesota corporation (the "Company"), and John
Beach, an employee of the Company (the "Optionee").
The Company desires, by affording the Optionee an opportunity to purchase
shares of its common stock (the "Common Stock") as hereinafter provided to carry
out the purpose of the 1997 Non-Qualified Stock Option Plan of the Company (the
"Plan").
THEREFORE, the parties hereby agree as follows:
1. Grant of Option. The Company hereby grants to the Optionee the right
---------------
and option (hereinafter call the "Option") to purchase from the Company all or
any part of an aggregate amount of 20,000 shares of the Common Stock of the
Company on the terms and conditions herein set forth.
2. Purchase Price. The purchase price of the shares of the Common Stock
--------------
covered by this Option shall be $7.50 per share.
3. Term of Option. The term of the Option shall be for a period of ten
--------------
(10) years from the date hereof (the "Option Date"), subject to earlier
termination as hereinafter provided.
4. Vesting of Option. The right to exercise the first 6,667 shares shall
-----------------
vest on January 1, 1997; the right to exercise an additional 6,667 shares shall
vest on January 1, 1998; and the right to exercise the remaining 6,666 shares
shall vest on January 1, 1999.
5. Non-Transferability. The Option shall not be transferable otherwise
-------------------
than by will or the laws of descent and distribution, and the Option may be
exercised during the lifetime of the Optionee only by the Optionee.
6. Method of Exercising Option. Subject to the terms and conditions of
---------------------------
this Option Agreement, the Option may be exercised by written notice to the
Company at the principal office of the Company. Such notice shall state the
election to exercise the Option and the number of shares in respect of which it
is being exercised, and shall be signed by the person so exercising the Option.
Such notice shall be accompanied by payment of the full purchase price of such
shares, which payment shall be made by check or bank draft payable to the
Company. In the event the Option shall be exercised by any person other than
the Optionee, such notice shall be accompanied by appropriate proof of such
right of such person to exercise the Option.
7. Termination of Employment. If an Optionee's employment by the Company
-------------------------
terminates for any reason other than death or Disability (defined in the Plan),
the Option shall terminate. If an Optionee' s employment is terminated by the
Company, the Option shall terminate immediately upon notice by the Company of
such termination. Neither the Plan nor
<PAGE>
this Agreement confers any right with respect to continuance of employment by
the Company or by a subsidiary, nor will this Plan or this Agreement interfere
in any way with the employee's right, or the Company's right, to terminate his
employment at any time.
8. Death of Optionee. If Optionee dies while in the employ of the
-----------------
Company, his Option rights may be exercised, without regard to any installment
exercise restrictions, at any time within ninety (90) days following his death
by his personal representative or by the person or persons to whom his rights
under the Option shall pass by will or by the laws of descent and distribution.
In no event, however, may any option rights be exercised by anyone after the
expiration of the term of this Option.
9. Disability. If the employment of Optionee is terminated because of
----------
Disability, the Optionee, or his legal representative, may at any time within
not more than ninety (90) days after termination of his employment, exercise his
rights, in whole or in part, without regard to any installment exercise
restrictions. In no event, however, may any option rights be exercised by
anyone after the expiration of the term of this Option.
10. Option Plan. This Option is subject to certain additional terms and
-----------
conditions set forth in the Plan pursuant to which this Option has been issued.
Optionee acknowledges receipt of a copy of the Plan on file with the Secretary
of the Company and, by acceptance hereof, agrees to and accepts this Option
subject to the terms of the Plan. Except as otherwise defined herein, defined
terms used in this Agreement shall have the meaning ascribed thereto in the
Plan.
11. Disputes. As a condition of the granting of the Option herein
--------
granted, the Optionee agrees, for the Optionee and the Optionee's personal
representatives, that any dispute or disagreement which may arise under or as a
result of or pursuant to this Agreement shall be determined by the Board of
Directors of the Company, in its sole discretion, and that any interpretation by
the Board of the terms of this Agreement shall be final, binding and conclusive.
12. Binding Effect. This Agreement shall be binding upon the heirs,
--------------
executors, administrators and successors of the parties hereto.
13. Restrictions. Optionee understands that upon exercise of this Option,
------------
the shares purchased may not be sold, transferred, pledged or otherwise disposed
of unless the shares are registered under the Securities Act of 1933 and
applicable state laws, or unless the Company has received an opinion of counsel
satisfactory to the Company that such registration is not required. Optionee
agrees that the exercise of the Option is conditional upon receipt by the
Company of a signed Subscription Agreement and Repurchase Agreement in the form
attached hereto as Exhibit A certifying that the Optionee is acquiring the
shares obtained by exercise of the option for investment purposes and not with
the view or intent to resell or otherwise distribute such option shares and
containing certain transfer restrictions and repurchase rights. The stock
certificate evidencing such shares shall bear a legend referring to such
transfer restrictions and repurchase rights.
<PAGE>
IN WITNESS WHEREOF, the Company and the Optionee have executed this
Agreement as of the date and year first above written.
DIAMOND BRANDS INCORPORATED
By /s/ Edward A. Michael
---------------------------
Its President
--------------------------
/s/ John Beach
-----------------------------
John Beach
<PAGE>
EXHIBIT A
STOCK SUBSCRIPTION AND REPURCHASE AGREEMENT
THIS AGREEMENT, made and entered into effective as of the _____ day of
_____, ____________199__ by and between Diamond Brands Incorporated, a Minnesota
corporation (the "Corporation") and ______, an individual ("Shareholder").
RECITALS
--------
WHEREAS, Shareholder is employed by the Corporation and, pursuant to the
terms of an Option Agreement dated January 1, 1997, desires to exercise options
to purchase ________ shares of the Corporation's common stock (the "Shares" or
"Share") at an exercise price of $7.50 per share; and
WHEREAS, the parties hereto believe it to be in the best interests of the
Corporation and its shareholders to limit the transferability of the Shares to
be purchased by Shareholder hereunder, and, accordingly, such Shares shall be
subject to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, and for other good and valuable consideration, the parties hereto agree
as follows:
1. SHARE ISSUANCE.
--------------
1.1 Share Issuance. Subject to the terms and upon the conditions
--------------
hereinafter set forth, the Corporation hereby issues to Shareholder ___________
Shares.
1.2 Representations, Warranties and Covenants. Shareholder
-----------------------------------------
acknowledges and represents as follows:
(a) Shareholder has been given full and complete access to
information concerning the business and finances of the
Corporation, including the opportunity to ask questions and
receive answers, and has used such access to evaluate the merits
and risks of an investment in the Shares.
(b) Shareholder understands that (i) the purchase of the Shares is a
long-term investment; (ii) Shareholder must bear the economic
risk of investment for an indefinite period of time because the
Shares have not been registered under the Securities Act of 1933
or state securities laws and, therefore, cannot be sold unless
they are subsequently registered under said laws or an exemption
from such registration is available; (iii) there is presently no
public market for the Shares and Shareholder may not be able to
liquidate the investment in the event of an emergency or pledge
the Shares as collateral security for loans; and (iv) the
transferability of the Shares is restricted and requires
conformity with the restrictions contained in paragraph (c)
below, and will be further restricted by a legend placed on
<PAGE>
the certificates representing the Shares stating that the Shares
have not been registered under the Securities Act of 1933 or
state securities laws and referencing the restrictions on
transferability of the Shares.
(c) Shareholder represents and warrants that the Shares to be issued
will be issued for his own account and for investment and without
the intention of reselling or redistributing the same, and that
Shareholder's financial condition is such that it is not likely
that it will be necessary to dispose of any Shares in the
foreseeable future. Shareholder shall not transfer any Shares in
any manner without first obtaining the opinion of counsel
designated by the Corporation that such proposed disposition or
transfer lawfully may be made insofar as the Corporation's
liability is concerned without the registration of the Shares for
such purpose pursuant to the Securities Act of 1933 and
applicable state securities laws.
2. REPURCHASE AGREEMENT.
--------------------
2.1 Restriction on Transfer of Shares.
---------------------------------
(a) Except as otherwise provided in this Agreement, Shareholder may
not, without the written consent of the Corporation, transfer any
Shares subject to this Agreement, including additional shares
which Shareholder may acquire at a future date by purchase, stock
split, stock dividend or recapitalization, until he shall have
given the Corporation the opportunity to buy such Shares on the
terms and conditions hereinafter expressed. Any attempted
transfer in contravention of this Agreement shall be null and
void.
(b) As used in this Paragraph 2, the term "transfer" shall mean any
proposed disposition of Shareholder's Shares by any means
whatsoever, including, without limitation, the occurrence of the
following events:
(i) voluntary sale, delivery, assignment, gift, devise,
exchange or other transfer of the Shares;
(ii) pledge, hypothecation or other encumbrance of the Shares;
(iii) adjudication of Shareholder as bankrupt, Shareholder's
assignment of his interest in the Shares, or any
attachment, levy or other seizure of the Shares by any
creditor, whether or not pursuant to the judicial process;
or
(iv) passage or distribution of such Shares under judicial
order or legal process to any person other than
Shareholder, including a guardian, trustee or conservator
of such Shares.
<PAGE>
2.2 Voluntary Transfer of Shares.
----------------------------
(a) If Shareholder desires at any time during the term of this
Agreement to voluntarily transfer the Shares in any manner, then
Shareholder shall give written notice to the Corporation of such
desire and of the number of Shares he desires to transfer (such
number of Shares being hereinafter referred to as the "Sale
Shares"). Such notice shall further specify the identity of the
proposed transferee, the nature of the transfer (for example,
sale, gift or devise), and the terms thereof.
(b) For a period of thirty (30) days after receipt of the aforesaid
notice, the Corporation shall have the right to purchase the
Sale Shares at the purchase price determined under the
provisions of Paragraph 2.5; provided, however, that if the
notice of desire to transfer the Sale Shares shall be occasioned
by Shareholder's receipt of an offer from a third party to
purchase the Sale Shares, the purchase price per Share to be
paid hereunder shall be the lesser of the purchase price
determined under Paragraph 2.5 or the purchase price offered by
the third party. The Corporation shall exercise its right of
purchase by delivering to Shareholder within said thirty (30)
day period, written notice specifying the number of Sale Shares
to be purchased by the Corporation.
(c) The closing on any sale of Sale Shares to the Corporation shall
occur within thirty (30) days after expiration of the option
period described in subparagraph 2.2(b). At the closing, the
Corporation shall pay, in cash, the entire purchase price for
the Shares to be purchased, and Shareholder shall deliver to the
Corporation stock certificates, duly endorsed for transfer,
representing the Sale Shares purchased, free and clear of all
liens and encumbrances.
(d) If the Corporation does not elect to purchase all of the Sale
Shares as heretofore provided, Shareholder shall be entitled,
for a period of forty-five (45) days following the expiration of
the Corporation's option period under subparagraph 2.2(b), to
transfer said unpurchased Sale Shares to the person identified,
in the manner and on the terms specified in the notice given by
Shareholder pursuant to subparagraph 2.2(a). If said transfer
has not been consummated within said forty-five (45) day period,
said Sale Shares shall remain subject to all the provisions of
this Paragraph 2. If, however, said transfer is consummated
within said forty-five (45) day period, the Shares may be
transferred to the transferee.
(e) This Section 2.2 shall be inoperative and shall not apply in
instances where a shareholder desires to transfer shares to a
purchaser, where the purchaser is acquiring all or substantially
all of the shares of the Corporation, or where a purchaser is
acquiring all of the assets of the
<PAGE>
Corporation and the Corporation is redeeming all of the shares,
or where a purchaser is acquiring the Corporation through a
merger.
2.3 Involuntary Transfer of Shares.
------------------------------
(a) In case of the involuntary sale or other involuntary transfer or
disposition of Shares (including without limitation any transfer
of title or beneficial ownership upon default, forfeiture, court
order, or otherwise than by a voluntary decision on the party of
Shareholder), the Corporation shall have the right to purchase
such Shares in the manner hereinafter set forth. Immediately upon
the acquisition of such Shares, the transferee thereof shall
furnish written notice to the Corporation indicating that said
transferee has acquired the Shares and the price and payment
terms therefore, accompanied by satisfactory evidence of the
same. Upon receipt of such notice, the Corporation shall have the
right to purchase all (but not less than all) of the Shares
acquired by the transferee, in the same manner and upon the same
terms and conditions hereinabove provided in Paragraph 2.2 with
respect to the purchase of Shares as if Shareholder had proposed
to voluntarily transfer his Shares. The purchase price for said
Shares shall be the lesser of the price determined under
Paragraph 2.5 or the price paid by the transferee.
(b) If the Corporation does not elect to purchase all of the Shares
acquired by the transferee, the options shall be deemed not to
have been exercised and all of the Shares may be transferred to
the transferee.
2.4 Transfer of Shares Upon Termination of Employment, Including
------------------------------------------------------------
Death or Disability.
-------------------
(a) In the event Shareholder's employment with the Corporation is
terminated for any reason whatsoever, including the Shareholder's
death or Disability (as defined in the 1997 Non-Qualified Stock
Option Plan), the Corporation shall have the option to purchase
Shareholder's Shares at the price provided in Paragraph 2.5 as
though Shareholder had given notice under Paragraph 2.2 that he
desired to voluntarily transfer his Shares; provided, however,
that for purposes of this Paragraph 2.4, the date specified in
Paragraph 2.2 for the commencement of the Corporation's option
shall be the date on which Shareholder's employment with the
Corporation was terminated and the period of time in which the
Corporation may exercise the option shall be twelve (12) months
from the date of such termination of employment. Notwithstanding
the foregoing, in the event of a termination of Shareholder's
employment by reason of death or Disability, the date for
commencement of the Corporation's option shall be the later of
(i) the date on which Shareholder's employment with the
Corporation was terminated by reason of death or Disability; or
(ii) the date upon
<PAGE>
which such Shareholder receives the last of the Shares subject to
this Agreement and the period of time in which the Corporation
may exercise the option shall be thirty (30) days from such later
date. The Corporation's option under this Section 2.4 shall take
precedence over any other option hereunder and Section 2.2(e)
shall only apply if the Corporation fails to exercise its option
prior to the occurrence of an event described therein.
(b) In the event the Corporation elects not to purchase Shareholder's
Shares within the time provided in Paragraph 2.2, Shareholder
shall thereafter be entitled to sell, in accordance with
Paragraph 2.2 hereof.
2.5 Purchase Price of Shares. Except as provided in subparagraph
------------------------
2.5(b) below, the purchase price of each Share shall be equal to (i) seven times
earnings before interest, taxes, depreciation and amortization for the twelve
month period ended as of the quarter ending immediately prior to the "event of
purchase" (as defined in subparagraph 2.5(a) below), less funded debt existing
at such quarter end, divided by (ii) the total number of shares outstanding on
that date. The purchase price shall be determined by the Corporation and shall
be adjusted for any stock splits, recapitalizations or stock dividends occurring
after the date as of which the purchase price is determined and before the
Closing of the purchase and sale.
(a) For purposes of this Paragraph 2.5, "an event of purchase" shall
mean the following:
(i) In the case of the purchase of Shares under Paragraph 2.2,
the "event of purchase" shall mean the date notice is
received by the Corporation of Shareholder's desire to
transfer his Shares.
(ii) In the case of the purchase of Shares of a transferee
under Paragraph 2.3, the event of purchase shall mean the
date notice of the transferee's acquisition of Shares is
received by the Corporation.
(iii) In the case of the purchase of Shares upon the termination
of Shareholder's employment under Paragraph 2.4, the
"event of purchase" shall mean the date that Shareholder's
employment with the Corporation is terminated for any
reason whatsoever, including the Shareholder's death or
Disability.
(b) If the event of purchase shall be a termination of Shareholder's
employment with the Corporation for "Cause," as defined in the
1997 Non-Qualified Stock Option Plan, the purchase price of each
Share shall be the cash consideration paid by the Shareholder to
acquire the Shares.
2.6 Obligations of Transferees. All transferees of Shares transferred
--------------------------
in accordance with the terms of this Agreement shall take said Shares subject to
the terms,
<PAGE>
conditions and restrictions of this Agreement, except the restrictions in
Section 2.4 shall only apply to a transferee who is an employee of the
Corporation. Such transferee shall, as a condition precedent to the transfer of
Shares, sign a counterpart of this Agreement agreeing to be bound by its terms.
3. MISCELLANEOUS PROVISIONS.
------------------------
3.1 Legend on Stock Certificates. The certificate representing the
----------------------------
Shares shall contain a legend substantially as follows:
"The transfer or pledge of the Shares represented by this certificate
is restricted by, and subject to, the provisions of a certain Stock
Subscription and Repurchase Agreement dated as of _________________ ,
199__. A copy of said Agreement is on file with the Secretary of the
Corporation. By acceptance of this certificate, the holder hereof
agrees to be bound by the terms of said Agreement. "
A copy of this Agreement shall be filed with the Secretary of the
Corporation. During the term of this Agreement, a legend as set forth above
shall be conspicuously endorsed on each certificate representing Shares issued
by the Corporation to Shareholder.
3.2 Right to Specific Performance. In recognition of the fact that
-----------------------------
the Shares subject to this Agreement are of a closely-held corporation and in
view of the purposes of this Agreement, the parties agree that in addition to
any other relief which may be afforded by law arising out of a violation of this
Agreement or a failure to perform its terms, an injured party may, at its
option, have the right to compel the specific performance of the terms and
provisions of this Agreement, the understanding of the parties being that both
damages and injunction shall be proper forms of relief and are not to be
considered alternative remedies.
3.3 Termination.
-----------
(a) This Agreement shall terminate when a registration statement
of the Corporation has been submitted to and accepted by the SEC
authorizing the public trading of the Corporation's Shares and
public trading of the Corporation's Shares is commenced on a
nationally recognized exchange or over-the-counter market.
(b) Upon the termination of this Agreement, Shareholder shall
surrender to the Corporation each certificate bearing the legend
set forth in Paragraph 3.1, and the Corporation shall issue in
lieu thereof a new certificate for an equal number of Shares
without such legend.
3.4 Notices. All notices, requests, and other communication from
-------
any of the parties hereto to another shall be in writing and shall be considered
to have been duly given or served if personally delivered, or sent by first
class, certified or registered mail, return receipt requested, postage prepaid,
to the address of the Shareholder as shown on the Share register of
<PAGE>
the Corporation (or such other address as may be known to the sender), or in the
case of the Corporation, to its registered office.
3.5 Amendment. This Agreement may be altered or amended only by a
---------
written amendment signed by the Corporation and Shareholder.
3.6 Parties in Interest. This Agreement shall be binding upon the
-------------------
heirs, executors, administrators, successors and assigns of Shareholder and the
Corporation. The parties hereby covenant and agree that they, their heirs,
executors, administrators, successors, and assigns will take all action and
execute any and all instruments, releases, assignments, and consents which may
be reasonably required of them in order to carry out the provisions of this
Agreement.
3.7 Counterparts. This Agreement may be executed in any number of
------------
counterparts each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
3.8 Severability. The invalidity or partial invalidity of any portion
------------
of this Agreement shall not invalidate the remainder thereof, and said remainder
shall remain in full force and effect.
3.9 Captions. The captions at the beginning of paragraphs of this
--------
Agreement are designed for convenience of reference only and are not to be used
for the purpose of interpreting any provision of this Agreement.
3.10 Governing Law. This Agreement shall be subject to and governed by
-------------
the laws of the State of Minnesota, and all questions concerning the meaning
and intention of the terms of this Agreement and concerning the validity hereof
and performance hereunder shall be determined and resolved in accordance with
the laws of said State notwithstanding the fact that one or more of the parties
now is or may hereafter become a resident of a different state.
3.11 Employment Rights. The Shareholder acknowledges that no right to
-----------------
employment vests in Shareholder by reason of being a Shareholder and further,
that the Corporation and its Board of Directors or Shareholders shall have no
fiduciary duty or other obligation to provide employment or continuing
employment to any Shareholder.
3.12 Dividends. The Shareholder is entitled only to such dividends as
---------
may be declared by the Board of Directors out of funds legally available
therefor. The Shareholder acknowledges that the Corporation may not pay
dividends in the future other than S corporation distributions for taxes.
Therefore, the Shareholder acknowledges that he has no entitlement to (unless
declared by the Board) nor expectation of dividends with respect to shares of
stock of the Corporation owned by such Shareholder.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
DIAMOND BRANDS INCORPORATED
By____________________________
Its___________________________
SHAREHOLDER
______________________________
<PAGE>
DIAMOND BRANDS INCORPORATED
1997 NON-QUALIFIED STOCK OPTION PLAN
SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS.
------------------------------------
The name of this Plan is the Diamond Brands Incorporated 1997 Non-Qualified
Stock Option Plan (the "Plan"). The purpose of the Plan is to enable Diamond
Brands Incorporated (the "Company") and its Subsidiaries to retain and attract
key employees who contribute to the Company's success by their ability,
ingenuity and industry, and to enable such individuals to participate in the
long-term success and growth of the Company by giving them a proprietary
interest in the Company.
For purposes of the Plan, the following terms shall be defined as set forth
below:
a. "Board" means the Board of Directors of the Company.
-----
b. "Cause" means (i) a felony conviction of a participant or the failure
-----
of a participant to contest prosecution for a felony, or a
participant's misconduct or dishonesty, any of which is harmful to the
business or reputation of the Company; or (ii) the failure of the
participant to perform the duties of his position or the violation by
the participant of any existing or future policies of the Company, in
each case after being given written notice of such failure or
violation and a fourteen (14) day period to remedy such failure or
violation, to the extent such failure or violation can be remedied.
c. "Code" means the Internal Revenue Code of 1986, as amended.
----
d. "Company" means Diamond Brands Incorporated, a corporation organized
-------
under the laws of the State of Minnesota (or any successor
corporation).
e. "Disability" means permanent and total disability as determined by the
----------
Board.
f. "Non-Qualified Stock Option" means any Stock Option that is intended
--------------------------
to be and is designated as a "Non-Qualified Stock Option."
g. "Parent Corporation" means any corporation (other than the Company) in
------------------
an unbroken chain of corporations ending with the Company if each of
the corporations (other than the Company) owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one
of the other corporations in the chain.
h. "Stock" means the Common Stock of the Company.
-----
<PAGE>
i. "Stock Option" means any option to purchase shares of Stock granted
------------
pursuant to Section 5 below.
j. "Subsidiary" means any corporation (other than the Company) in an
----------
unbroken chain of corporations beginning with the Company if each of
the corporations (other than the last corporation in the unbroken
chain) owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in the
chain.
SECTION 2. ADMINISTRATION.
--------------
The Plan shall be administered by the Board of Directors.
The Board shall have the power and authority to grant Stock Options to
eligible parties pursuant to the terms of the Plan. In particular, the Board
shall have the authority:
(i) to select the key employees of the Company and its Subsidiaries to
whom Stock Options may from time to time be granted hereunder;
(ii) to determine whether and to what extent Non-Qualified Stock Options
are to be granted hereunder;
(iii) to determine the number of shares to be covered by each such award
granted hereunder; and
(iv) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder (including, but
not limited to, any restriction on any Stock Option and/or the
shares of Stock relating thereto).
The Board shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any award issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan. The Board may
delegate its authority to officers of the Company for the purpose of selecting
employees who are not officers of the Company for purposes of (i) above.
All decisions made by the Board pursuant to the provisions of the Plan
shall be final and binding on all persons, including the Company and Plan
participants.
2
<PAGE>
SECTION 3. STOCK SUBJECT TO PLAN.
---------------------
The total number of shares of Stock reserved and available for distribution
under the Plan shall be 90,000 shares. Such shares may consist, in whole or in
part, of authorized and unissued shares. If any shares that have been optioned
cease to be subject to Stock Options, such shares shall again be available for
distribution in connection with future awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, other change in corporate structure affecting
the Stock, or spin-off or other distribution of assets to shareholders, such
substitution or adjustment shall be made in the aggregate number of shares
reserved for issuance under the Plan, and in the number and option price of
shares subject to outstanding options granted under the Plan, as may be
determined to be appropriate by the Board, in its sole discretion, provided that
the number of shares subject to any award shall always be a whole number.
SECTION 4. ELIGIBILITY.
-----------
Key employees of the Company and its Subsidiaries who are responsible for
or contribute to the management, growth and/or profitability of the business of
the Company and its Subsidiaries are eligible to be granted Stock Options under
the Plan. The optionees and participants under the Plan shall be selected from
time to time by the Board, in its sole discretion, from among those eligible,
and the Board shall determine, in its sole discretion, the number of shares
covered by each award.
SECTION 5. STOCK OPTIONS.
-------------
Any Stock Option granted under the Plan shall be in such form as the Board
may from time to time approve. The Stock Options granted under the Plan shall be
Non-Qualified Stock Options.
Options granted under the Plan shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Board shall deem desirable.
(a) Option Price. The option price per share of Stock purchasable under
------------
a Stock Option shall be determined by the Board at the time of grant.
(b) Option Term. The term of each Stock Option shall be fixed by the
-----------
Board.
(c) Exercisability. Stock Options shall be exercisable at such time or
--------------
times as determined by the Board at or after grant. If the Board provides, in
its discretion, that any option is exercisable only in installments, the Board
may waive such installment exercise provisions at
3
<PAGE>
any time. Notwithstanding the foregoing, unless the Stock Option Agreement
provides otherwise, any Stock Option granted under this Plan shall be
exercisable in full, without regard to any installment exercise provisions, for
a period specified by the Company, but not to exceed sixty (60) days, prior to
the occurrence of any of the following events: (i) dissolution or liquidation of
the Company other than in conjunction with a bankruptcy of the Company or any
similar occurrence, (ii) any merger, consolidation, acquisition, separation,
reorganization, or similar occurrence, where the Company will not be the
surviving entity or (iii) the transfer of substantially all of the assets of the
Company or 75% or more of the outstanding Stock of the Company.
(d) Method of Exercise. Stock Options may be exercised in whole or in part
------------------
at any time during the option period by giving written notice of exercise to the
Company specifying the number of shares to be purchased. Such notice shall be
accompanied by payment in full of the purchase price, either by certified or
bank check, or by any other form of legal consideration deemed sufficient by the
Board and consistent with the Plan's purpose and applicable law, including
promissory notes. No shares of Stock shall be issued until full payment therefor
has been made. An optionee shall generally have the rights to dividends and
other rights of a shareholder with respect to shares subject to the option when
the optionee has given written notice of exercise, has paid in full for such
shares, and, if requested, has given the representation described in paragraph
(a) of Section 8 and otherwise fulfilled all other obligations set forth in the
Stock Option Agreement.
(e) Non-transferability of Options. No Stock Option shall be transferable
------------------------------
by the optionee otherwise than by will or by the laws of descent and
distribution, and all Stock Options shall be exercisable, during the optionee's
lifetime, only by the optionee.
(f) Termination by Death. If an optionee's employment by the Company and
--------------------
any Subsidiary or Parent Corporation terminates by reason of death, the Stock
Option may thereafter be immediately exercised, to the extent then exercisable
(or on such accelerated basis as the Board shall determine at or after grant),
by the legal representative of the estate or by the legatee of the optionee
under the will of the optionee, for a period of ninety (90) days from the date
of such death or until the expiration of the stated term of the option,
whichever period is shorter.
(g) Termination by Reason of Disability. If an optionee's employment by
-----------------------------------
the Company and any Subsidiary or Parent Corporation terminates by reason of
Disability, any Stock Option held by such optionee may thereafter be exercised,
to the extent it was exercisable at the time of termination due to Disability
(or on such accelerated basis as the Board shall determine at or after grant),
but may not be exercised after ninety (90) days from the date of such
termination of employment or the expiration of the stated term of the option,
whichever period is the shorter.
4
<PAGE>
(h) Other Termination. If an optionee's employment by the Company and any
-----------------
Subsidiary or Parent Corporation terminates for any reason other than death or
Disability, the Stock Option shall thereupon terminate. If an optionee's
employment is terminated by the Company, the Stock Option shall terminate
immediately upon notice by the Company of such termination.
5
<PAGE>
SECTION 6. TRANSFER, LEAVE OF ABSENCE, ETC.
-------------------------------
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer of an employee from the Company to a Parent Corporation
or Subsidiary, or from a Parent Corporation or Subsidiary to the
Company, or from one Subsidiary to another;
(b) a leave of absence, approved in writing by the Board, for military
service or sickness, or for any other purpose approved by the
Company if the period of such leave does not exceed ninety (90) days
(or such longer period as the Board may approve, in its sole
discretion); and
(c) a leave of absence in excess of ninety (90) days, approved in
writing by the Board, but only if the employee's right to re-
employment is guaranteed either by a statute or by contract, and
provided that, in the case of any leave of absence, the employee
returns to work within 30 days after the end of such leave.
SECTION 7. AMENDMENTS AND TERMINATION.
--------------------------
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made which would impair the rights of an
optionee or participant under a Stock Option theretofore granted without the
optionee's or participant's consent.
The Board may amend the terms of any option theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any holder without his or her consent except to the extent authorized under the
Plan. The Board may also substitute new Stock Options for previously granted
options, including previously granted options having higher option prices.
SECTION 8. GENERAL PROVISIONS.
------------------
(a) If any law or regulation of the Securities and Exchange Commission
or of any other body having jurisdiction shall require the Company or the
participant to take any action in connection with the exercise of a Stock
Option, then notwithstanding any contrary provision of a Stock Option Agreement
or this Plan, the date for exercise of such Stock Option and the delivery of the
shares purchased thereunder shall be deferred until the completion of the
necessary action. In the event that the Company shall deem it necessary, the
Company may condition the grant or exercise of a Stock Option granted under this
Plan upon the receipt of a satisfactory certificate that the Optionee is
acquiring the Stock Option or the shares obtained by exercise of the Stock
Option for investment purposes and not with the view or intent to resell or
otherwise distribute
6
<PAGE>
such Stock Option or shares. In such event, the stock certificate evidencing
such shares shall bear a legend referring to applicable laws restricting
transfer of such shares. In the event that the Company shall deem it necessary
to register under the Securities Act of 1933, as amended, or any other
applicable statute, any Stock Options or any shares with respect to which a
Stock Option shall have been granted or exercised, then the participant shall
cooperate with the Company and take such action as is necessary to permit
registration or qualification of such Stock Options or shares.
(b) Nothing contained in this Plan shall prevent the Board of Directors
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases. The adoption
of the Plan shall not confer upon any employee of the Company or any Subsidiary
any right to continued employment with the Company or a Subsidiary, as the case
may be, nor shall it interfere in any way with the right of the Company or a
Subsidiary to terminate the employment of any of its employees at any time.
(c) Each participant shall, no later than the date as of which any part of
the value of an award first becomes includible as compensation in the gross
income of the participant for federal income tax purposes, pay to the Company,
or make arrangements satisfactory to the Board regarding payment of, any
federal, state, or local taxes of any kind required by law to be withheld with
respect to the award. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements and the Company and Subsidiaries
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the participant. Notwithstanding
anything herein to the contrary, in no event shall the Company have any
liability to optionee for federal or state taxes incurred by optionee, which are
the sole and absolute responsibility of optionee under this Plan.
(d) At the time of grant, the Board may provide in connection with any
grant made under this Plan that the shares of Stock received as a result of such
grant shall be subject to such restrictions on transfer as the Board may
determine at the time of the grant and to a repurchase right in favor of the
Company, pursuant to which the participant shall be required to offer to the
Company upon termination of employment for any reason any shares that the
participant acquired under the Plan.
SECTION 9. EFFECTIVE DATE OF PLAN.
----------------------
The Plan shall be effective on January 1, 1997.
7
<PAGE>
NON-QUALIFIED STOCK OPTION
--------------------------
THIS STOCK OPTION is granted this 21st day of April, 1998, by DIAMOND
BRANDS INCORPORATED, a Minnesota corporation (the "Company") to Naresh K. Nakra
(the "Optionee").
WITNESSETH:
----------
WHEREAS, the Board of Directors of the Company is of the opinion that
the interests of the Company and its subsidiaries will be advanced by
encouraging and enabling those employees of the Company and its subsidiaries,
upon whose judgment, initiative and efforts the Company is largely dependent for
the successful conduct of the business of the Company and its subsidiaries, to
acquire or increase their proprietary interest in the Company, thus providing
them with a more direct stake in its welfare and assuring a closer
identification of their interests with those of the Company; and
WHEREAS, the Board believes that the acquisition of such an interest
in the Company will stimulate such employees and strengthen their desire to
remain with the Company or one of its subsidiaries;
NOW, THEREFORE, in consideration of the premises, the Company hereby
grants this non-qualified stock option to the Optionee on the terms hereinafter
expressed.
1. Option Grant. The Company hereby grants to the Optionee an
------------
option to purchase 95,402 shares of Common Stock of the Company at an exercise
price equal to $ 27.95 per share.
2. Time of Exercise. This option may be exercised (in the manner
----------------
provided in paragraph 3 hereof) in whole or in part, and from time to time after
the date hereof, subject to paragraph 7 hereunder and the following limitations:
(a) This option shall vest and become exercisable as to twenty-five
percent (25%) of the shares subject to this option on the 180th day after the
date hereof and shall vest and become exercisable as to 1/30 of the shares
subject to this option on the first day of each month thereafter.
(b) This option may not be exercised after 10 years from the date
hereof.
(c) Nothing in this option shall confer on the Optionee any right to
continue in the employ of the Company or any of its subsidiaries or to interfere
with the right of the Company or of such subsidiary to terminate the Optionee's
employment at any time.
(d) Any unvested portion of this option which, at the time of the
death or disability of Optionee or at the time of any change in control (as
defined below), is not yet fully vested shall automatically become fully vested
in Optionee or his estate, as the case may be. For purposes of this section,
the term "change in control" shall mean and refer to any change in the
equityholders of the Company which results in the majority of the outstanding
stock of the Company no longer being held by Seaver, Kent & Company, LLC or
affiliates thereof, other than as a result of an initial public offering of the
common stock of the Company.
3. Method of Exercise. This option may be exercised only by 30
------------------
days' written notice delivered to the Treasurer of the Company and accompanied
by:
<PAGE>
(a) The full purchase price of the shares purchased payable by a
certified or cashier's check payable to the order of the Company or such other
form of consideration acceptable to the Board of Directors of the Company; and
(b) Such other documents or representations (including without
limitation representations as to the intention of the Optionee, or the purchaser
under paragraph 4 below, to acquire the shares for investment) as the Company
may reasonably request in order to comply with securities, tax or other laws
then applicable to the exercise of the option.
4. Non-Transferability; Death. This option is not transferable by
--------------------------
the Optionee otherwise than by will or the laws of descent and distribution and
is exercisable during the Optionee's lifetime only by him. If the Optionee dies
while in the employ of the Company or one of its subsidiaries, this option may
be exercised (but not later than 10 years from the date hereof) by his estate or
the person to whom the option passes by will or the laws of descent and
distribution, but only to the extent that the Optionee could have exercised this
option on the date of his death.
5. Registration. The Company shall not be required to issue or
------------
deliver any certificate for its Common Shares purchased upon the exercise of
this option prior to the admission of such shares to listing on any stock
exchange on which shares may at that time be listed. In the event of the
exercise of this option with respect to any shares subject hereto, if other
Common Shares of the Company are then listed, the Company shall make prompt
application for such listing with respect to the shares acquired upon the
exercise hereof. If at any time during the option period the Company shall be
advised by its counsel that shares deliverable upon exercise of the option are
required to be registered under the Securities Act of 1933, as amended, or that
delivery of the shares must be accompanied or preceded by a prospectus meeting
the requirements of the Act, the Company will use its best efforts to effect
such registration or provide such prospectus not later than a reasonable time
following each exercise of this option, but delivery of shares by the Company
may be deferred until registration is effected or a prospectus is available.
The Company shall be under no obligation to register the shares deliverable upon
exercise of this option unless it shall be advised by its counsel that such
shares are required to be so registered. The Optionee shall have no interest in
the shares covered by this option unless and until certificates for the shares
are issued following the exercise of this option.
6. Withholding. The Company shall have the right to require, prior
-----------
to the issuance or delivery of any shares hereunder, payment by the Optionee of
any federal, state or local income taxes required by law to be withheld upon the
exercise of all or any part of this Option. The Company may, in its discretion
and subject to such rules as it may adopt as are necessary to prevent the
withholding from being subject to Section 16(b) of the Securities Exchange Act
of 1934, permit the Optionee to satisfy any tax withholding obligation
associated with the exercise of this option, in whole or in part, by electing to
have the Company withhold from the shares otherwise deliverable as a result of
such option exercise Common Shares having a value (based on their Fair Market
Value on the date of delivery) equal to the amount required to be withheld.
7. Termination of Employment. Upon termination of the Optionee's
-------------------------
employment with the Company ("Termination"), all non-vested options granted
hereunder shall be forfeited and all
-2-
<PAGE>
vested options granted hereunder shall only be exercisable for a period of
thirty days following the Termination.
8. Subject to Stockholders Agreement. Shares of Common Stock of the
---------------------------------
Company issued upon exercise of this option are subject to all of the terms and
conditions set forth in the Stockholders Agreement dated as of April 21, 1998,
by and between the Company, Seaver Kent - TPG Partners, L.P., Seaver Kent I
Parallel, L.P., Naresh Nakra and the Stockholders named therein and Optionee.
* * *
-3-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this non-qualified stock option
to be executed on the date first above written.
DIAMOND BRANDS INCORPORATED
By /s/ Thomas W. Knuesel
------------------------------
Its VP-CFO
-----------------------------
ACCEPTED:
/s/ Naresh K. Nakra
- ----------------------
Naresh K. Nakra
-4-
<PAGE>
NON-QUALIFIED STOCK OPTION
--------------------------
THIS STOCK OPTION is granted this 21st day of April, 1998, by DIAMOND
BRANDS INCORPORATED, a Minnesota corporation (the "Company") to Naresh K. Nakra
(the "Optionee").
WITNESSETH:
----------
WHEREAS, the Board of Directors of the Company is of the opinion that
the interests of the Company and its subsidiaries will be advanced by
encouraging and enabling those employees of the Company and its subsidiaries,
upon whose judgment, initiative and efforts the Company is largely dependent for
the successful conduct of the business of the Company and its subsidiaries, to
acquire or increase their proprietary interest in the Company, thus providing
them with a more direct stake in its welfare and assuring a closer
identification of their interests with those of the Company; and
WHEREAS, the Board believes that the acquisition of such an interest
in the Company will stimulate such employees and strengthen their desire to
remain with the Company or one of its subsidiaries;
NOW, THEREFORE, in consideration of the premises, the Company hereby
grants this non-qualified stock option to the Optionee on the terms hereinafter
expressed.
1. Option Grant. The Company hereby grants to the Optionee an
------------
option to purchase 286,205 shares of Common Stock of the Company at an exercise
price equal to $13.976 per share.
2. Time of Exercise. This option may be exercised (in the manner
----------------
provided in paragraph 3 hereof) in whole or in part, and from time to time after
the date hereof, subject to paragraph 7 hereunder and the following limitations:
(a) This option shall vest and become exercisable as to twenty-five
percent (25%) of the shares subject to this option on the 180th day after the
date hereof and shall vest and become exercisable as to 1/30 of the shares
subject to this option on the first day of each month thereafter.
(b) This option may not be exercised after 10 years from the date
hereof.
(c) Nothing in this option shall confer on the Optionee any right to
continue in the employ of the Company or any of its subsidiaries or to interfere
with the right of the Company or of such subsidiary to terminate the Optionee's
employment at any time.
(d) Any unvested portion of this option which, at the time of the
death or disability of Optionee or at the time of any change in control (as
defined below), is not yet fully vested shall automatically become fully vested
in Optionee or his estate, as the case may be. For purposes of this section,
the term "change in control" shall mean and refer to any change in the
equityholders of the Company which results in the majority of the outstanding
stock of the Company no longer being held by Seaver, Kent & Company, LLC or
affiliates thereof, other than as a result of an initial public offering of the
common stock of the Company.
3. Method of Exercise. This option may be exercised only by 30
------------------
days' written notice delivered to the Treasurer of the Company and accompanied
by:
<PAGE>
(a) The full purchase price of the shares purchased payable by a
certified or cashier's check payable to the order of the Company or such other
form of consideration acceptable to the Board of Directors of the Company; and
(b) Such other documents or representations (including without
limitation representations as to the intention of the Optionee, or the purchaser
under paragraph 4 below, to acquire the shares for investment) as the Company
may reasonably request in order to comply with securities, tax or other laws
then applicable to the exercise of the option.
4. Non-Transferability; Death. This option is not transferable by
--------------------------
the Optionee otherwise than by will or the laws of descent and distribution and
is exercisable during the Optionee's lifetime only by him. If the Optionee dies
while in the employ of the Company or one of its subsidiaries, this option may
be exercised (but not later than 10 years from the date hereof) by his estate or
the person to whom the option passes by will or the laws of descent and
distribution, but only to the extent that the Optionee could have exercised this
option on the date of his death.
5. Registration. The Company shall not be required to issue or
------------
deliver any certificate for its Common Shares purchased upon the exercise of
this option prior to the admission of such shares to listing on any stock
exchange on which shares may at that time be listed. In the event of the
exercise of this option with respect to any shares subject hereto, if other
Common Shares of the Company are then listed, the Company shall make prompt
application for such listing with respect to the shares acquired upon the
exercise hereof. If at any time during the option period the Company shall be
advised by its counsel that shares deliverable upon exercise of the option are
required to be registered under the Securities Act of 1933, as amended, or that
delivery of the shares must be accompanied or preceded by a prospectus meeting
the requirements of the Act, the Company will use its best efforts to effect
such registration or provide such prospectus not later than a reasonable time
following each exercise of this option, but delivery of shares by the Company
may be deferred until registration is effected or a prospectus is available.
The Company shall be under no obligation to register the shares deliverable upon
exercise of this option unless it shall be advised by its counsel that such
shares are required to be so registered. The Optionee shall have no interest in
the shares covered by this option unless and until certificates for the shares
are issued following the exercise of this option.
6. Withholding. The Company shall have the right to require, prior
-----------
to the issuance or delivery of any shares hereunder, payment by the Optionee of
any federal, state or local income taxes required by law to be withheld upon the
exercise of all or any part of this Option. The Company may, in its discretion
and subject to such rules as it may adopt as are necessary to prevent the
withholding from being subject to Section 16(b) of the Securities Exchange Act
of 1934, permit the Optionee to satisfy any tax withholding obligation
associated with the exercise of this option, in whole or in part, by electing to
have the Company withhold from the shares otherwise deliverable as a result of
such option exercise Common Shares having a value (based on their Fair Market
Value on the date of delivery) equal to the amount required to be withheld.
7. Termination of Employment. Upon termination of the Optionee's
-------------------------
employment with the Company ("Termination"), all non-vested options granted
hereunder shall be forfeited and all
-2-
<PAGE>
vested options granted hereunder shall only be exercisable for a period of
thirty days following the Termination.
8. Subject to Stockholders Agreement. Shares of Common Stock of the
---------------------------------
Company issued upon exercise of this option are subject to all of the terms and
conditions set forth in the Stockholders Agreement dated as of April 21, 1998,
by and between the Company, Seaver Kent - TPG Partners, L.P., Seaver Kent I
Parallel, L.P., Naresh Nakra and the Stockholders named therein and Optionee.
* * *
-3-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this non-qualified stock option
to be executed on the date first above written.
DIAMOND BRANDS INCORPORATED
By /s/ Thomas W. Knuesel
------------------------------
Its VP-CFO
-----------------------------
ACCEPTED:
/s/ Naresh K. Nakra
- ----------------------
Naresh K. Nakra
-4-
<PAGE>
NON-QUALIFIED STOCK OPTION
--------------------------
THIS STOCK OPTION is granted this 21st day of April, 1998, by DIAMOND
BRANDS INCORPORATED, a Minnesota corporation (the "Company") to Thomas Knuesel
(the "Optionee").
WITNESSETH:
----------
WHEREAS, the Board of Directors of the Company is of the opinion that
the interests of the Company and its subsidiaries will be advanced by
encouraging and enabling those employees of the Company and its subsidiaries,
upon whose judgment, initiative and efforts the Company is largely dependent for
the successful conduct of the business of the Company and its subsidiaries, to
acquire or increase their proprietary interest in the Company, thus providing
them with a more direct stake in its welfare and assuring a closer
identification of their interests with those of the Company; and
WHEREAS, the Board believes that the acquisition of such an interest
in the Company will stimulate such employees and strengthen their desire to
remain with the Company or one of its subsidiaries;
NOW, THEREFORE, in consideration of the premises, the Company hereby
grants this non-qualified stock option to the Optionee on the terms hereinafter
expressed.
1. Option Grant. The Company hereby grants to the Optionee an
------------
option to purchase 47,701 shares of Common Stock of the Company at an exercise
price equal to $ 13.976 per share.
2. Time of Exercise. This option may be exercised (in the manner
----------------
provided in paragraph 3 hereof) in whole or in part, and from time to time after
the date hereof, subject to paragraph 7 hereunder and the following limitations:
(a) This option shall vest and become exercisable as to twenty-five
percent (25%) of the shares subject to this option on the first anniversary of
the date hereof and shall vest and become exercisable as to 1/36 of the shares
subject to this option at the end of each month thereafter.
(b) This option may not be exercised after 10 years from the date
hereof.
(c) Nothing in this option shall confer on the Optionee any right to
continue in the employ of the Company or any of its subsidiaries or to interfere
with the right of the Company or of such subsidiary to terminate the Optionee's
employment at any time.
(d) Any unvested portion of this option which, at the time of the
death or disability of Optionee or at the time of any change in control (as
defined below), is not yet fully vested shall automatically become fully vested
in Optionee or his estate, as the case may be. For purposes of this section, the
term "change in control" shall mean and refer to any change in the equityholders
of the Company which results in the majority of the outstanding stock of the
Company no longer being held by Seaver, Kent & Company, LLC or affiliates
thereof, other than as a result of an initial public offering of the common
stock of the Company.
3. Method of Exercise. This option may be exercised only by 30
------------------
days' written notice delivered to the Treasurer of the Company and accompanied
by:
<PAGE>
(a) The full purchase price of the shares purchased payable by a
certified or cashier's check payable to the order of the Company or such other
form of consideration acceptable to the Board of Directors of the Company; and
(b) Such other documents or representations (including without
limitation representations as to the intention of the Optionee, or the purchaser
under paragraph 4 below, to acquire the shares for investment) as the Company
may reasonably request in order to comply with securities, tax or other laws
then applicable to the exercise of the option.
4. Non-Transferability; Death. This option is not transferable by
--------------------------
the Optionee otherwise than by will or the laws of descent and distribution and
is exercisable during the Optionee's lifetime only by him. If the Optionee dies
while in the employ of the Company or one of its subsidiaries, this option may
be exercised (but not later than 10 years from the date hereof) by his estate or
the person to whom the option passes by will or the laws of descent and
distribution, but only to the extent that the Optionee could have exercised this
option on the date of his death.
5. Registration. The Company shall not be required to issue or
------------
deliver any certificate for its Common Shares purchased upon the exercise of
this option prior to the admission of such shares to listing on any stock
exchange on which shares may at that time be listed. In the event of the
exercise of this option with respect to any shares subject hereto, if other
Common Shares of the Company are then listed, the Company shall make prompt
application for such listing with respect to the shares acquired upon the
exercise hereof. If at any time during the option period the Company shall be
advised by its counsel that shares deliverable upon exercise of the option are
required to be registered under the Securities Act of 1933, as amended, or that
delivery of the shares must be accompanied or preceded by a prospectus meeting
the requirements of the Act, the Company will use its best efforts to effect
such registration or provide such prospectus not later than a reasonable time
following each exercise of this option, but delivery of shares by the Company
may be deferred until registration is effected or a prospectus is available. The
Company shall be under no obligation to register the shares deliverable upon
exercise of this option unless it shall be advised by its counsel that such
shares are required to be so registered. The Optionee shall have no interest in
the shares covered by this option unless and until certificates for the shares
are issued following the exercise of this option.
6. Withholding. The Company shall have the right to require, prior
-----------
to the issuance or delivery of any shares hereunder, payment by the Optionee of
any federal, state or local income taxes required by law to be withheld upon the
exercise of all or any part of this Option. The Company may, in its discretion
and subject to such rules as it may adopt as are necessary to prevent the
withholding from being subject to Section 16(b) of the Securities Exchange Act
of 1934, permit the Optionee to satisfy any tax withholding obligation
associated with the exercise of this option, in whole or in part, by electing to
have the Company withhold from the shares otherwise deliverable as a result of
such option exercise Common Shares having a value (based on their Fair Market
Value on the date of delivery) equal to the amount required to be withheld.
7. Termination of Employment. Upon termination of the Optionee's
-------------------------
employment with the Company ("Termination"), all non-vested options granted
hereunder shall be forfeited and all
-2-
<PAGE>
vested options granted hereunder shall only be exercisable for a period of
thirty days following the Termination.
8. Subject to Stockholders Agreement. Shares of Common Stock of the
---------------------------------
Company issued upon exercise of this option are subject to all of the terms and
conditions set forth in the Stockholders Agreement dated as of April 21, 1998,
by and between the Company, Seaver Kent - TPG Partners, L.P., Seaver Kent I
Parallel, L.P., Naresh Nakra and the Stockholders named therein and Optionee.
* * *
-3-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this non-qualified stock option
to be executed on the date first above written.
DIAMOND BRANDS INCORPORATED
By /s/ Edward A. Michael
-----------------------------
Its President
----------------------------
ACCEPTED:
/s/ Thomas W. Knuesel
- ------------------------
OPTIONEE
-4-
<PAGE>
NON-QUALIFIED STOCK OPTION
--------------------------
THIS STOCK OPTION is granted this 21st day of April, 1998, by DIAMOND
BRANDS INCORPORATED, a Minnesota corporation (the "Company") to John Young (the
"Optionee").
WITNESSETH:
----------
WHEREAS, the Board of Directors of the Company is of the opinion that
the interests of the Company and its subsidiaries will be advanced by
encouraging and enabling those employees of the Company and its subsidiaries,
upon whose judgment, initiative and efforts the Company is largely dependent for
the successful conduct of the business of the Company and its subsidiaries, to
acquire or increase their proprietary interest in the Company, thus providing
them with a more direct stake in its welfare and assuring a closer
identification of their interests with those of the Company; and
WHEREAS, the Board believes that the acquisition of such an interest
in the Company will stimulate such employees and strengthen their desire to
remain with the Company or one of its subsidiaries;
NOW, THEREFORE, in consideration of the premises, the Company hereby
grants this non-qualified stock option to the Optionee on the terms hereinafter
expressed.
1. Option Grant. The Company hereby grants to the Optionee an
------------
option to purchase 47,701 shares of Common Stock of the Company at an exercise
price equal to $ 13.976 per share.
2. Time of Exercise. This option may be exercised (in the manner
----------------
provided in paragraph 3 hereof) in whole or in part, and from time to time after
the date hereof, subject to paragraph 7 hereunder and the following limitations:
(a) This option shall vest and become exercisable as to twenty-five
percent (25%) of the shares subject to this option on the first anniversary of
the date hereof and shall vest and become exercisable as to 1/36 of the shares
subject to this option at the end of each month thereafter.
(b) This option may not be exercised after 10 years from the date
hereof.
(c) Nothing in this option shall confer on the Optionee any right to
continue in the employ of the Company or any of its subsidiaries or to interfere
with the right of the Company or of such subsidiary to terminate the Optionee's
employment at any time.
(d) Any unvested portion of this option which, at the time of the
death or disability of Optionee or at the time of any change in control (as
defined below), is not yet fully vested shall automatically become fully vested
in Optionee or his estate, as the case may be. For purposes of this section,
the term "change in control" shall mean and refer to any change in the
equityholders of the Company which results in the majority of the outstanding
stock of the Company no longer being held by Seaver, Kent & Company, LLC or
affiliates thereof, other than as a result of an initial public offering of the
common stock of the Company.
3. Method of Exercise. This option may be exercised only by 30
------------------
days' written notice delivered to the Treasurer of the Company and accompanied
by:
<PAGE>
(a) The full purchase price of the shares purchased payable by a
certified or cashier's check payable to the order of the Company or such other
form of consideration acceptable to the Board of Directors of the Company; and
(b) Such other documents or representations (including without
limitation representations as to the intention of the Optionee, or the purchaser
under paragraph 4 below, to acquire the shares for investment) as the Company
may reasonably request in order to comply with securities, tax or other laws
then applicable to the exercise of the option.
4. Non-Transferability; Death. This option is not transferable by
--------------------------
the Optionee otherwise than by will or the laws of descent and distribution and
is exercisable during the Optionee's lifetime only by him. If the Optionee dies
while in the employ of the Company or one of its subsidiaries, this option may
be exercised (but not later than 10 years from the date hereof) by his estate or
the person to whom the option passes by will or the laws of descent and
distribution, but only to the extent that the Optionee could have exercised this
option on the date of his death.
5. Registration. The Company shall not be required to issue or
------------
deliver any certificate for its Common Shares purchased upon the exercise of
this option prior to the admission of such shares to listing on any stock
exchange on which shares may at that time be listed. In the event of the
exercise of this option with respect to any shares subject hereto, if other
Common Shares of the Company are then listed, the Company shall make prompt
application for such listing with respect to the shares acquired upon the
exercise hereof. If at any time during the option period the Company shall be
advised by its counsel that shares deliverable upon exercise of the option are
required to be registered under the Securities Act of 1933, as amended, or that
delivery of the shares must be accompanied or preceded by a prospectus meeting
the requirements of the Act, the Company will use its best efforts to effect
such registration or provide such prospectus not later than a reasonable time
following each exercise of this option, but delivery of shares by the Company
may be deferred until registration is effected or a prospectus is available.
The Company shall be under no obligation to register the shares deliverable upon
exercise of this option unless it shall be advised by its counsel that such
shares are required to be so registered. The Optionee shall have no interest in
the shares covered by this option unless and until certificates for the shares
are issued following the exercise of this option.
6. Withholding. The Company shall have the right to require, prior
-----------
to the issuance or delivery of any shares hereunder, payment by the Optionee of
any federal, state or local income taxes required by law to be withheld upon the
exercise of all or any part of this Option. The Company may, in its discretion
and subject to such rules as it may adopt as are necessary to prevent the
withholding from being subject to Section 16(b) of the Securities Exchange Act
of 1934, permit the Optionee to satisfy any tax withholding obligation
associated with the exercise of this option, in whole or in part, by electing to
have the Company withhold from the shares otherwise deliverable as a result of
such option exercise Common Shares having a value (based on their Fair Market
Value on the date of delivery) equal to the amount required to be withheld.
7. Termination of Employment. Upon termination of the Optionee's
-------------------------
employment with the Company ("Termination"), all non-vested options granted
hereunder shall be forfeited and all
-2-
<PAGE>
vested options granted hereunder shall only be exercisable for a period of
thirty days following the Termination.
8. Subject to Stockholders Agreement. Shares of Common Stock of the
---------------------------------
Company issued upon exercise of this option are subject to all of the terms and
conditions set forth in the Stockholders Agreement dated as of April 21, 1998,
by and between the Company, Seaver Kent - TPG Partners, L.P., Seaver Kent I
Parallel, L.P., Naresh Nakra and the Stockholders named therein and Optionee.
* * *
-3-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this non-qualified stock option
to be executed on the date first above written.
DIAMOND BRANDS INCORPORATED
By __________________________________
Its __________________________________
ACCEPTED:
- ----------------
OPTIONEE
-4-
<PAGE>
NON-QUALIFIED STOCK OPTION
--------------------------
THIS STOCK OPTION is granted this 21st day of April, 1998, by DIAMOND
BRANDS INCORPORATED, a Minnesota corporation (the "Company") to Christopher
Mathews (the "Optionee").
WITNESSETH:
----------
WHEREAS, the Board of Directors of the Company is of the opinion that
the interests of the Company and its subsidiaries will be advanced by
encouraging and enabling those employees of the Company and its subsidiaries,
upon whose judgment, initiative and efforts the Company is largely dependent for
the successful conduct of the business of the Company and its subsidiaries, to
acquire or increase their proprietary interest in the Company, thus providing
them with a more direct stake in its welfare and assuring a closer
identification of their interests with those of the Company; and
WHEREAS, the Board believes that the acquisition of such an interest
in the Company will stimulate such employees and strengthen their desire to
remain with the Company or one of its subsidiaries;
NOW, THEREFORE, in consideration of the premises, the Company hereby
grants this non-qualified stock option to the Optionee on the terms hereinafter
expressed.
1. Option Grant. The Company hereby grants to the Optionee an
------------
option to purchase 47,701 shares of Common Stock of the Company at an exercise
price equal to $ 13.976 per share.
2. Time of Exercise. This option may be exercised (in the manner
----------------
provided in paragraph 3 hereof) in whole or in part, and from time to time after
the date hereof, subject to paragraph 7 hereunder and the following limitations:
(a) This option shall vest and become exercisable as to twenty-five
percent (25%) of the shares subject to this option on the first anniversary of
the date hereof and shall vest and become exercisable as to 1/36 of the shares
subject to this option at the end of each month thereafter.
(b) This option may not be exercised after 10 years from the date
hereof.
(c) Nothing in this option shall confer on the Optionee any right to
continue in the employ of the Company or any of its subsidiaries or to interfere
with the right of the Company or of such subsidiary to terminate the Optionee's
employment at any time.
(d) Any unvested portion of this option which, at the time of the
death or disability of Optionee or at the time of any change in control (as
defined below), is not yet fully vested shall automatically become fully vested
in Optionee or his estate, as the case may be. For purposes of this section,
the term "change in control" shall mean and refer to any change in the
equityholders of the Company which results in the majority of the outstanding
stock of the Company no longer being held by Seaver, Kent & Company, LLC or
affiliates thereof, other than as a result of an initial public offering of the
common stock of the Company.
<PAGE>
3. Method of Exercise. This option may be exercised only by 30
------------------
days' written notice delivered to the Treasurer of the Company and accompanied
by:
(a) The full purchase price of the shares purchased payable by a
certified or cashier's check payable to the order of the Company or such other
form of consideration acceptable to the Board of Directors of the Company; and
(b) Such other documents or representations (including without
limitation representations as to the intention of the Optionee, or the purchaser
under paragraph 4 below, to acquire the shares for investment) as the Company
may reasonably request in order to comply with securities, tax or other laws
then applicable to the exercise of the option.
4. Non-Transferability; Death. This option is not transferable by
--------------------------
the Optionee otherwise than by will or the laws of descent and distribution and
is exercisable during the Optionee's lifetime only by him. If the Optionee dies
while in the employ of the Company or one of its subsidiaries, this option may
be exercised (but not later than 10 years from the date hereof) by his estate or
the person to whom the option passes by will or the laws of descent and
distribution, but only to the extent that the Optionee could have exercised this
option on the date of his death.
5. Registration. The Company shall not be required to issue or
------------
deliver any certificate for its Common Shares purchased upon the exercise of
this option prior to the admission of such shares to listing on any stock
exchange on which shares may at that time be listed. In the event of the
exercise of this option with respect to any shares subject hereto, if other
Common Shares of the Company are then listed, the Company shall make prompt
application for such listing with respect to the shares acquired upon the
exercise hereof. If at any time during the option period the Company shall be
advised by its counsel that shares deliverable upon exercise of the option are
required to be registered under the Securities Act of 1933, as amended, or that
delivery of the shares must be accompanied or preceded by a prospectus meeting
the requirements of the Act, the Company will use its best efforts to effect
such registration or provide such prospectus not later than a reasonable time
following each exercise of this option, but delivery of shares by the Company
may be deferred until registration is effected or a prospectus is available. The
Company shall be under no obligation to register the shares deliverable upon
exercise of this option unless it shall be advised by its counsel that such
shares are required to be so registered. The Optionee shall have no interest in
the shares covered by this option unless and until certificates for the shares
are issued following the exercise of this option.
6. Withholding. The Company shall have the right to require, prior
-----------
to the issuance or delivery of any shares hereunder, payment by the Optionee of
any federal, state or local income taxes required by law to be withheld upon the
exercise of all or any part of this Option. The Company may, in its discretion
and subject to such rules as it may adopt as are necessary to prevent the
withholding from being subject to Section 16(b) of the Securities Exchange Act
of 1934, permit the Optionee to satisfy any tax withholding obligation
associated with the exercise of this option, in whole or in part, by electing to
have the Company withhold from the shares otherwise deliverable as a result of
such option exercise Common Shares having a value (based on their Fair Market
Value on the date of delivery) equal to the amount required to be withheld.
-2-
<PAGE>
7. Termination of Employment. Upon termination of the Optionee's
-------------------------
employment with the Company ("Termination"), all non-vested options granted
hereunder shall be forfeited and all vested options granted hereunder shall only
be exercisable for a period of thirty days following the Termination.
8. Subject to Stockholders Agreement. Shares of Common Stock of the
---------------------------------
Company issued upon exercise of this option are subject to all of the terms and
conditions set forth in the Stockholders Agreement dated as of April 21, 1998,
by and between the Company, Seaver Kent - TPG Partners, L.P., Seaver Kent I
Parallel, L.P., Naresh Nakra and the Stockholders named therein and Optionee.
* * *
-3-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this non-qualified stock option
to be executed on the date first above written.
DIAMOND BRANDS INCORPORATED
By _____________________
Its ____________________
ACCEPTED:
_______________
OPTIONEE
-4-
<PAGE>
NON-QUALIFIED STOCK OPTION
--------------------------
THIS STOCK OPTION is granted this 21st day of April, 1998, by DIAMOND
BRANDS INCORPORATED, a Minnesota corporation (the "Company") to Richard Campbell
(the "Optionee").
WITNESSETH:
----------
WHEREAS, the Board of Directors of the Company is of the opinion that
the interests of the Company and its subsidiaries will be advanced by
encouraging and enabling those employees of the Company and its subsidiaries,
upon whose judgment, initiative and efforts the Company is largely dependent for
the successful conduct of the business of the Company and its subsidiaries, to
acquire or increase their proprietary interest in the Company, thus providing
them with a more direct stake in its welfare and assuring a closer
identification of their interests with those of the Company; and
WHEREAS, the Board believes that the acquisition of such an interest
in the Company will stimulate such employees and strengthen their desire to
remain with the Company or one of its subsidiaries;
NOW, THEREFORE, in consideration of the premises, the Company hereby
grants this non-qualified stock option to the Optionee on the terms hereinafter
expressed.
1. Option Grant. The Company hereby grants to the Optionee an
------------
option to purchase 47,701 shares of Common Stock of the Company at an exercise
price equal to $ 13.976 per share.
2. Time of Exercise. This option may be exercised (in the manner
----------------
provided in paragraph 3 hereof) in whole or in part, and from time to time after
the date hereof, subject to paragraph 7 hereunder and the following limitations:
(a) This option shall vest and become exercisable as to twenty-five
percent (25%) of the shares subject to this option on the first anniversary of
the date hereof and shall vest and become exercisable as to 1/36 of the shares
subject to this option at the end of each month thereafter.
(b) This option may not be exercised after 10 years from the date
hereof.
(c) Nothing in this option shall confer on the Optionee any right to
continue in the employ of the Company or any of its subsidiaries or to interfere
with the right of the Company or of such subsidiary to terminate the Optionee's
employment at any time.
(d) Any unvested portion of this option which, at the time of the
death or disability of Optionee or at the time of any change in control (as
defined below), is not yet fully vested shall automatically become fully vested
in Optionee or his estate, as the case may be. For purposes of this section,
the term "change in control" shall mean and refer to any change in the
equityholders of the Company which results in the majority of the outstanding
stock of the Company no longer being held by Seaver, Kent & Company, LLC or
affiliates thereof, other than as a result of an initial public offering of the
common stock of the Company.
3. Method of Exercise. This option may be exercised only by 30
------------------
days' written notice delivered to the Treasurer of the Company and accompanied
by:
<PAGE>
(a) The full purchase price of the shares purchased payable by a
certified or cashier's check payable to the order of the Company or such other
form of consideration acceptable to the Board of Directors of the Company; and
(b) Such other documents or representations (including without
limitation representations as to the intention of the Optionee, or the purchaser
under paragraph 4 below, to acquire the shares for investment) as the Company
may reasonably request in order to comply with securities, tax or other laws
then applicable to the exercise of the option.
4. Non-Transferability; Death. This option is not transferable by
--------------------------
the Optionee otherwise than by will or the laws of descent and distribution and
is exercisable during the Optionee's lifetime only by him. If the Optionee dies
while in the employ of the Company or one of its subsidiaries, this option may
be exercised (but not later than 10 years from the date hereof) by his estate or
the person to whom the option passes by will or the laws of descent and
distribution, but only to the extent that the Optionee could have exercised this
option on the date of his death.
5. Registration. The Company shall not be required to issue or
------------
deliver any certificate for its Common Shares purchased upon the exercise of
this option prior to the admission of such shares to listing on any stock
exchange on which shares may at that time be listed. In the event of the
exercise of this option with respect to any shares subject hereto, if other
Common Shares of the Company are then listed, the Company shall make prompt
application for such listing with respect to the shares acquired upon the
exercise hereof. If at any time during the option period the Company shall be
advised by its counsel that shares deliverable upon exercise of the option are
required to be registered under the Securities Act of 1933, as amended, or that
delivery of the shares must be accompanied or preceded by a prospectus meeting
the requirements of the Act, the Company will use its best efforts to effect
such registration or provide such prospectus not later than a reasonable time
following each exercise of this option, but delivery of shares by the Company
may be deferred until registration is effected or a prospectus is available. The
Company shall be under no obligation to register the shares deliverable upon
exercise of this option unless it shall be advised by its counsel that such
shares are required to be so registered. The Optionee shall have no interest in
the shares covered by this option unless and until certificates for the shares
are issued following the exercise of this option.
6. Withholding. The Company shall have the right to require, prior
-----------
to the issuance or delivery of any shares hereunder, payment by the Optionee of
any federal, state or local income taxes required by law to be withheld upon the
exercise of all or any part of this Option. The Company may, in its discretion
and subject to such rules as it may adopt as are necessary to prevent the
withholding from being subject to Section 16(b) of the Securities Exchange Act
of 1934, permit the Optionee to satisfy any tax withholding obligation
associated with the exercise of this option, in whole or in part, by electing to
have the Company withhold from the shares otherwise deliverable as a result of
such option exercise Common Shares having a value (based on their Fair Market
Value on the date of delivery) equal to the amount required to be withheld.
7. Termination of Employment. Upon termination of the Optionee's
-------------------------
employment with the Company ("Termination"), all non-vested options granted
hereunder shall be forfeited and all
-2-
<PAGE>
vested options granted hereunder shall only be exercisable for a period of
thirty days following the Termination.
8. Subject to Stockholders Agreement. Shares of Common Stock of the
---------------------------------
Company issued upon exercise of this option are subject to all of the terms and
conditions set forth in the Stockholders Agreement dated as of April 21, 1998,
by and between the Company, Seaver Kent - TPG Partners, L.P., Seaver Kent I
Parallel, L.P., Naresh Nakra and the Stockholders named therein and Optionee.
* * *
-3-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this non-qualified stock option
to be executed on the date first above written.
DIAMOND BRANDS INCORPORATED
By ____________________
Its ____________________
ACCEPTED:
_______________
OPTIONEE
-4-
<PAGE>
NON-QUALIFIED STOCK OPTION
--------------------------
THIS STOCK OPTION is granted this 21st day of April, 1998, by DIAMOND
BRANDS INCORPORATED, a Minnesota corporation (the "Company") to John Beach (the
"Optionee").
WITNESSETH:
----------
WHEREAS, the Board of Directors of the Company is of the opinion that
the interests of the Company and its subsidiaries will be advanced by
encouraging and enabling those employees of the Company and its subsidiaries,
upon whose judgment, initiative and efforts the Company is largely dependent for
the successful conduct of the business of the Company and its subsidiaries, to
acquire or increase their proprietary interest in the Company, thus providing
them with a more direct stake in its welfare and assuring a closer
identification of their interests with those of the Company; and
WHEREAS, the Board believes that the acquisition of such an interest
in the Company will stimulate such employees and strengthen their desire to
remain with the Company or one of its subsidiaries;
NOW, THEREFORE, in consideration of the premises, the Company hereby
grants this non-qualified stock option to the Optionee on the terms hereinafter
expressed.
1. Option Grant. The Company hereby grants to the Optionee an
------------
option to purchase 23,850 shares of Common Stock of the Company at an exercise
price equal to $ 13.976 per share.
2. Time of Exercise. This option may be exercised (in the manner
----------------
provided in paragraph 3 hereof) in whole or in part, and from time to time after
the date hereof, subject to paragraph 7 hereunder and the following limitations:
(a) This option shall vest and become exercisable as to twenty-five
percent (25%) of the shares subject to this option on the first anniversary of
the date hereof and shall vest and become exercisable as to 1/36 of the shares
subject to this option at the end of each month thereafter.
(b) This option may not be exercised after 10 years from the date
hereof.
(c) Nothing in this option shall confer on the Optionee any right to
continue in the employ of the Company or any of its subsidiaries or to interfere
with the right of the Company or of such subsidiary to terminate the Optionee's
employment at any time.
(d) Any unvested portion of this option which, at the time of the
death or disability of Optionee or at the time of any change in control (as
defined below), is not yet fully vested shall automatically become fully vested
in Optionee or his estate, as the case may be. For purposes of this section,
the term "change in control" shall mean and refer to any change in the
equityholders of the Company which results in the majority of the outstanding
stock of the Company no longer being held by Seaver, Kent & Company, LLC or
affiliates thereof, other than as a result of an initial public offering of the
common stock of the Company.
3. Method of Exercise. This option may be exercised only by 30
------------------
days' written notice delivered to the Treasurer of the Company and accompanied
by:
<PAGE>
(a) The full purchase price of the shares purchased payable by a
certified or cashier's check payable to the order of the Company or such other
form of consideration acceptable to the Board of Directors of the Company; and
(b) Such other documents or representations (including without
limitation representations as to the intention of the Optionee, or the purchaser
under paragraph 4 below, to acquire the shares for investment) as the Company
may reasonably request in order to comply with securities, tax or other laws
then applicable to the exercise of the option.
4. Non-Transferability; Death. This option is not transferable by
--------------------------
the Optionee otherwise than by will or the laws of descent and distribution and
is exercisable during the Optionee's lifetime only by him. If the Optionee dies
while in the employ of the Company or one of its subsidiaries, this option may
be exercised (but not later than 10 years from the date hereof) by his estate or
the person to whom the option passes by will or the laws of descent and
distribution, but only to the extent that the Optionee could have exercised this
option on the date of his death.
5. Registration. The Company shall not be required to issue or
------------
deliver any certificate for its Common Shares purchased upon the exercise of
this option prior to the admission of such shares to listing on any stock
exchange on which shares may at that time be listed. In the event of the
exercise of this option with respect to any shares subject hereto, if other
Common Shares of the Company are then listed, the Company shall make prompt
application for such listing with respect to the shares acquired upon the
exercise hereof. If at any time during the option period the Company shall be
advised by its counsel that shares deliverable upon exercise of the option are
required to be registered under the Securities Act of 1933, as amended, or that
delivery of the shares must be accompanied or preceded by a prospectus meeting
the requirements of the Act, the Company will use its best efforts to effect
such registration or provide such prospectus not later than a reasonable time
following each exercise of this option, but delivery of shares by the Company
may be deferred until registration is effected or a prospectus is available. The
Company shall be under no obligation to register the shares deliverable upon
exercise of this option unless it shall be advised by its counsel that such
shares are required to be so registered. The Optionee shall have no interest in
the shares covered by this option unless and until certificates for the shares
are issued following the exercise of this option.
6. Withholding. The Company shall have the right to require, prior
-----------
to the issuance or delivery of any shares hereunder, payment by the Optionee of
any federal, state or local income taxes required by law to be withheld upon the
exercise of all or any part of this Option. The Company may, in its discretion
and subject to such rules as it may adopt as are necessary to prevent the
withholding from being subject to Section 16(b) of the Securities Exchange Act
of 1934, permit the Optionee to satisfy any tax withholding obligation
associated with the exercise of this option, in whole or in part, by electing to
have the Company withhold from the shares otherwise deliverable as a result of
such option exercise Common Shares having a value (based on their Fair Market
Value on the date of delivery) equal to the amount required to be withheld.
7. Termination of Employment. Upon termination of the Optionee's
-------------------------
employment with the Company ("Termination"), all non-vested options granted
hereunder shall be forfeited and all
-2-
<PAGE>
vested options granted hereunder shall only be exercisable for a period of
thirty days following the Termination.
8. Subject to Stockholders Agreement. Shares of Common Stock of the
---------------------------------
Company issued upon exercise of this option are subject to all of the terms and
conditions set forth in the Stockholders Agreement dated as of April 21, 1998,
by and between the Company, Seaver Kent - TPG Partners, L.P., Seaver Kent I
Parallel, L.P., Naresh Nakra and the Stockholders named therein and Optionee.
* * *
-3-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this non-qualified stock option
to be executed on the date first above written.
DIAMOND BRANDS INCORPORATED
By _____________________
Its _____________________
ACCEPTED:
_______________
OPTIONEE
-4-
<PAGE>
IBM CREDIT CORPORATION
Stamford, CT 06904
TERM LEASE MASTER AGREEMENT
Name and Address of Lessee: Agreement No.: MC34461
DIAMOND BRANDS IBM Branch Office No.: MC3/3TU
1804 CLOQUET AVE IBM Customer No.: 2494519
CLOQUET MN 55720
IBM Branch Office Address:
TWIN CITIES RIVERSIDE
100 WASHINGTON SQUARE
MINNEAPOLIS MN 55401
The Lessor pursuant to this Term Lease Master Agreement (Agreement) will be (a)
IBM Credit Corporation, or a subsidiary or affiliate thereof, (b) a partnership
in which IBM Credit Corporation is a partner, or (c) a related business
enterprise for whom IBM Credit Corporation is the agent (Lessor). The subject
matter of the lease shall be machines, field installable upgrades, feature
additions or accessories marketed by International Business Machines Corporation
(IBM) and shall be referred to as Equipment. Any lease transaction requested by
Lessee and accepted by Lessor shall be specified in a Term Lease Supplement
(Supplement). A Supplement shall refer to and incorporate by reference this
Agreement and, when signed by the parties, shall constitute the lease (Lease)
for the Equipment specified therein, additional details pertaining to a Lease
shall be specified in a Supplement. A Supplement may also specify additional
terms and conditions as well as other amounts, to be financed (Financing).
Financing may include licensed program material charges (LPM Charges) for
licensed programs marketed by IBM under the referenced IBM license agreement
(License Agreement).
1. OPTIONS. The Supplement shall designate various lease and financing
options. Option A is a Lease available only for Modifications (Paragraph 23) to
Equipment under Option A prior to enactment of the Tax Reform Act of 1986.
Option B is a Lease with a fair market purchase option at the end of the Lease.
For Equipment under Option B Prime (B), Lessor assumes for tax purposes that
Lessee is the owner. For financing LPM Charges, Option S will apply.
2. CREDIT REVIEW. For each Lease, Lessee consents to any reasonable
credit investigation and review by Lessor.
3. AGREEMENT TERM. This Agreement shall be effective when signed by both
parties and may be terminated by either party upon one month's written notice.
However, each Lease then in effect shall survive any termination of this
Agreement.
<PAGE>
4. CHANGES. Lessor may, upon prior written notice, change the terms and
conditions of this Agreement. Any change will apply on the effective date
specified in the notice to Leases which have an Estimated Shipment Date, or
Effective Date for Additional License, one month or more after the date of
notice. By notice to Lessor in writing prior to delivery, or Effective Date for
Additional License, and within 15 days after receipt of such notice, Lessee may
terminate the Lease for an affected item. Otherwise, the change shall apply.
5. ADVANCE RENT. Lessee shall pay to Lessor, prior to Lessor's acceptance
of a Lease, Advance Rent, if specified. Advance Rent shall be refunded if Lessor
for any reason does not accept the Lease or Lessee terminates the Lease in
accordance with Paragraph 4, 12 or 15.
6. SELECTION AND USE OF EQUIPMENT, PROGRAMMING AND LICENSED PROGRAM
MATERIALS. Lessee agrees that it shall be responsible for the selection, use of,
and results obtained from, the Equipment, any programming supplied by IBM
without additional charge for use on the Equipment (Programming), licensed
program materials, and any other associated equipment, programs or services.
7. ASSIGNMENT TO LESSOR. Lessee hereby assigns, exclusively to Lessor,
Lessee's right to purchase the Equipment from. IBM. This assignment is
effective when Lessor accepts the applicable Supplement and Lessor shall then be
obligated to purchase and pay for the Equipment. Other than the obligation to
pay the purchase price, all responsibilities and limitations applicable to
Customer as defined in the referenced IBM purchase agreement in effect at the
time the Lease is accepted by Lessor (Purchase Agreement) shall apply to Lessee.
If the Equipment is subject to a volume procurement amendment to the Purchase
Agreement or to another discount offering, (a) Lessor will pay the same amount
for the Equipment that would have been payable by Lessee, and (b) Lessee well
remain responsible to IBM for any late order change charges, settlement charges,
adjustment charges or any other charges incurred under the volume procurement
amendment or other discount offering.
8. LEASE NOT CANCELABLE; LESSEE'S OBLIGATIONS ABSOLUTE: Lessee's
obligation to pay shall be absolute and unconditional and shall not be subject
to any delay, reduction, set-off, defense, counterclaim or recoupment for any
reason whatsoever, including, any failure of the Equipment, Programming or
licensed program materials or any representations by IBM. If the Equipment,
Programming or licensed program materials are unsatisfactory for any reason,
Lessee shall make any claim solely against IBM and shall, nevertheless, pay
Lessor all amounts payable under the Lease.
9. WARRANTIES. Lessor grants to Lessee the benefit of any and all
warranties made available by IBM in the Purchase Agreement. Lessor warrants
that neither Lessor nor anyone acting or claiming through Lessor, by assignment
or otherwise, will interfere with Lessee's quiet enjoyment of the use of the
Equipment so long as no event of default shall have occurred and be continuing.
EXCEPT FOR LESSOR'S WARRANTY OF QUIET ENJOYMENT, LESSOR MAKES NO WARRANTY,
EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING, BUT NOT LIMITED TO,
THE IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
AS TO LESSOR LESSEE LEASES THE EQUIPMENT AND TAKES ANY PROGRAMMING "AS IS" IN NO
EVENT SHALL LESSOR HAVE ANY LIABILITY FOR, NOR SHALL LESSEE HAVE ANY REMEDY
AGAINST LESSOR FOR, CONSEQUENTIAL DAMAGES, ANY LOSS OF PROFITS OR SAVINGS, LOSS
OF USE, OR ANY OTHER COMMERCIAL LOSS.
<PAGE>
10. LESSEE AUTHORIZATION. So long as Lessee is not in default under the
Lease (a) Lessee is authorized to act on Lessor's behalf concerning delivery and
installation of the Equipment, any IBM warranty service for the Equipment, and
any programming services for the Programming, and (b) Lessee shall have, solely
for these purposes, all rights Lessor may have against IBM under the Purchase
Agreement. The foregoing authorization shall not constitute any surrender of
Lessor's interest in the Equipment.
11. DELIVERY AND INSTALLATION. Lessee shall arrange with IBM for the
delivery of the Equipment and Programming and for installation of the Equipment
at the Equipment Location. Lessee shall pay any delivery and installation
charges. Lessor shall not be liable to Lessee for any delay in, or failure of,
delivery of the Equipment and Programming. Lessee shall examine the Equipment
and Programming immediately upon delivery. If the Equipment is not in good
condition or the Equipment or Programming does not correspond to IBM's
specifications, Lessee shall promptly give IBM written notice and shall provide
IBM reasonable assistance to cure the defect or discrepancy.
12. LATE DELIVERY. If the Equipment or licensed program materials are not
delivered to the Equipment Location on or before the 15th day after the
Estimated Shipment Date, Lessor may, upon written notice to Lessee, increase the
Lease Rate. Lessee may terminate the Lease for the affected item by giving
Lessor written notice prior to delivery. Otherwise, the Rent shall be adjusted
to reflect such increase.
13. RENT COMMENCEMENT DATE. The Rent Commencement Date, unless otherwise
specified in the Supplement, shall be the date payment is due IBM under the
applicable referenced agreement. Lessee shall be notified of the Rent
Commencement Date and the serial numbers of the Equipment.
14. LEASE TERM. The Lease shall be effective when signed by both parties.
The initial Term of the Lease shall expire at the end of the number of Payment
Periods, specified as "Term" in the Supplement, after the Rent Commencement
Date. However, obligations under the Lease shall continue until they have been
performed in full.
15. RATE PROTECTION. Unless modified pursuant to Paragraph 12, the Rent
shall be based on the Lease Rate specified in the Supplement or such greater
Lease Rate as may be specified by written notice to Lessee more than one month
before the Estimated Shipment Date or Effective Date for Additional License. By
notice to Lessor in writing prior to delivery, or Effective Date for Additional
License, and within 15 days after receipt of such notice, Lessee may terminate
the Lease for the affected item. Otherwise, the Rent shall be adjusted to
reflect the increase. The Unit Purchase Price and LPM Charges are subject to
change in accordance with the referenced agreements.
16. RENT. During the initial Term, Lessee shall pay Lessor, for each
Payment Period, Rent as determined in Paragraph 15. Lessee's obligation to pay
shall begin on the Rent Commencement Date. Rent will be invoiced in advance as
of the first day of each Payment Period and will be due on the day following the
last day of the Payment Period. When the Rent Commencement Date is not on the
First day of a calendar month and/or when the initial Term does not expire on
the last day of a calendar month, the applicable Rent will be prorated on the
basis of 30-day months. Advance Rent, if any, will be applied to the initial
invoice(s).
17. RENEWAL. If Lessee is not then in default under the Lease, Lessee may
renew the Lease one or more times but not beyond six years from the expiration
of the initial Term. Lessor shall offer renewal Terms of one year and may offer
longer Terms if then generally
<PAGE>
available. For a renewal Term, upon request by Lessee, at least five months
prior to Lease expiration, Lessor shall notify Lessee, at least four months
prior to expiration, of the Rent, any changes to the Payment Period and due
dates, and of any required Purchase Option or Renewal Option Percents not
specified in the Supplement. The Rent shall be objectively determined by Lessor
by using the projected fair market rental value of the Equipment as of the
commencement of such renewal Term. However, for Option B', the Rent shall be as
specified in the Supplement. Lessee may renew for any renewal Term only by so
notifying Lessor in writing at least three months before expiration.
18. PURCHASE OF EQUIPMENT. If Lessee is not then in default under the
Lease, Lessee may, upon three months prior written notice to Lessor, purchase
Equipment upon expiration of the Lease. Under Option A or B, the purchase price
shall be objectively determined by Lessor by using the projected fair market
sales value of the Equipment as of such expiration date plus, for Equipment
under Option A, any recapture of investment tax credit and any tax due thereon.
Under Option B Price (B') the purchase price shall be an amount determined by
multiplying the Unit Purchase Price by the Purchase Option Percent for such
Equipment.
If Lessee purchases any Equipment, Lessee shall, on or before the date of
purchase, pay to Lessor the purchase price any applicable taxes, all Rent due
through the day preceding the date of purchase, any other amounts due, and the
prepayment of Financing (Paragraph 35). Lessor shall, on the date of purchase,
transfer to Lessee buy bill of sale, without recourse or warranty of any kind
express or implied, all of Lessor's right, title and interest in and to such
Equipment on an "As Is, Where is" basis except that Lessor shall warrant title
free and clear of all encumbrances.
19. OPTIONAL EXTENSION. If Lessee has not elected to renew or purchase,
and as long as Lessee is not in default under the Lease, the Lease will be
extended unless Lessee notifies Lessor in writing, not less than three months
prior to Lease expiration, that Lessee does not want the extension. The
extension will be under the same terms and conditions then in effect, including
Rent (but, for Options A or B, not less than fair market rental value) and will
continue until the earlier of termination by either party upon three months'
prior written notice or six years after expiration of the initial Term.
20. INSPECTION; MARKING; FINANCING STATEMENT. Upon request, Lessee shall
make the Equipment and its maintenance records available for inspection by
Lessor during Lessee's normal business hours. Lessee shall affix to the
Equipment any labels indicating ownership supplied by Lessor. Lessee shall
execute and deliver to Lessor for filing any Uniform Commercial Code financing
statements or similar documents Lessor may reasonably request.
21. EQUIPMENT USE. Lessee agrees that Equipment will be operated by
competent, qualified personnel, in accordance with applicable operating
instructions, laws and government regulations and that Equipment under Option A
will be used only for business purposes.
22. MAINTENANCE. Lessee, at its expense, shall keep the Equipment in a
suitable environment as specified by IBM and in good condition and working
order, ordinary wear and tear excepted.
23. ALTERATIONS; MODIFICATIONS; PARTS. Lessee may alter or modify the
Equipment only upon written notice to Lessor. Any non-IBM alteration is to be
removed and the Equipment restored to its normal, unaltered condition at
Lessee's expense prior to its return to
<PAGE>
Lessor. At Lessee's option, any IBM field installable upgrade, feature addition
or accessory added to any item of Equipment (Modification) may be removed. If
removed, the Equipment is to be restored at Lessee's expense to its normal,
unmodified condition. If not removed, such Modification shall, upon return of
the Equipment, become, without charge, the property of Lessor free of all
encumbrances. Restoration will include replacement of any parts removed in
connection with the installation of an alteration or Modification. Any part
installed in connection with warranty or maintenance service shall be the
property of Lessor.
24. LEASES FOR MODIFICATIONS AND ADDITIONS. Lessor will arrange for
leasing of Modifications and Additions under terms and conditions then generally
in effect, subject to satisfactory credit review. Additions shall be machines,
or LPM Charges for licensed program materials, which are associated with the
Equipment. These Modifications and Additions must be ordered by Lessee from
IBM. Any lease for modifications shall, and any Lease for Additions may, expire
at the same time as the Lease for the Equipment. The rent shall be determined
by Lessor and specified in a Supplement. If Lessee purchases Equipment prior to
Lease expiration, Lessee shall simultaneously purchase any Modifications under
the Lease.
25. RETURN OF EQUIPMENT. Upon expiration or termination of the Lease for
any item of Equipment, or upon demand by Lessor pursuant to Paragraph 38, Lessee
shall promptly return the Equipment, freight prepaid, to a location in the
continental United States specified by Lessor. Except for Casualty Loss, Lessee
shall pay any costs and expenses incurred by Lessor to inspect and qualify the
equipment for IBM's maintenance agreement service. Any parts removed in
connection therewith shall become Lessor's property.
26. CASUALTY INSURANCE; LOSS OR DAMAGE. Lessor will maintain, at its own
expense, insurance covering loss of or damage to the Equipment (but excluding
any Modifications not subject to a Lease and any non-IBM alterations) with a
$5,000 deductible per incident. If any item of Equipment shall be lost, stolen,
destroyed or irreparably damaged for any cause whatsoever (Casualty Loss) before
the Date of Installation as defined in the Purchase Agreement, the Lease for
that item shall terminate. If any item of Equipment suffers Casualty Loss, or
shall be otherwise damaged, on or after the Date of Installation, Lessee shall
promptly inform Lessor. If Lessor determines that the item can be economically
repaired, Lessee shall place the item in good condition and working order and
Lessor will reimburse Lessee the reasonable cost of such repair, less the
deductible. If not so repairable, Lessee shall pay Lessor the lesser of $5,000
or the fair market value of the Equipment immediately prior to the Casualty
Loss. Upon Lessor's receipt of payment the Lease for that item shall terminate.
27. TAXES. Lessee shall promptly, reimburse Lessor for, or shall pay
directly if so requested by Lessor, as additional Rent, all taxes, charges, and
fees imposed or levied by any governmental body or agency upon or in connection
with the purchase, ownership, leasing, possession, use or relocation of the
Equipment or Programming or in connection with the financing of LPM Charges or
otherwise in connection with the transactions contemplated by the Lease,
excluding, however, all taxes on or measured by the net income of Lessor. Upon
request, Lessee will provide proof of payment. Any other taxes, charges and
fees relating to the licensing, possession or use of licensed program materials
will be governed by the License Agreement.
28. LESSOR'S PAYMENT. If Lessee fails to perform its obligations under
Paragraph 27 or 31 or to discharge any encumbrances created by Lessee, Lessor
shall have the right to substitute performance, in which case, Lessee shall pay
Lessor the cost thereof.
<PAGE>
29. TAX INDEMNIFICATION (APPLIES ONLY FOR EQUIPMENT UNDER OPTIONS A OR B).
The Lease is entered into on the basis that under the Internal Revenue Code of
1986, as amended (Code), Lessor shall be entitled to (1) maximum Accelerated
Cost Recovery System (ACRS) deductions for 5-year property, and (2) deductions
for interest expense incurred to finance purchase of the Equipment. The Bulletin
"Lessor's Tax Assumptions" will be giver, to Lessee on request. Lessee
represents, warrants and covenants that at all times during the Lease:
(a) no item of Equipment will constitute "public utility property" as defined in
the Code; (b) Lessee will not make any election under the Code or take any
action, or fail to take any action, if such election, action or failure to act
would cause any item of Equipment to cease to be eligible for any ACRS
deductions or interest deductions; (c) Lessee will keep and make available to
Lessor the records required to establish the matters referred to in this
Paragraph 29; and (d) for Equipment located in a United States possession,
Lessee represents that Lessee is a tax exempt entity as defined in the Code.
Furthermore, if Lessee is a tax exempt entity, Lessee covenants that it will not
renew or extend the Lease if such action shall cause Lessor a Tax Loss as
described below.
If, as a result of any act, failure to act, misrepresentation, inaccuracy, or
breach of any warranty or covenant, or default under the Lease, by Lessee, an
affiliate of Lessee, or any person who shall obtain the use of possession of any
item of Equipment through Lessee, Lessor shall lose the right to claim or shall
suffer any disallowance or recapture of all or any portion of any ACRS
deductions or interest deductions (Tax Loss) with respect to any item of
Equipment, then, promptly upon written notice to Lessee that a Tax Loss has
occurred, Lessee shall reimburse Lessor the amount determined below.
The reimbursement shall be an amount that, in the reasonable opinion of Lessor,
shall make Lessor's after-tax rate of return and cash flows (Financial Returns),
over the term of the Lease for such item of Equipment, equal to the expected
Financial Returns that would have been otherwise available. The reimbursement
shall take into account the effects of interest, penalties and additions to tax
required to be paid by Lessor as a result of such Tax Loss and all taxes
required to be paid by Lessor as a result of any payments pursuant to this
paragraph. Financial Returns shall be Leased on economic and tax assumptions
used by Lessor in entering into the Lease.
All the rights and privileges of Lessor arising from this Paragraph 29 shall
survive the expiration or termination of the Lease.
For purposes of determining tax effects under Paragraphs 18, 27, 29 and 30, the
term "Lessor" shall include, to the extent of interests, any partner in Lessor
and any affiliated group of corporations, and each member thereof, of which
Lessor or any such partner is or shall become a member and with which Lessor or
any such partner joins in the filing of consolidated or combined returns.
30. GENERAL INDEMNITY. This Lease is a net lease. Therefore, Lessee
shall indemnify Lessor against, and hold Lessor harmless from, any and all
claims, actions, damages, obligations, liabilities and liens; and all costs and
expenses, including legal fees, incurred by Lessor in connection therewith;
arising out of the Lease including, without limitation, the purchase, ownership,
lease, licensing, possession, maintenance, condition, use or return of the
Equipment, Programming or licensed program materials; or arising by operation of
law; excluding, however, any of the foregoing which result from the sole
negligence or willful misconduct of Lessor. Lessee agrees that upon written
notice by Lessor of the assertion of any
<PAGE>
claim, action, damage, obligation, liability or lien, Lessee shall assume full
responsibility for the defense thereof. Any payment pursuant to this paragraph
shall be of such amount as shall be necessary so that, after payment of any
taxes required to be paid thereon by Lessor, including taxes on or measured by
the net income of Lessor, the balance will equal the amount due hereunder.
Lessee's obligations under this paragraph shall not constitute a guarantee of
the residual value or useful life of any item of Equipment or a guarantee of any
debt of Lessor. The provisions of this paragraph with regard to matters arising
during the Lease shall survive the expiration or termination of the Lease.
31. LIABILITY INSURANCE. Lessee shall obtain and maintain comprehensive
general liability insurance, in an amount of $1,000,000 or more for each
occurrence, with an insurer having a "Best's Policyholders" rating of B+ or
better. The policy shall name Lessor as an additional insured as Lessor's
interests may appear and shall contain a clause requiring the insurer to give
Lessor at least one month's prior written notice of the cancellation, or any
alteration in the terms, of the policy. Lessee shall furnish to Lessor, upon
request, evidence that such insurance coverage is in effect.
32. SUBLEASE AND RELOCATION OF EQUIPMENT, ASSIGNMENT BY LESSEE. Upon
Lessor's prior written consent, which will not be unreasonably withheld, Lessee
may sublet the Equipment or relocate it from the Equipment Location. No
sublease or relocation shall relieve Lessee of its obligations under the Lease.
In no event shall Lessee remove the Equipment from the United States. Lessee
shall not assign, transfer or otherwise dispose of the Lease or Equipment, or
any interest therein, or create or suffer any levy, lien or encumbrance thereof
except those created by Lessor.
33. ASSIGNMENT BY LESSOR. Lessee acknowledges and understands that the
terms and conditions of the Lease have been fixed to enable Lessor to sell and
assign its interest or grant a security interest or interests in the Lease and
the Equipment individually or together, in whole or in part, for the purpose of
securing loans to Lessor or otherwise. If Lessee is given written notice of any
assignment, it shall promptly acknowledge receipt thereof in writing. Each such
assignee shall have all of the rights of Lessor under the Lease. Lessee shall
not assert against any such assignee any setoff, defense or counterclaim that
Lessee may have against Lessor or any other person. Lessor shall not be
relieved of its obligations hereunder as a result of any such assignment unless
Lessee expressly consents thereto.
34. FINANCING. If the Lease provides for financing of LPM Charges, Lessor
will pay such Charges directly to IBM. Any other charges due IBM under the
License Agreement shall be paid directly to IBM by Lessee. Lessee's obligation
to pay Rent shall not be affected by any discontinuance, return or destruction
of any license or licensed program materials under the License Agreement on or
after the date LPM Charges are due. If Lessee discontinues any of the licensed
program materials in accordance with the terms of the License Agreement prior to
the date LPM Charges are due, the financing of affected LPM Charges shall be
canceled.
35. FINANCING PREPAYMENT (Does Not Apply For Items of Equipment). Lessee
may terminate an item of Financing (but not an item of Equipment) by prepaying
its remaining Rent. Lessee shall provide Lessor with notice of the intended
prepayment date which shall be at least one month after the date of the notice.
Lessor may, depending on market conditions at the time, make an adjustment in
the remaining Rent to reflect such prepayment and shall advise Lessee of the
balance to be paid. If, prior to Lease Expiration, Lessee purchases the
Equipment or
<PAGE>
if the Lease is terminated, Lessee shall at the same time prepay any related
Financing including that for programs licensed to the Equipment.
36. DELINQUENT PAYMENTS. If any amount to be paid to Lessor is not paid on
or before its due date, Lessee shall pay Lessor on demand 2% of such late
payment for each month or part thereof from the due date until the date paid or,
if less, the maximum allowed by law.
37. DEFAULT; NO WAIVER. Lessee shall be in default under the Lease upon the
occurrence of any of the following events: (a) Lessee fails to pay when due any
amount required to be paid by Lessee under the Lease and such failure shall
continue for a period of seven days after the due date; (b) Lessee fails to
perform any other provisions under the Lease or violates any of the covenants or
representations made by Lessee in the Lease, or Lessee fails to perform any of
its obligations under any other Lease entered into pursuant to this Agreement,
and such failure or breach shall continue unremedied for a period of 15 days
after written notice is received by Lessee from Lessor; (c) Lessee violates any
of the covenants or representations made by Lessee in any application for credit
or in any agreement with IBM with respect to the Equipment or licensed program
materials or fails to perform any provision in any such agreement (except the
obligation to pay the purchase price or LPM Charges); (d) Lessee makes an
assignment for the benefit of creditors, whether voluntary or involuntary, or
consents to the appointment of a trustee or receiver, or if either shall be
appointed for Lessee or for a substantial part of its property without its
consent; (e) any petition or proceeding if filed by or against Lessee under any
Federal or State bankruptcy or insolvency code or similar law; or (f) if
applicable, Lessee makes a bulk transfer subject to the provisions of the
Uniform Commercial Code.
Any failure of Lessor to require strict performance by Lessee or any waiver by
Lessor of any provision in the Lease shall not be construed as a consent or
waiver of any other breach of the same or of any other provision.
38. REMEDIES. If Lessee is in default under the Lease, Lessor shall have
the right, in its sole discretion, to exercise any one or more of the following
remedies in order to protect its interests, Reasonably expected profits and
economic benefits. Lessor may (a) declare any Lease entered into pursuant to
this Agreement to be in default; (b) terminate in whole or in part any Lease;
(c) recover from Lessee any and all amounts then due and to become due; (d) take
possession of any or all items of Equipment, wherever located, without demand or
notice, without any court order or other process of law; and (e) demand that
Lessee return any or all such items of Equipment to Lessor in accordance with
Paragraph 25 and, for each day that Lessee shall fail to return any item of
Equipment, Lessor may demand an amount equal to the Rent, prorated on the basis
of a 30-day month, in effect immediately prior to such default. Upon
repossession or return of such item or items of Equipment, Lessor shall sell,
lease or otherwise dispose of such item or items in a commercially reasonable
matter, with or without notice and on public or private bid, and apply the net
proceeds, thereof towards the amounts due under the Lease but only after
deducting (i) in the case of sale, the estimated fair market value of such item
or items as of the scheduled expiration of the Lease; or (ii) in the case of any
replacement lease, the rent due for any period beyond the scheduled expiration
of the Lease for such item or items (iii) in either case, all expenses,
including legal fees, incurred in connection therewith; and (iv) where
appropriate, any amount in accordance with Paragraph 29. Any excess net proceeds
are to be retained by Lessor. Lessor may pursue any other remedy available at
law or in equity, including, but not limited to, seeking damages, specific
performance and an injunction.
<PAGE>
No right or remedy is exclusive of any other provided herein or permitted by law
or equity. All such rights and remedies shall be cumulative and may be enforced
concurrently or individually from time to time.
39. LESSOR'S EXPENSE. Lessee shall pay Lessor on demand all costs and
expense, including legal and collection fees, incurred by Lessor in enforcing
the terms, conditions or provisions of the Lease or in protecting Lessor's
rights and interests in the Lease and the Equipment.
40. OWNERSHIP; PERSONAL PROPERTY; LICENSED PROGRAM MATERIALS. The
Equipment under Lease is and shall be the property of Lessor. Lessee shall have
no right, title or interest therein except as set forth in the Lease. The
Equipment is, and shall at all times be and remain, personal property and shall
not become a fixture or realty. Licensed program materials are licensed and
provided by IBM directly to Lessee under the terms and conditions of the License
Agreement.
41. NOTICES; ADMINISTRATION. Service of all notices under the Lease shall
be sufficient if delivered personally or mailed to Lessee at its address
specified in the Supplement or to IBM Credit Corporation as Lessor in care of
the IBM Branch Office specified in the Supplement. Notice by mail shall be
effective when deposited in the United States mail, duly addressed and with
postage prepaid. Notices, consents and approvals from or by Lessor shall be
given by Lessor or on its behalf by IBM and all payments shall be made to IBM
until Lessor shall notify Lessee otherwise.
42. LESSEE REPRESENTATION. If the Lease includes Financing, Lessee
represents that it is (a) a corporation if any item of Equipment is located in
Ohio, Mississippi, Virginia or West Virginia, and/or (b) a business corporation
if any item of Equipment is located in Pennsylvania.
43. REVISIONS FOR PREVIOUSLY INSTALLED EQUIPMENT Equipment installed with
Lessee under an IBM lease or rental agreement may be purchased by Lessor, on the
Effective Date of Purchase (as defined in the Purchase Agreement), for lease to
Lessee under Option B or B'. For such Equipment, the Lease shall be revised as
follows:
Paragraphs 4 and 26 - replace "Estimated Shipment Date" by "Intended Effective
Date of Purchase"; replace "delivery" and "Date of Installation" by "Effective
Date of Purchase";
Paragraph 7 - add at the end of the first paragraph, "Assignment of the option
to purchase installed Equipment at the net purchase option price under an IBM
lease or rental agreement will be permitted only when Lessee submits the
Supplement in sufficient time to achieve the Intended Effective Date of
Purchase. The Effective Date of Purchase under this assignment shall be the
later of the first day of the Quotation Month or the day on which the applicable
Supplement is accepted by Lessor. If the Quotation Month expires and the
purchase of Equipment is not concluded, this assignment and Lease will be null
and void regarding any such Equipment and all rights, duties and obligations of
Lessee and IBM will remain in accordance with the provisions of the IBM
agreement under which the Equipment is currently installed.";
Paragraphs 11 and 12 - delete both paragraphs; and
Paragraph 15 - replace the entire paragraph with the following: "The Rent shall
be based on the Lease Rate specified in the Supplement or such greater Lease
Rate as may be specified by written notice to Lessee more than one month before
the Effective Date of Purchase. The Unit Purchase Price is subject to change in
accordance with the referenced Purchase Agreement.
<PAGE>
Lessee may terminate the Lease for any item subject to an increase by giving
Lessor written notice on or before the Effective Date of Purchase."
44. APPLICABLE LAW, SEVERABILITY. The Lease shall be governed by the laws
of the State of Connecticut. If any provision shall be held to be invalid or
unenforceable, the validity and enforceability of the remaining provisions shall
not in any way be affected or impaired.
THE ADDITIONAL TERMS AND CONDITIONS ON PAGES 2 THROUGH 4 ARE A PART OF THIS
AGREEMENT.
LESSEE ACKNOWLEDGES THAT LESSEE HAS READ THIS AGREEMENT AND ITS SUPPLEMENT,
UNDERSTANDS THEM, AND AGREES TO BE BOUND BY THEIR TERMS AND CONDITIONS.
FURTHER, LESSEE AGREES THAT THIS AGREEMENT AND ITS SUPPLEMENT ARE THE COMPLETE
AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN THE PARTIES, SUPERSEDING ALL
PROPOSALS OR PRIOR AGREEMENTS, ORAL OR WRITTEN, AND ALL OTHER COMMUNICATIONS
BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER HER
Accepted by: DIAMOND BRANDS INC
IBM Credit Corporation Lessee
BY: BY
Name and Title Name and Title
<PAGE>
TERM LEASE SUPPLEMENT
Supp. No.: D00253180
Additional Terms and Conditions
<TABLE>
<CAPTION>
Option Codes
<S> <C>
B, B+, C, C+ Lease with fair market value end of lease
renewal and purchase options.
B', C' Lease with prestated end of lease purchase and
renewal options
B$, C$ Lease with one dollar ($1) end of lease
purchase option
L Lease for Used Equipment
S Financing of IBM One-Time Charges
T Financing of non-IBM One-Time Charges
PURCHASE OPTION (PURCHASE OPTION - END OF LEASE ONLY)
FM Fair market sales value, as determined by
Lessor, at end of Lease
CL Contact IBM Credit for purchase price
NA Not Applicable
$1 Purchase Price is One Dollar ($1.00)
Number Prestated Purchase Percent - Purchase price
will be the Unit Purchase Price times this
percent
MAINT. INCLUD. (MAINTENANCE INCLUDED)
Y Lease includes maintenance coverage
</TABLE>
TERM
The initial Term starts on the Rent Commencement Date and continues for the
number of payment Periods stated under Term. If the Term has a prefix of "CO"
then the Lease is coterminous with the Lease for the Equipment with the
referenced serial number.
ESTIMATED COMMENCEMENT
For Leases, the month stated is the month the Lease must commence for Lessee to
receive the stated Lease Rate. For Financing, the date stated is the intended
start date of the Financing.
INTEREST RATE
The Interest Rate, if stated, is the Annual Percentage Rate (APR) for the Lease
or Financing. In the State of Texas the interest rate for the Lease or
Financing will not exceed the stated interest rate.
RENEWAL OF LEASES WITH PRESTATED PURCHASE OPTIONS
Lessee may renew a Lease with a prestated purchase option for a Term of one
year. The Rent will be one-half of the Prestated Purchase Percent times the
Unit Purchase Price stated in the Supplement. Renewal Rent payments will be
annual and due and payable in advance.
LEASES WITH MAINTENANCE INCLUDED
<PAGE>
For Leases that include basic maintenance coverage, Lessor will arrange for
maintenance service on the Equipment. The coverage starts at the end of the
warranty period and ends with the Initial Term. The cost will be included in
the Rent. Coverage beyond the basic maintenance will be Lessee responsibility.
The maintenance service provider alone will be responsible for fulfilling all
contractual commitments. Lessee may finance additional maintenance coverage at
the end of the initial Term under then current terms.
LESSEE RESPONSIBILITIES FOR LEASES WITH MAINTENANCE INCLUDED
Lessee agrees, that before requesting maintenance service to ensure that:
1. operational problems have been corrected;
2. error recovery procedures have been followed;
3. failures are clearly identified and logged; and
4. Customer Problem Analysis and Resolution (CPAR) procedures have been
completed for equipment requiring maintenance under this lease.
Lessee also agrees to complete and return to IBM, a self-initialization review
form ("Form"). Lessee agrees to ensure that the Equipment location qualifies as
a qualified customer location (as determined by IBM). Lessee acknowledges
having received a copy of that Form. If Lessee has a Corporate Service Option
Attachment to the IBM Customer Agreement then Lessee agrees to perform all
"Customer" obligations under that agreement for the Equipment on a Lease that
includes maintenance.
LESSEE REPRESENTATIONS
Lessee represents that for Financing In:
1. Ohio, Maryland, Mississippi, Virginia, or West Virginia, Lessee is a
corporation as defined by the applicable state law;
2. Pennsylvania, Lessee is a business corporation as defined by Pennsylvania
laws; and
3. Alabama or Wisconsin, the Financed Items are not being purchased for
agricultural purposes.
AUTHORITY TO SIGN FINANCING STATEMENTS
Lessee authorizes Lessor or its agent as attorney-in-fact to prepare, execute in
Lessee's name and file any Uniform Commercial Code financing statements or
similar documents covering this Equipment. Lessee authorizes Lessor to fill in
serial numbers on this Supplement after execution by Lessee for the Equipment
listed on the Supplement.
BASE EXTENSIONS
For machines designated as "Base Extension", this Supplement supersedes the
prior Lease for these machines and incorporates the terms of the Lease Agreement
effective for this Supplement, including these terms with respect to Purchase of
Equipment, which may be different than the terms governing the superseded lease.
This Lease amends and supersedes the prior lease for these machines with respect
to Term, Lease Rate, Rent, Payment Period, Purchase Option Code, and Lease
Option. These changes shall become effective on the Rent Commencement Date
specified in this Supplement.
AMENDMENT TO TERM LEASE MASTER AGREEMENT
This amends the Term Lease Master Agreement referenced on page 1.
1. In the preamble in line 4 after "(IBM)", insert "to Lessee's Supplier"; In
line 9 after "programs" delete balance of the sentence.
2. Replace all subsequent occurrences of "IBM" with "Lessee's Supplier" except
in Paragraph 23, 26, 37 and 41 or where it appears as IBM Corporation or
except as it appears in this Supplement.
<PAGE>
3. Delete all occurrences of "or Effective Date for Additional License".
4. Replace all occurrences of "Estimated Shipment Date" with "Estimate
Commencement".
5. Replace all occurrences of "License Agreement" with "license agreement".
6. Paragraph 1 - Options - delete the last sentence.
7. Paragraph 7 - Assignment to Lessor - replace lines 7 thru 16 with "the
buyers as defined in Lessee's Supplier's contract in effect at the time the
Lease is accepted by Lessor (Purchase Agreement) shall apply to Lessee."
8. Paragraph 13 - Rent Commencement Date - in line 3 replace "the date payment
is due IBM under the applicable referenced agreement" with "the date Lessee
designates on the Certificate of Acceptance".
9. Paragraph 15 - Rate Protection - replace in its entirety with the following:
The Rent shall be based on the Lease Rate and are not subject to change
provided the signed Certificate of Acceptance is received within the month
of the Estimated Commencement."
10. Paragraph 18 - Purchase of Equipment - in line 4 replace "Under Option A or
B" with "Equipment with a Purch. Option of "FM", in line 19 after
"encumbrances" insert "arising solely from claims against Lessor".
11. Paragraph 19 - Optional Extension - in line 7 replace "Option A or B" with
"Equipment with a Purch. Option of `FM'".
12. Paragraph 24 - Leases for Modification and Additions - in line 7 replace
"by Lessee from IBM" with "by Lessee's Supplier from IBM for Lessee".
13. Paragraph 34 - Financing - delete the first two sentences.
14. Delete Paragraph 43.
<PAGE>
MASTER LEASE AGREEMENT
LESSOR: MERIDIAN LEASING CORPORATION an Illinois corporation
ADDRESS: 570 Lake Cook Road
Suite 300
Deerfield, Illinois 60015
LESSEE: DIAMOND BRANDS, INC. a Minnesota Corporation
ADDRESS: 1800 Cloquet Avenue Cloquet, MN 55720
AGREEMENT DATE: November 22,1996
This contract is a Master Lease Agreement. The terms of each Supplement hereto
are subject to any and all conditions and provisions set forth herein at the
time of execution of such Supplement as the same may have been amended prior to
the execution of such Supplement. Each Supplement shall provide a description
of Equipment, Lease Term, Rental Payment(s), Location of Equipment, Supplement
Commencement Date and such other information as may be required. Each
Supplement is enforceable according to the terms and conditions contained
therein and in the event of a conflict between the language of the Master Lease
Agreement and any Supplement hereto, the language of the Supplement shall
prevail in respect to that Supplement. Each Supplement together with the terms
and conditions of this Master Lease Agreement incorporated therein is referred
to herein as the "Lease" or "Lease Agreement" and constitutes a "finance lease"
as defined in Section 2-A-103(g) of the Uniform Commercial Code. Lessor, by its
acceptance hereof, hereby leases to Lessee, and the Lessee hereby leases from
Lessor, in accordance with the terms and conditions set forth herein and in the
applicable Supplement, the Equipment described on the Supplement and in any
attachments thereto (the "Equipment"). Lessor and Lessee acknowledge that in
the case of certain Supplements, Schedule A thereto constitutes only a summary
of the Equipment necessitated by space limitations. However, both parties
further acknowledge that the totality of the Equipment is contained in the
invoices and related documents pursuant to which the Equipment was originally
procured from its manufacturer (and the exhibits and attachments thereto), which
items, (including applicable serial numbers) are incorporated by Preference into
the applicable Supplement. At the expiration of the term of each Supplement,
Lessee shall return the exact items specified in such invoices and related
documents.
1. LEASE TERM
This Master Lease Agreement shall be effective from the date hereof. As to any
particular item of Equipment, the term shall continue as stated in the
applicable Supplement, from the respective Supplement Commencement Date, as,
from time to time, Equipment described in any Supplement is accepted by Lessee.
Said term shall be automatically extended at the monthly lease rate in effect at
the end of said term unless and until terminated by either party hereto giving
the other not less than ninety (90) days prior written notice. Acceptance
("Acceptance")
<PAGE>
shall occur on or before the fifth day after the Equipment has been delivered
and, if applicable, approved for coverage under a prime shift maintenance
contract by the manufacturer thereof or other applicable maintenance
organization. Lessee agrees both to advise Lessor on Acceptance date and
thereupon to execute and deliver to Lessor a certificate of Acceptance.
2. PAYMENTS OF RENT
Unless otherwise set forth in the respective Supplement, the following shall
apply: The first rental payment shall be due upon the Acceptance of the
Equipment by Lessee, and such payment shall cover the lease month or other
period commencing on the Supplement Commencement Date. Each Subsequent rental
payment shall be due and payable in advance, for the lease period covered by
such payment, on the first day thereof. In the event Acceptance occurs prior to
the Supplement Commencement Date, interim rental shall be paid by Lessee in the
amount equal to a proration on a per them basis of the Monthly Rent, as
hereinafter defined, for the period commencing as of the date of Acceptance to
the Supplement Commencement Date. All rental and other payments by Lessee under
this Lease shall be made to Lessor at its address stated above or at such other
address as Lessor may designate in writing and if payment shall be made by
check, such check shall arrive at such address in sufficient time so that the
same shall arrive on or before the date the rental payment shall be due.
Monthly rent payable with respect to each item of Equipment ("Monthly Rent")
shall be as set forth for such item in the applicable Supplement. Any and all
amounts payable to Lessor hereunder other than Monthly Rent shall be considered
and referred to herein as "Supplemental Rent. Monthly Rent, together with
Supplemental Rent, shall be referred to herein as "Rent". This Lease provides
for a net lease, and the rent due hereunder from Lessee to Lessor shall be
absolute and unconditional and shall not be subject to any abatement,
recoupment, defense, claim, counterclaim, reduction, set-off, or any other
adjustment of any kind for any reason whatsoever.
3. ADDITIONAL SUMS PAYABLE BY LESSEE
(a) All transportation, transit insurance and other charges payable for
delivery of the Equipment to Lessee, and for installation of the Equipment,
shall be paid by Lessee.
(b) Lessee shall promptly pay all costs, expenses and obligations of every
kind and nature incurred in connection with the use, maintenance, servicing.
repair or operation of the Equipment which may arise or be payable during the
lease term of such Equipment hereunder, except as specifically provided herein,
and shall keep the Equipment in as good repair, condition and working order as
when delivered to Lessee hereunder, reasonable wear and tear from the proper use
thereof alone excepted, and shall furnish any and all parts, mechanisms and
devices required to keep the Equipment in such good repair, condition and
working order, at the expense of Lessee, and in addition will permit the
manufacturer to make all free-of-charge engineering changes, all so that the
Equipment will remain acceptable to the manufacturer for maintenance. Without
limiting the foregoing, Lessee shall, during the continuance of this Lease, at
its own expense, make appropriate arrangements for maintenance of each item of
Equipment, including without limitation with respect to each item of Equipment
entering into and maintaining in force
<PAGE>
a contract with the manufacturer of the Equipment or other person or entity
approved in writing by Lessor covering at least prime shift maintenance.
(c) Lessee shall indemnify and hold harmless Lessor against and shall pay
all federal, state, county or local taxes, fees or other charges, however
designated (together with any related interest or penalties not arising from
negligence on the part of Lessor), imposed or assessed against or with respect
to this Lease, Rent hereunder, the Equipment, Lessor or Lessee or payable by
Lessor or Lessee with respect to the use, lease, sale, purchase, delivery,
possession, sublease or ownership of the Equipment, excepting only (i) taxes on
or to the extent measured by the net income of Lessor; and (ii) sales, use or
similar taxes paid by Lessor if, and only if, any such taxes are included as
part of the acquisition cost of any Equipment. Lessor shall give Lessee and
Lessee shall give Lessor written notice of any event or condition which requires
indemnification by Lessee hereunder or any allegation of such event or
condition, promptly upon obtaining knowledge thereof. Lessee shall not be
obligated to pay any amount under this Section 3 so long as Lessee shall in good
faith and by appropriate proceedings contest and diligently prosecute the
validity or the amount thereof unless such contest would adversely affect the
title of the Lessor to the Equipment or would subject it to forfeiture or sale,
provided that Lessee shall make any required deposits during such contest. Upon
resolution of such contest, Lessee shall promptly pay all amounts then owing. In
case any report or return is required to be made with respect to any obligation
of Lessee arising out of this Section 3, Lessee will either make such report or
return in such manner as shall be satisfactory to Lessor or, if requested by
Lessor, furnish information to Lessor necessary to complete such report or
return by Lessor.
4. WARRANTIES
(a) Lessor hereby warrants and covenants to Lessee that so long as no
Event of Default has occurred and is continuing under the applicable Supplement
hereto, Lessee shall and may quietly have, hold and enjoy the Equipment and
every part thereof Leased hereunder for the term of this Lease, as such term may
be extended hereunder, free from disturbance by Lessor or its agents, employees,
successors or assigns, or by anyone (whether the holder of a lien or otherwise)
claiming solely by. through or under Lessor. LESSOR HAS NOT MADE AND MAKES NO,
AND HEREBY EXPRESSLY DISCLAIMS ANY OTHER, EXPRESS OR IMPLIED WARRANTY WHATSOEVER
HEREUNDER, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR ANY PURPOSE,
OR OTHERWISE, REGARDING THE EQUIPMENT OR ANY PART OR THE DESIGN OR CONDITION
THEREOF. Subject to the provisions of Section 10 here Lessor hereby transfers
and assigns to Lessee during the term of this Lease all of its right, title and
interest in any express or implied warranties and covenants of any Equipment
manufacturer or vendor which are assignable by Lessor. Lessor and Lessee agree
to execute any manufacturer's transfer of "Patent and Copyright Indemnity" and
"Warranties" documents with respect to the Equipment leased hereunder.
(b) Lessee, at the time of execution of this Agreement and any Supplement
hereto, hereby warrants and represents to Lessor, Secured Party, as hereinafter
defined, and their respective successors and assigns: (i) that execution,
delivery and performance of this Agreement have been duly authorized by all
necessary corporate action on its part and are not in conflict with its
<PAGE>
charter or bylaws or with or constitute a breach of or default under any
indenture, contract or agreement by which it is bound, or with any statute,
judgment, decree, rule or regulation binding upon it; (ii) that no consent or
approval of any trustee or holder of any indebtedness or obligation, and consent
or approval of, or taking of any other action with respect to, any governmental
authority, is necessary for execution, delivery or performance of this Agreement
(iii) that this Agreement is legal, valid, binding, and enforceable against the
Lessee in accordance with its terms, subject to enforcement limitations imposed
by rules of equity or by bankruptcy or similar laws; (iv) Lessee is a corporate
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and the jurisdiction(s) where the Equipment will be located and
has adequate corporate power to enter into and perform this Lease; and (v) there
are no actions, suits or proceedings pending or, to the knowledge of Lessee
threatened against or affecting Lessee in any court or before any governmental
commission, board or authority which, if adversely determined will have a
materially adverse effect on, the ability of Lessee to perform its obligations
under this Lease.
5. POSSESSION, USE AND MAINTENANCE OF THE EQUIPMENT
(a) The Equipment shall be kept by Lessee (1) subject to inspection by
Lessor at reasonable times and manner, (2) at Lessee's address, as stated on
each Supplement hereto, which Equipment shall not be relocated without prior
written consent of Lessor, which consent shall not be unreasonably withheld, (3)
free of all security interests of any kind whatsoever, liens, encumbrances and
other claims, except (i) those of persons claiming solely against Lessor but not
Lessee on account of obligations which Lessee is not required by this Lease to
discharge, (ii) liens of current taxes not delinquent (except liens for taxes
which are being contested by Lessee as provided in Section 3 hereof, (4) marked
with the manufacturer's identification marks or numbers and, if, requested by
Lessor or Secured Party conspicuously labeled with labels to disclose Lessor's
and any Secured Party's interest in the Equipment, and (5) in good and efficient
working order, condition and repair, reasonable wear and tear expected, and
acceptable for maintenance under the manufacturers maintenance agreement at the
expiration of the Lease Term, with the Equipment covered by a manufacturers band
(or similar indication, where available). Lessee will, within ten (10) working
days of receiving notice thereof, promptly notify Lessor in writing of any
mortgage, pledge, lien, attachment, charge, encumbrance or right of others which
has arisen with respect to the Equipment.
(b) Lessee shall use the Equipment with due care to prevent injury
thereto, and to any person or property, and in conformity with all applicable
laws, ordinances, rules, regulations and other requirements of any insurer or
governmental body and with all requirements of the manufacturer with respect to
the use, maintenance and operation of the Equipment. Lessee shall not modify any
Equipment without the prior written consent of Lessor, which may be granted or
withheld in its sole discretion. It is the intention and understanding of both
Lessor and Lessee that the Equipment shall be and at all times remain separately
identifiable personal property. Lessee shall not permit any Equipment to be
installed in, or used, stored or maintained with, any personal property (except
other Equipment leased hereunder) in such manner or under such circumstances
that such Equipment might be or become an accession to or confused with such
other personal property. Lessee shall not permit any Equipment to be
<PAGE>
installed in or used, stored or maintained with, any real property such a manner
or under such circumstances that any person might acquire any rights in such
Equipment paramount to the rights of Lessor or Security Party by reason of such
Equipment being deemed to be real property or a fixture thereon.
6. RISK OF LOSS
(a) Lessee assumes and shall bear the entire risk of partial or complete
loss theft, damage, destruction, condemnation, requisition, taking by eminent
domain or other interruption or termination of use of the Equipment from any
cause whatsoever, whether or not insured against, from the date of delivery of
the Equipment until the Equipment is returned to and received by Lessor. Except
as otherwise expressly provided herein, no such loss, theft, damage,
destruction, condemnation, requisition, taking by eminent domain or other
interruption or termination of use of the Equipment, and no delay, deficiency or
absence of insurance proceeds, and no unavailability, delay or failure of
supplies, parts, mechanisms, devices or service for the Equipment or any failure
of the Equipment to function for any cause, shall relieve Lessee of the
obligation to pay Rent hereunder. Lessee's obligation to pay all Rent, and the
rights of Lessor and the Secured Party in and to such payments, shall be
absolute and unconditional and except as otherwise expressly provided herein
this lease shall not terminate nor shall the respective obligations of the
Lessor or the Lessee be affected, by reason of any defect or in Total Casualty
(as defined in this Section 6) to or obsolescence of the Equipment or an item
thereof from whatever cause, or the interference with the use thereof by any
private person, corporation governmental authority, or any other disability of
the Lessee to use the Equipment, or war, act of God, or governmental
regulations, any present or future law or regulation to the contrary
notwithstanding. Lessee shall promptly notify Lessor in writing of the
occurrence of any of the above events and all pertinent details connected
therewith. Except during any period when an Event of Default shall have occurred
and shall be continuing, Lessee shall be entitled to the proceeds of any claim
or right of Lessor or Lessee against any third party on account of any Of the
foregoing events and Lessee shall be subrogated to the Lessor's right of
recovery therefor against any third party. Lessor shall execute and deliver from
time to time such instruments and take such other action as may be necessary or
appropriate to more fully vest in Lessee such proceeds or effect such
subrogation, provided, however, that all costs and expenses, including court
costs and attorneys' fees, incurred in connection with enforcing or realizing
upon any such claim or right to proceeds or obtaining enforcement of or
realizing upon such right of subrogation, shall be paid by Lessee.
(b) In the event any item of Equipment is physically damaged to a material
extent by any occurrence whatsoever, Lessee shall immediately notify Lessor of
such damage and, unless Lessor shall determine that Section 6(c) hereof is
applicable to such damage, Lessee, at Lessee's expense, shall promptly cause
such item of Equipment to be returned to the condition described in Sections 3
and 5 hereof.
(c) In the event any item of Equipment shall be lost, stolen, destroyed,
damaged beyond repair or permanently rendered unfit for use for any reason
whatsoever, or shall be subjected to a requisition, taking by eminent domain or
other interruption or termination of use for a stated
<PAGE>
period which exceeds the term of this Lease (any such occurrence being referred
to as "Total Casualty"), Lessee shall promptly notify Lessor and either: (i)
obtain replacement equipment of like mode, and features, having utility and
remaining useful life at least equal to that of each such replaced item of
Equipment and, in which case, Lessee shall immediately convey to Lessor good
title for all such replacement equipment free of all liens, claims or
encumbrances and such replacement equipment shall be substituted for each such
item of Equipment replaced hereunder; or (ii) pay to Lessor, on the next Monthly
Rent payment date for such item of Equipment following such Total Casually an
amount equal to the Casualty Value (specified in the applicable Supplement) of
such item of Equipment on such Monthly payment date. If Lessee elects to pay the
Casualty Value rather than replace the Equipment, after the payment of such
Casualty Value and all Monthly Rent due and owing for the period prior to the
date of the Total Casualty with respect to such item of Equipment, Lessee's
obligation to pay further Monthly Rent for such item of Equipment shall cease,
but Lessee's obligation to pay Rent for all other items of Equipment, shall
remain unchanged. So long as no Event of Default shall have occurred and be
continuing under this Lease, and provided Lessee shall have made the Casualty
Value payment identified above, Lessor shall pay Lessee any insurance proceeds
received by Lessor by reason of such Total Casualty up to the amount of the
Casualty Value paid by the Lessee.
7. INSURANCE
Lessee shall at all times during the term of this Lease and until the Equipment
has been returned to Lessor as provided below, at its own expense, maintain
physical damage insurance in an amount not less than the replacement value of
the Equipment but in no event less than the Casualty Value thereof, and
liability and property damage insurance covering the Equipment (including
Lessee's contractual liability under Section 9 hereof), in such amount, and with
such companies (which shall be licensed by the state in which the Equipment is
located) and such endorsements and covering such hazards, as are in general
usage by companies owning or operating similar property and engaged in a
business similar to Lessee's, in order to adequately protect the parties hereto.
All insurance so maintained shall provide for a thirty-day prior written notice
to Lessor and its assigns of any cancellation or reduction of coverages and an
option in Lessor or its assignees to prevent cancellation by payment of
premiums, shall cover both the interest of the Lessor and any assigns of which
the Lessee has notice and of the Lessee in the Equipment, and shall provide that
all insurance proceeds shall be payable to the Lessee, Lessor and any such
assignee as their respective interests may appear at the time of any such
payment. Lessor and any such assignee shall be named as additional insureds on
any public liability insurance policies so maintained. Lessee shall furnish to
Lessor satisfactory evidence of any insurance so maintained no later than the
date of delivery of each item of Equipment and once annually, upon Lessor's
request, during the term hereof. Lessee's above the initial date of delivery of
the Equipment and obligation shall commence one shall continue until the Lease
term hereof expires and the Equipment is returned to Lessor. Lessee shall
cooperate and, to the extent possible, cause others to cooperate with Lessor and
all companies providing any insurance to Lessee or Lessor or both with respect
to the Equipment in collection on or enforcement of any such insurance. By this
Section 7, Lessor does not modify or limit any provision of this Lease relating
to disclaimer of warranties and liability or indemnity.
<PAGE>
8. RETURN OF EQUIPMENT
Upon the expiration or earlier termination of the Lease term, Lessee shall
return the Equipment to Lessor in the same condition and configuration including
original serial number, as received, reasonable wear and tear excepted and in
the condition required by Sections 3 and 5 hereof, and shall cause the Equipment
to be inspected by agent(s) of the respective manufacturer(s), if Lessor so
requests, repaired, if necessary, so as to place the Equipment in the foregoing
condition, crated, and shipped by truck or other normal ground transportation to
such address as Lessor may designate. Lessee shall pay all expenses arising
from the above requirements, provided that shipping charges payable by Lessee
shall be limited to an amount equal to the cost of shipping the Equipment to any
location within the Continental United States. Notwithstanding the provision of
any notice contemplated by Section 1 above, in the event that, in contravention
of said notice, any item of Equipment is not returned at the expiration of any
Supplement, Lessor shall be entitled without notice or demand to receive
Supplemental Rent for each day that such return is delayed at the rate of 150%
of the daily proration of Monthly Rent. Lessee's failure to return the
Equipment in accordance with the original notice shall also cause the applicable
Supplement to continue in effect until terminated by either party upon not less
than 90 days additional prior written notice.
9. DISCLAIMER OF LIABILITY AND INDEMNITY
Lessor shall not be liable for, and Lessee agrees to indemnify and hold Lessor,
Secured Party, and their respective successors and assigns harmless against any
loss, claim, action, suit, demand, proceeding, liability, penalty, cost, damage,
obligation, lien or expense of any kind on account of personal injury, property
damage or otherwise, including but not limited to any matter arising under
strict liability in tort, imposed on or incurred by or asserted against Lessor
or Secured Party, or its or their successors or assigns, including without
limitation attorneys' fees incurred on account of any of the foregoing, in any
way relating to this Lease or any document contemplated hereby, or in any way
relating to the selection, manufacture, purchase, acceptance, ownership,
delivery, installation, lease, sublease, possession, use, operation,
maintenance, condition, return or storage of any item of Equipment, or any
accident in connection therewith, or arising by operation of law as a
consequence of any of the foregoing. The provisions of this Section 9 shall
survive any termination of this Lease, provided, however, that the Lessee shall
not be required to indemnify the Lessor for (a) any claim in respect of any item
of Equipment arising from acts or events which occur after possession of such
item has been redelivered to the Lessor, (b) any claim resulting from the
willful misconduct or negligence of the Lessor. Lessee shall give Lessor prompt
written notice of any matter hereby indemnified against and agrees that unless
directed to the contrary by written notice by the indemnified party, Lessee
shall assume full responsibility for the defense thereof on behalf of such
party.
10. EVENTS OF DEFAULT
(a) Each of the following shall constitute an Event of Default hereunder:
(i) default in the payment of any Rent hereunder and continuance thereof for ten
days after notice by Lessor to Lessee of said default; (ii) failure by Lessee to
make any other payment required by this Lease,
<PAGE>
or to perform any other of Lessee's agreements set forth in this Lease, within
30 days after notice thereof is given by Lessor to Lessee; (iii) Lessee becomes
insolvent or admits in writing its inability to pay its debts as they mature, or
applies for, consents to, or acquiesces in the appointment of a trustee or a
receiver or similar officer for it or any of its property, or, in the absence of
such application, consent or acquiescence, a trustee or receiver or similar
officer is appointed for Lessee or for a substantial part of its property and is
not discharged within 60 days, or any bankruptcy, reorganization, debt,
dissolution or other proceeding under any bankruptcy or insolvency law, or any
dissolution or liquidation proceeding, is instituted by or against Lessee, and
if instituted against Lessee is consented to or acquiesced in by Lessee or
remains for 60 days undismissed; (iv) Lessee shall make an assignment for the
benefit of creditors; (v) any warranty, representation, statement or report made
in writing by Lessee in this Lease or in any document or certificate furnished
in connection with this Lease or any financing obtained in connection therewith
proves to have been untrue or incorrect in any material respect; or (vi) Lessee
shall be a party to a transaction governed by Section 11 (a) below without
complying with such Section.
(b) Upon the occurrence of an Event of Default and so long as the same is
continuing, Lessor may, at its option, declare the applicable Supplement(s) to
be in default by notice to Lessee, and thereafter exercise one or more of the
following remedies, as Lessor in its sole discretion lawfully elects:
(1) Proceed by court action, either at law or in equity, to enforce
performance by Lessee of this Lease or to recover damages for the breach
thereof.
(2) By notice terminate the applicable Supplement, whereupon all rights
of Lessee in the Equipment subject to said Supplement will absolutely
cease but Lessee will remain liable as hereinafter provided; and
thereupon Lessee, if so requested, will at its expense promptly return
the Equipment to Lessor at the place designated by Lessor within the
Continental United States and in the condition, required pursuant to the
terms hereof, or Lessor, at its option, may enter the premises where the
Equipment is located and take immediate possession of and remove the
same in a lawful manner. Lessee will, without further demand, forthwith
pay Lessor an amount equal to any past due Rent which was due and
payable for all periods up to and including the Monthly Rent payment
date following the date on which Lessor has declared the Supplement to
be in default plus, as liquidated damages for loss of a bargain and not
as a penalty, an amount equal to the Casualty Value of the Equipment
then subject to the applicable Supplement, computed as of such Monthly
Rent payment date. Following the return of the Equipment to Lessor
pursuant to this clause (2), Lessor will proceed to sell or release the
Equipment in a commercially reasonable manner. The proceeds of such sale
or release will be applied by Lessor (A) first, to pay all costs and
expenses, including reasonable legal fees and disbursements, incurred by
Lessor as a result of the default and the exercise of its remedies with
respect thereto, (B) second, to pay Lessor an amount equal to any unpaid
past due Rent due and payable plus the Casualty Value, to the extent not
previously paid by Lessee, and (C) third, to reimburse Lessee for the
Casualty Value to the extent previously paid as liquidated damages. Any
surplus remaining thereafter will be retained by Lessor. To the extent
Lessee has not paid Lessor the amounts specified in this clause
<PAGE>
(2), Lessee will forthwith pay such amounts to Lessor plus interest
provided in Section 12 on such amounts, computed from the date the
Casualty Value is payable hereunder until such amounts are paid.
(c) In addition, Lessee shall be liable for any damages and expenses which
Lessor shall have sustained by reason of the breach of any covenant,
representation or warranty of this Lease other than for the payment of the
Monthly Rent, and shall be liable for any and all unpaid amounts due hereunder
before, during or after the exercise of any of the foregoing remedies and for
all reasonable attorneys' fees and other costs and expenses incurred by reason
of the occurrence of any Event of Default or the exercise of Lessor's remedies
with respect thereto, including all costs and expenses incurred in connection
with the return of any item of Equipment. Upon the occurrence and during the
continuance of an Event of Default hereunder, Lessor shall be exclusively
entitled to enforce the warranties assigned to Lessee under Section 4 hereof,
notwithstanding such assignment.
(d) A cancellation or termination hereunder shall occur only upon written
notice by Lessor to Lessee, or repossession as provided above, and only with
respect to such items of equipment as Lessor specifically elects to cancel or
terminate by such notice or repossession. Except as to any such item of
Equipment with respect to which there is a cancellation or termination, this
Lease shall remain in full force and effect and Lessee shall be and remain
liable for the full performance of all its obligations.
11. SUBLEASE AND ASSIGNMENT
(a) LESSEE SHALL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR AND
SECURED PARTY WHICH MAY BE GRANTED OR WITHHELD IN THEIR SOLE DISCRETION, (i)
SUBLEASE, ASSIGN, PLEDGE, HYPOTHECATE OR IN ANY OTHER WAY TRANSFER THIS LEASE,
THE EQUIPMENT OR ANY PART THEREOF, OR ANY INTEREST THEREIN, OR (ii) PERMIT THE
EQUIPMENT OR ANY PART THEREOF TO BE USED BY ANYONE OTHER THAN LESSEE OR LESSEE'S
EMPLOYEES. Any assignment, sublease, pledge, hypothecation or transfer for which
consent is required hereby and which is made without such consent shall be void.
The consent of Lessor or Secured Party to any of the foregoing applies only to
the specific instance in which given, and shall not be deemed a consent to any
subsequent like act by Lessee or any other person. Subject to the foregoing,
this Lease inures to the benefit of, and is binding upon, the successors and
assigns of the parties hereto. Lessee's interest herein shall not be assigned by
operation of law. Notwithstanding the foregoing, Lessee shall be entitled to
assign or transfer this Lease, the Equipment and its interests in this Lease and
the Equipment in connection with a sale of all or substantially all of its
assets to, or a consolidation of Lessee with, or a merger of Lessee into, any
corporation, so long as Lessee provides Lessor with 45 days prior written notice
and such corporation assumes the obligations of Lessee under this Lease and
Lessee provides written evidence satisfactory to Lessor that immediately
following such sale, consolidation or merger such corporation is in the opinion
of Lessor no less credit-worthy than Lessee immediately prior to such sale,
consolidation or merger. Lessor and any direct or remote assignee of any right,
title and interest of Lessor
<PAGE>
hereunder shall have the right at any time or from time to time to assign to any
third party all or any part of its right, title and interest in and to this
Lease or the Equipment.
(b) Lessor may obtain financing through financial institutions and secure
such financial institutions ("Secured Party") by granting a security interest in
or lien on all or any part of Lessor's interest in the Equipment, the applicable
Supplement, any collateral therefor, and amounts payable by Lessee under the
applicable Supplement. Such financing may include the purchase of the Equipment
by the Secured Party. In the event of such financing (1) the lien instrument or
security agreement will specifically provide that it is subject to Lessee's
rights as herein provided; (2) such assignment of the applicable Supplement or
any interest herein will not relieve Lessor from its obligations hereunder or be
construed to be an assumption by Secured Party of such obligations (but Secured
Party may perform, at its option, some or all of Lessor's obligations); (3) upon
appropriate notice and upon request by Secured Party. Lessee will execute such
acknowledgements and other documentation as may be requested by Lessor or
Secured Party and Lessee will thereafter pay directly to Secured Party all Rent
and other amounts payable hereunder; and (4) Lessee's obligations hereunder,
including, without limitation, its obligation to pay Rent and other amounts
hereunder, shall be absolute and unconditional and shall not be subject to any
reduction, abatement, defense, set-off, counterclaim or recoupment for any
reason whatsoever. Lessee acknowledges that any assignment or transfer by Lessor
permitted under this Lease shall not materially change Lessee's duties or
obligations under this Lease or materially increase the burdens or risks imposed
upon Lessee.
12. GENERAL
(a) Any provision herein that Lessee shall take any action shall require
Lessee to do so at its sole cost and expense. Lessee shall pay Lessor interest
at the maximum rate permitted by applicable law, but in no event in excess of a
rate of 1-1/2% per month, on any amount past due from the date it is required to
make any payment of Rent or other amount hereunder. Such interest shall be
payable with respect to the period commencing on the date such payment is due
through the date such payment is actually made.
(b) Any notice hereunder shall be in writing and shall be deemed to be
given when delivered, including but not limited to overnight courier or
electronic transmission or, if mailed, on the third day after mailing by
registered or certified mail, postage prepaid and addressed to Lessee or Lessor
at its respective address shown on the first page hereof, or to either party at
such other address it has designated as its address for purposes of notice
hereunder.
(c) Promptly upon Lessor's written request, Lessee agrees to execute,
acknowledge and deliver such instruments, and to take such other action, as may
reasonably be necessary in the opinion of Lessor, or Lessor's counsel, to
protect Lessor's or any Secured Party's interests in the Equipment, this Lease
and any Rent, including, but without limitation, the obtaining and execution of
landlord and mortgage waivers and Uniform Commercial Code financing statements
in recordable form, incumbency certificates and, at Lessee's expense, opinion of
Lessee's legal counsel regarding the matters contained in Section 4(b) hereof.
Upon Lessor's written request, Lessee also agrees to provide quarterly financial
statements and annual audited
<PAGE>
financial statements in the form previously furnished to Lessor within 120 days
of the end of each quarter and Lessee's fiscal year end. Lessor may file or
record a copy of this Lease, as a financing statement or for any other purpose.
(d) Lessor hereby informs Lessee of the following: i) Lessor did not select,
Manufacture or supply the Equipment; ii) Lessor acquired the Equipment or the
right to possession and use of the Equipment in conjunction with the lease; iii)
in the case of new equipment, the party supplying the Equipment to Lessor
("Supplier") is as stated on the applicable Supplement hereto or schedules
thereto; iv) Lessee is entitled under Article 2A of the Uniform Commercial Code
to the promises and warranties, including those of any third party, provided to
Lessor by Supplier in connection with, or as part of contract by which Lessor
acquired the Equipment or the right to possession and use of the Equipment; and
v) Lessee may communicate with Supplier and receive an accurate and complete
statement of those promises and warranties, including any disclaimers and
limitations of them or of remedies. Lessee hereby acknowledges that it received
this notification from Lessor prior to Lessee signing the Lease. Lessee hereby
certifies that the Lessor is not known to be in default under the terms of said
Lease and Lessee has no known claim against Lessor under the Lease as of the
date hereof. Lessee hereby waives any right it may have under Section 2A-517 of
the Uniform Commercial Code or otherwise to revoke its acceptance for any reason
whatsoever including but not limited to: i) any assumption by Lessee that a
nonconformity would be cured; ii) any inducement of acceptance by the Lessors
assurances or any difficulty to discover a nonconformity before acceptance; or
iii) any Lessor default under the Lease. Lessee further hereby waives its rights
under Section 2A-401 and 2A-402 of the Uniform Commercial Code to suspend
performance of any of its obligations under the Lease with respect to the
Equipment hereby accepted.
(e) This Agreement is, and is intended to be, a lease, and Lessee does not
acquire hereby any right, title or interest in or to the Equipment except the
right to use the same as Lessee under the terms hereof. Both Lessor and Lessee
agree to characterize this Agreement as a lease for Federal income tax purposes,
such that Lessor shall receive the benefits of any depreciation and investment
tax credit, allowance or similar benefit associated with any item of Equipment.
(f) This Master Lease Agreement and all Supplements duly executed and attached
hereto from time to time constitute the entire agreement between the parties
hereto with respect to the Equipment, and any change or modification hereto and
any related agreement must be in writing and sighed by the parties hereto. There
shall be a single executed original of this Master Lease Agreement which shall
be marked and for the purposes hereof shall be referred to as the "Original";
all other counterparts shall be marked "Duplicate". With respect to any
Supplement to this Master Lease Agreement executed by the parties hereto, the
following shall apply: (i) each such Supplement shall constitute a new lease
between the parties; (ii) there shall be a single executed original of each such
Supplement marked "Original"; (iii) all other counterparts of such Supplement
shall be marked "Duplicate"; and (iv) to the extent, if any, that any such
Supplement constitutes chattel paper (as such term is defined in the Uniform
Commercial Code as in effect in any applicable jurisdiction) no security
interest therein may be created through the transfer or possession of the
Original of this Master Lease Agreement or any Duplicate of such a
<PAGE>
Supplement, but such security interest may be created by the transfer or
possession of the Original of such Supplement together with a certified copy of
this Master Lease Agreement.
(g) Lessor is not, and shall not be deemed to be, an agent, employee or
representative of Lessee or any manufacturer of any Equipment, for any purpose
whatsoever.
(h) If this Lease or any provision hereof shall be deemed invalid, illegal or
unenforceable in any respect or in any jurisdiction, the validity, legality and
enforceability of this Lease in other respects and in other jurisdictions shall
not be in any way impaired or affected thereby. No covenant or condition of this
Lease can be waived except by the written consent of the party to be bound by
such waiver. No waiver by Lessor of any Event of Default hereunder shall in any
way be, or be construed to be, a waiver of any future or subsequent Event of
Default. Forbearance or indulgence by Lessor or Lessee in any regard whatsoever
shall not constitute a waiver of the covenant or condition to be performed by
the other party to which such forbearance or indulgence may apply, and, until
complete performance by such party of such covenant or condition, Lessor or
Lessee, as the case may be, shall be entitled to invoke any remedy available to
such party under this Lease or by law or in equity or otherwise despite said
forbearance or indulgence. This Lease shall be governed by the laws of the State
of Illinois. Lessee hereby submits to the Jurisdiction of the state and federal
courts located in Illinois.
(i) Should Lessee fail to make any payment or to do any act as herein provided,
after notice to Lessee which is reasonable under the circumstances, Lessor shall
have the right, but not the obligation and without releasing Lessee from any
obligation hereunder or waiving Lessor's right to declare a default hereunder,
to make or do the same, and to pay, purchase, contest or compromise any
encumbrance, charge or lien which in the reasonable judgment of Lessor appears
to materially and adversely affect Lessor's interest in the Equipment, and in
exercising any such rights Lessor may incur and liability and expend whatever
amount in its reasonable discretion it may deem necessary therefor. All sums so
incurred or expended by Lessor shall be without demand immediately due and
payable by Lessee.
(j) Whenever the context of this Lease requests, the singular number includes
the plural. Section headings contained herein are solely for the convenience of
the parties, and are not an aid in the interpretation of the instrument.
Although this Lease is dated as of the date first above written for convenience,
the Supplement Commencement Date shall be as specified in the applicable
Supplement.
(k) This Master Lease Agreement may be canceled by Lessee in writing, provided
all outstanding Supplements hereunder have either expired or have been
terminated with respect to their individual termination provisions and that no
Events of Default are continuing under any Supplements, and Lessee has fulfilled
all obligations under all such Supplements.
<PAGE>
LESSOR: LESSEE:
MERIDIAN LEASING CORPORATION DIAMOND BRANDS INCORPORATED
By: By:
Title: Title:
<PAGE>
12/23/96 fe
SUPPLEMENT NUMBER 1
LESSEE: DIAMOND BRANDS, INC.
MASTER LEASE AGREEMENT DATE: November 22, 1996
This Supplement is issued pursuant to the Master Lease Agreement identified
above. All of the terms and conditions of the Master Lease Agreement are hereby
incorporated herein and made a part hereof as if such terms and conditions were
set forth in this Supplement. This Supplement, together with the terms and
conditions as incorporated herein, constitutes a separately enforceable lease
agreement with respect to the Equipment.
SUPPLEMENT COMMENCEMENT DATE: January 1, 1997
The Lease Term shall begin on the Supplement Commencement Date. To the extent
that the Equipment is accepted prior to that date, the Lessee shall pay to the
Lessor an interim rental representing a proration on a per diem basis of the
initial monthly rental.
EQUIPMENT: Manufactured by BAY NETWORKS, TRANSITION ENGINEERING, SHIVA, U.S.
ROBOTICS, ADC, 3COM, APC, COMPAQ, KINGSTON, MICROSOFT
See Equipment/Location Schedule A to Supplement Number 1.
LEASE TERM AND RENTAL PAYMENTS: Term 48 months, payable monthly on the first day
of each month. The amount of payment for months 1 through 48 is $2,321.00 per
month.
LOCATION OF EQUIPMENT:
See Equipment/Location Schedule A to Supplement Number 1.
ADDITIONAL PROVISIONS TO SUPPLEMENT:
Casualty Values........................................... Schedule B
Purchase Option........................................... Schedule C
MERIDIAN LEASING CO DIAMOND BRANDS, INC.
(Lessor), (Lessee)
<PAGE>
By: By:
Title: Title:
<PAGE>
EQUIPMENT/LOCATION SCHEDULE A
TO SUPPLEMENT 1
To
Master Lease Agreement Dated November 22, 1996
Between
MERIDIAN LEASING CORPORATION (Lessor)
And
DIAMOND BRANDS, INC. (Lessee)
EQUIPMENT: Manufactured by BAY NETWORKS, TRANSITION ENGINEERING, SHIVA, U.S.
ROBOTICS, ADC, 3COM, APC, COMPAQ, KINGSTON, MICROSOFT
LOCATION: DIAMOND BRANDS, INC.
1800 CLOQUET AVENUE
CLOQUET, MN 55720
<TABLE>
<CAPTION>
Qty Model/Type Description
<S> <C> <C>
3 CG1001X02 24 PORT 10BASE T HUB
2 CG1007002 ADVANCED AGNT NNM (BAYSTACK)
1 CG0018001 CASCADE CABLE
1 810M-A 8 PRT MANAGED HUB
2 78392 AUI 10 B 2 TRANSCEIVER
2 27890 10 B T TRANSCEIVERS
1 280131 SHIVA NETMODEM
1 940707 USR SPORTSTER MODEM
1 AE1001010 ANH: 1 ETH X 2 SYNC 8
1 AE1001007 AN: 1ETH X 2 SYNC 8MB
2 AE1001014 ANH: 1 ETH X 2 SYNC 12
1 AE1001006 AN: 1 ETH X 2 SYNC 4M D
5 AE0008024 REMOTE OFFICE SUITE
5 7220 V.35 CABLE FOR WAN
1 78741 ADC KENTROX ADD/DROP
4 78285 ADC CSU/DSU 64KB
1 636-03 OPTIVITY 6.0 FOR HP
4 3C562-TP ETHERLINK PCMCIA
2 3C509B-TPO ETHERLINK III RJ45
2 3C509B-TPO-20PK ETHERLINK III RJ45 (20)
4 3C509B-TPC ETHERLINK III RJ45 BNC
1 SU1000RM APC SMART UPS (1000VA)
1 SU3000 SMART UPS (3000VA)
1 SU1400 APC SMART UPS (1400VA)
5 BF2300-001 AN NXT DAY HARDWARE
1 S6-02 WINDOWS SOFTWARE LICENSE
3 BF2300-037 BAYSTACK NXT DAY HARD.
1 219720-007 PROLIANT 1500 5/166
2 KTC1691/64 64MB MEMORY U/G
1 146742-006 4.3GB PLUGGABLE F/W SCSI
1 1141564-601 1024 COLOR MONITOR
1 455787 M/S BACK OFFICE
80 543888 75 USER LICENSE
70 454902 U/G WIN 95
39 454124 MS OFFICE PRO (COMP U.G)
</TABLE>
This Schedule is hereby attached to and made a part of the Supplement to the
Master Lease Agreement bearing date as set forth above, between MERIDIAN LEASING
CORPORATION and Lessee named above.
<PAGE>
Lessee Address:
DIAMOND BRANDS, INC.
1800 CLOQUET AVENUE
CLOQUET, MN 55720
<PAGE>
SCHEDULE B TO SUPPLEMENT NUMBER 1
TO
Master Lease Agreement Dated November 22, 1996
Between
MERIDIAN LEASING CORPORATION (Lessor)
And
DIAMOND BRANDS, INC. (Lessee)
CASUALTY VALUES
The Casualty Value of the Equipment covered by the Supplement identified above,
as of any date, shall be the amount indicated below opposite the period of time
in which such date occurs. Values for those periods between the ones indicated
below can be calculated through interpolation of nearest values.
<TABLE>
<CAPTION>
Months Expired After Casualty
Supplement Commencement Date Value
<S> <C>
0 $113,236
12 $ 88,598
24 $ 69,872
36 $ 55,638
48 $ 44,820
</TABLE>
After the term of lease for such Equipment, and until such item of Equipment has
been surrendered to Lessor, as provided in the Master Lease Agreement, the
Casualty Value of such Equipment shall be $44,820.00.
Following payment of the Casualty Value, the Lessor and the Lessee shall each
make reasonable efforts to obtain bids for the purchase of any existing
Equipment suffering such Total Casualty. Such Equipment shall be sold for the
highest cash offer then available, or if higher, other offer acceptable to
Lessor and Lessee. Upon such sale, the Lessee shall be refunded the amount of
the proceeds of the sale less the actual expenses incurred by Lessor in making
the sale, including, without limitation, storage, insurance, advertising and
sales taxes, but such refund shall not be in excess of the Casualty Value
previously paid.
Following payment of the Casualty Value, the Lessee shall be entitled to the
proceeds of any insurance covering the Equipment suffering such Total Casualty
up to an amount not in excess of the Casualty Value previously paid, but in no
event shall the aggregate of amounts refunded to or received by Lessee pursuant
to this Schedule B exceed the Casualty Value.
This Schedule is hereby attached to and made a part of the Supplement of the
Master Lease Agreement bearing date as set forth above, between MERIDIAN LEASING
CORPORATION and Lessee named above.
<PAGE>
SCHEDULE C TO SUPPLEMENT NUMBER I
To
Master Lease Agreement Dated November 22, 1996
Between
MERIDIAN LEASING CORPORATION (Lessor)
And
DIAMOND BRANDS, INC. (Lessee)
PURCHASE OPTION:
Lessee has the option, with 3 months prior written notice, provided it has not
previously received written notice of default under the terms of the Lease, or
if it received such notice of default, has cured such default, to purchase the
Equipment at the end of the Lease Term for Fair Market Value, such Fair Market
Value to be determined objectively by Lessor. Upon payment of the purchase
price, Lessor hereby releases any interest it may have in the software subject
to this Supplement. In the event Lessee does not exercise said purchase option,
the Lease Term shall be automatically extended at the monthly lease rate in
effect at the end of said term, unless and until terminated by either party
giving the other not less than 3 months prior written notice, and any software
shall be returned with the Equipment.
This Schedule is hereby attached to and made a part of the Supplement of the
Master Lease Agreement bearing date as set forth above, between MERIDIAN LEASING
CORPORATION and Lessee named above.
<PAGE>
COMMERCIAL AND INDUSTRIAL LEASE AGREEMENT
THIS LEASE is made as of this 23rd day of June, 1997 between LNPJ,L.L.C., a
Missouri limited liability company, 1330 Burlington, North Kansas City, Missouri
64116 Attn: Mike Rainen ("Landlord") and Empire Candle, Inc., a Missouri
corporation, located at 2925 Fairfax Trafficway, Kansas City, Kansas 66115
("Tenant") who agree as follows:
1. PREMISES - Subject to the covenants and conditions of this Lease,
Landlord leases to Tenant and Tenant leases from Landlord the premises (the
"Premises") commonly known and numbered as 2925 Fairfax Road/209 Donovan in the
City of Kansas City, County of Wyandotte, State of Kansas, and further described
on Exhibits A (owned by Landlord) and B (leased by Landlord) attached hereto,
together with the right of ingress and egress and subject to reservations and
easements of record.
2. USE OF PREMISES - The premises will be used on for manufacturing,
warehousing and administration.
3. TERM - The term of this lease (the "Term") is for three years and no
months, commencing on the 15'h day of July, 1997 and ending on the 14th day of
July 2000.
4. RENT PAYMENTS- Tenant shall pay to Landlord an aggregate sum of One
Million Two Hundred Forty Thousand and no/100 Dollars ($1,240,000.00) as rent in
monthly installments ("Rent Payments"), each due and payable in advance without
notice or demand at Landlord's above stated address, or at any other place
Landlord designates in writing.
The first monthly rent payment of $33,333.34 will be paid on or before July
15, 1997 and all subsequent monthly rent installments will be due on the 15th
day of each succeeding month during the Term. The amount of each monthly rent
installment will be as follows:
year one- $33,333.33
year two- $35,000.00
year three- $35,000.00
5. SECURITY DEPOSIT - Concurrently with its execution of this Lease,
Tenant shall deliver to Landlord $35,000.00 as security for the performance by
Tenant of every covenant and condition of this Lease (the "Security Deposit").
Said Security Deposit may be commingled with other funds of Landlord and bear no
interest. If Tenant shall default with respect to any covenant or condition of
this Lease, including but not limited to the payment of rent, Landlord may apply
the whole or any part of such Security Deposit to the payment of any sum in
default or any sum which Landlord may be required to spend by reason of Tenant's
default. If any portion of the Security Deposit is so applied, Tenant, upon
demand by Landlord, will deposit cash with the Landlord in an amount sufficient
to restore the Security Deposit to its original amount. Should Tenant comply
with all of the covenants and conditions of this Lease,
1
<PAGE>
the Security Deposit or any balance thereof shall be returned to Tenant promptly
after the expiration of the term thereof.
6. POSSESSION AT BEGINNING OF TERM - Tenant currently occupies the
Premises under a lease with Sealright Packaging Co.
7. PROPERTY INSURANCE - Tenant shall comply with all insurance
regulations so the lowest property damage insurance and liability insurance
rates possible for the Tenant's use pursuant to Section 3 of this Lease may be
obtained and nothing shall be done or kept in or on the Premises by Tenant which
will cause an increase in the premium for any such insurance on the Premises or
on any building of which the Premises are a part of on any contents located
therein, over the rate usually obtained for the proper use of the Premises
permitted by this Lease or which will cause cancellation or make void any such
insurance.
If, during the Term, the premiums for any property damage insurance
maintained by Landlord with respect to the Premises are increased, or if the
amount of property damage coverage that must be maintained with respect to the
Premises is increased, then Tenant will pay to landlord, as additional rent, the
amount of all such increases in excess of the premium covering the Premises for
the policy year 1997 within thirty (30) days after receipt of Landlord's billing
statement and demand for payment of the same together with documentation
confirming the same. The amount payable by Tenant under this section will be
prorated on a per diem basis for the partial years, if any, in which this Lease
commences and terminates. The amounts payable due to increased premiums will be
capped at a rate comparable to rates for similarly situated property in
Wyandotte County, Kansas.
Tenant shall maintain, at all times during the Term, adequate insurance on
its personal property used, stored or kept in the Premises.
8. INDEMNITY AND LIABILITY INSURANCE - Tenant shall at all times
indemnify, defend, and hold Landlord harmless from all loss, liability, costs,
damages and expenses that may occur or be claimed with respect to any person or
persons, or property on or about the Premises or to the Premises resulting from
any act done or omission by or through Tenant, its agents, employees, invitees
or any person on the Premises by reason of Tenant's use or occupancy or
resulting from Tenant's non-use or possession of said property and any and all
loss, cost, liability or expense resulting therefrom. Tenant shall maintain, at
all times during the Term, comprehensive general liability insurance in a
responsible insurance company licensed to do business in the state in which the
Premises are located and satisfactory to Landlord, properly protecting and
indemnifying Landlord with single limit coverage of not less than $2,000,000.00
for injury to or death of persons and for property damage. During the Term,
Tenant shall furnish Landlord with a certificate or certificates of insurance
covering such insurance so maintained by Tenant and naming landlord and
Landlord's mortgagees, if any, as additional insureds. Landlord agrees to
maintain fire and extended coverage insurance on the improvements on the
Premises in a minimum amount of $ 3,000,000.00.
2
<PAGE>
9. ASSIGNMENT AND SUBLETTING - Tenant shall not assign, transfer, or
encumber this Lease and shall not sublease the Premises or any part thereof or
allow any other person to be in possession thereof without the prior written
consent of Landlord, in each and every instance, which consent or consents shall
not be unreasonable withheld. For the purpose of this provision, any transfer of
a majority or controlling interest in Tenant (whether in one or more related or
unrelated transactions), whether by transfer of stock, consolidation, merger,
transfer of a partnership interest or transfer of any or all of Tenant's assets
or otherwise, or by operation of law, shall be deemed an assignment of this
Lease. Notwithstanding any permitted assignment or subletting, Tenant shall at
all times remain directly, primarily and fully responsible and liable for the
payment of the rent herein specified and for compliance with all of its
obligations under the terms and provisions of this Lease. Landlord may assign or
transfer this lease without the consent of Tenant.
10. SIGNS AND ADVERTISEMENTS - Tenant shall not place nor permit to be
placed upon any part of the Premises, any signs, billboards, or advertisements
whatever, without the prior written consent of Landlord, which consent shall not
be unreasonably withheld or delayed.
11. CONDITION OF PREMISES AT BEGINNING AND END OF TERM - Tenant
acknowledges Tenant has inspected the Premises and, except as may be provided
otherwise in this Lease and without abrogating Landlord's obligations under
Paragraph 15 hereof, Tenant accepts the Premises in their present condition.
At the end of the Term, except for (damage caused by fire or other perils,
Tenant's expense, will (i) surrender the Premises in as good a condition is the
Permitted Use will have reasonably permitted, subject to Tenant's obligations
stated in Paragraphs 12 and 14 herein; (ii) have removed all of Tenant's
property from the Premises; (iii) have promptly repaired any damage to the
Premises caused by the removal of Tenant's Property; and (iv) leave the Premises
free of trash and debris and the building in "broom clean" condition.
12. MAINTENANCE AND REPAIR BY TENANT - Except for the obligations imposed
upon Landlord in Paragraph 15 hereof, and except for damage resulting from an
Insurable Loss, during the Term and at Tenant's sole cost and expense, Tenant
will maintain and keep in good order, repair and condition and, when necessary,
will replace all parts of the Premises (except those for which Landlord is
expressly responsible under the terms of this Lease), including, but not limited
to, dock bumpers and other dock equipment and apparatus, utility service lines
form the point where they enter the building(s) of which the Premises are a
part, interior walls, inside surfaces of exterior walls, fixtures, floor
coverings, lighting fixtures, heating, ventilating, air-conditioning, plumbing,
sprinkler system, glass, windows, doors, elevator, electrical and other
mechanical equipment, appliances and systems, railroad spur tract, if any,
improvements made by and at the expense of Tenant and Tenant's property,
including, but not limited to, Tenant's signs and advertisements. Tenant will
keep the driveways, approaches, sidewalks, parking areas and adjacent alleys
that are a part of the Premises clean, orderly, sightly, unobstructed and free
from ice and snow and will keep railroad spur tracts that are a part of the
Premises unobstructed. Tenant will regularly water, mow, trim, fertilize and
otherwise maintain the lawn, shrubs, plants, trees and other landscaping of the
Premises and will prevent water pipes in the Premises from freezing.
3
<PAGE>
13. LANDLORD'S RIGHT OF ENTRY - Landlord or Landlord's agent may enter the
Premises at reasonable hours to examine the same, to show the same to
prospective lenders and purchasers, and to do anything Landlord may be required
to do hereunder or which Landlord may deem necessary for the good of the
Premises or any building of which they are a part; and, during the last 365 days
of this Lease, landlord may display a "For Rent" sign on and show the Premises
if the Tenant fails to exercise the Option to Renew described in Section 38 of
this Lease.
14. PARKING LOT MAINTENANCE - Tenant shall be responsible for maintenance,
cleaning, repainting and repairs of the parking areas, driveways, sidewalks and
approaches, including snow removal. Tenant will repair all damage to parking
areas, driveways, sidewalks and approaches caused by placement or movement of
trash containers, truck trailer dollies, trucks, etc. Tenant understand and
agrees that no personal property shall be stored in the parking area or any
place outside of the building without the prior written consent of Landlord.
15. MAINTENANCE AND REPAIR BY LANDLORD - Landlord, during the term and at
Landlord's sole cost and expense, will maintain and keep in good repair the
roof, exterior walls (exclusive of inside surfaces and glass, windows and
doors), gutters, down spouts, foundations and all other structural components of
the building(s) of which the Premises are a part. All costs for repairs and
maintenance to the underground plumbing and sewer lines, and water, gas and
electric service lines from the property lines to the point where such service
lines enter the building(s) of which the Premises are a part shall be paid by
the Tenant up to the first $5,000.00 of repairs or maintenance per occurrence
and shall be equally split between the parties for any amounts over $5,000.00
per occurrence. Tenant shall obtain landlord's written permission to proceed
prior to commencement of any repairs or maintenance for which Landlord and
Tenant would be mutually liable which consent shall not be unreasonable withheld
or delayed.
16. DAMAGE BY CASUALTY - In case, during the Term or previous thereto, the
Premises hereby let, or the building of which said premises are a part, shall
be destroyed or shall be so damaged by fire or other casualty as to become
untenantable, then in such event, at the option of Landlord, the Term shall
cease and this Lease shall become null and void from the date of such damage or
destruction and Tenant shall immediately surrender said Premises and all
interest therein to Landlord, and Tenant shall pay rent within said Term only to
the time of such surrender; provided, however, that Landlord shall exercise such
option to so terminate this Lease by notice in writing delivered to Tenant
within thirty days after such damage or destruction. In case Landlord shall not
so elect to terminate this Lease, this Lease shall continue in full force and
effect and Landlord shall repair the Premises with all reasonable promptitude,
and in any event complete the same within 180 days of commencement, placing the
same in as good a condition as they were at the time of the damage or
destruction and for that purpose may enter said Premises and rent shall abate in
proportion to the extent and duration of untenantability. In either event,
Tenant shall remove all tenant's rubbish, debris, merchandise, furniture,
equipment and other of its personal property, within twenty days after the
request of Landlord. If the Premises shall be but slightly injured by fire or
other casualty, so as not to render the same untenantable and unfit for
occupancy, then Landlord shall repair the same with all reasonable promptitude
to substantially the same utility and use, and in that case the rent shall not
abate. Except as provided herein, no compensation of claim shall be made by or
allowed to Tenant by reason of any inconvenience or annoyance arising from the
necessity of repairing any portion of the building or the Premises, however the
necessity may occur.
4
<PAGE>
17. PERSONAL PROPERTY - Landlord shall not be liable for any loss or
damage to any merchandise inventory, goods, fixtures, improvements or personal
property of tenant in or about the Premises, regardless of the cause of such
loss or damage.
18. ALTERATIONS - Tenant shall not make any alterations or additions in or
to the Premises without the prior written consent of Landlord, which consent
shall not be unreasonably withheld or delayed. Landlord hereby approves
Tenant's installation of six storage tanks ("Tanks") to hold wax integral to
Tenant's operations in and on the Premises Tenant shall, at Tenant's sole cost
and expense, remove the Tanks at the expiration or earlier termination of this
Lease.
19. UTILITIES AND SERVICES - Tenant shall furnish and pay for all
electricity, gas, water, fuel, trash removal and any services or utilities used
in or assessed against the Premises, unless otherwise herein expressly provided.
20. LEGAL REQUIREMENTS - Tenant shall comply with all laws, orders,
ordinances and other public requirements now or hereafter affecting the Premises
or the use thereof, including without limitation ADA, OSHA and like
requirements, and indemnify, defend and hold Landlord Harmless from expense or
damage resulting from failure to do so.
21. MULTIPLE TENANCY BUILDING- N/A
22. FIXTURES - Except for Tenant's property and business fixtures, all
buildings, repairs alterations, additions, improvements, installations and other
non-business fixtures installed or erected on the Premises, whether by or at the
expense of Landlord or Tenant, will belong to Landlord and will remain on and be
surrendered with the Premised at the expiration or termination of this Lease.
Notwithstanding the foregoing, at the time of Landlord's approval of any
alterations, additions or improvements to the Premises, Landlord shall provide
Tenant with notice as to whether or not Landlord expects Tenant to remove the
same prior to the expiration of this Lease, which notice shall be observed by
Tenant. In all other events, upon the expiration of this Lease, Tenant shall
return the Premises to the condition they were in as of the commencement of this
Lease, except for (i) normal wear and tear, (ii) damage by casualty and (iii)
loss by condemnation.
23. INCREASE IN REAL ESTATE TAXES AND SPECIAL ASSESSMENTS - In the
event the real estate taxes and installments of special assessments, payable
with respect to the Premises during any lease year shall be greater than the
amount of such taxes and installments due and payable during the base year of
1997, whether by reason of an increase in tax rate or an increase in the
assessed valuation or otherwise, Tenant shall pay to Landlord the full amount of
such increase as additional rent within thirty (30) days after notice that the
same is due together with documentation confirming the same.
24. EMINENT DOMAIN - If the Premises or any substantial part thereof shall
be taken under the power of eminent domain or be acquired for any public or
quasi-public use or
5
<PAGE>
purpose, the Term shall cease and terminate upon the date when the possession of
said Premises or the part thereof so taken shall be required for such use or
purpose and without apportionment of the award, and Tenant shall have no claim
against Landlord for the value of any unexplored Term. If any condemnation
proceeding shall be instituted in which it is sought to take or damage any part
of the Premises or the building of which the Premises are a part of the land
under it, or if the grade of any street or alley adjacent to the Premises is
changed by any legal authority and such change of grade makes it necessary or
desirable to remodel the Premised to conform to the changed grade, Landlord
shall have the right to cancel this Lease after having given written notice of
cancellation to Tenant not less than ninety (90) days prior to the date of
cancellation designated in the notice. If Landlord does not cancel this Lease
pursuant to the foregoing sentence, Landlord shall remodel, change and restore
the Premises with all reasonable promptitude, placing the same in as good
condition as the Premises were at the time of the condemnation and in all events
to a complete architectural unit and rent shall abate in proportion to the
extent and duration of untenantability during Landlord's construction, which
shall in any event be completed within 180 days of commencement of the same.
25. WAIVER OF SUBROGATION- As part of the consideration for this Lease,
each of the parties hereby releases the other party hereto from all liability
for damage due to any act or neglect of the other party (except as hereinafter
provided) occasioned to property owned by said parties which is or might be
incident to or the result of a fire or any other casualty against loss for which
either parties is now carrying or hereafter may carry insurance or is required
to carry insurance pursuant to this Lease; provided, however, that the releases
herein continued shall not apply to any loss or damage occasioned by intentional
acts of either of the parties hereto, and the parties hereto further covenant
that any insurance they obtain on their respective properties shall contain an
appropriate provision whereby the insurance company, or companies, consent to
the mutual release of liability contained in this paragraph.
26. DEFAULT REMEDIES - In the event: (i) Tenant fails to comply with any
term, provision, condition or covenant of this Lease; (ii) N/A; (iii) any
petition is filed by or against Tenant under any section or chapter of the
Federal Bankruptcy Act, as amended, or under any similar law or statute of the
United States or any state thereof; (iv) Tenant becomes insolvent or makes a
transfer in fraud of creditors; (v) tenant makes an assignment for benefit of
creditors; or (vi) a receiver is appointed for Tenant or any of the assets of
Tenant, then in any of such events, Tenant shall be in default and Landlord
shall have the option to do any one or more of the following: upon ten (10) days
prior written notice, for the payment of rent or additional rent upon thirty
(30) days prior written notice for non-monetary defaults, provided, however,
that Tenant shall not be in default of this Lease if it has commenced the cure
within the thirty (30) day period and diligently prosecutes the same thereafter,
in addition to and not in limitation of any remedy permitted by law, to enter
upon the Premised either with or without process of law, and to expel, remove
and put out Tenant or any other persons who might be thereon, together with all
personal property found therein; and, Landlord may terminate this Lease or it
may from time to time without terminating this Lease, rent said Premised or any
part thereof for such term or terms (which may be for a term extending beyond
the Term) and at such rental or rentals and upon such other terms, and
conditions as Landlord in its sole discretion may deem advisable, with the right
to repair, renovate, remodel, redecorate, alter and change said Premises. At the
6
<PAGE>
option of Landlord, rents received by Landlord from such reletting shall be
implied first to the payment of any indebtedness from Tenant to Landlord other
than rent and additional rent due hereunder; second, to payment of any costs and
expenses of such, including, but not limited to, attorney's fees, advertising
fees and brokerage fees, and to the payment of, any repairs, renovation,
remodeling, redecorations, alterations and changes in the Premises; third, to
the payment of rent and additional rent due and payable hereunder the interest
thereon; and, if after applying said rentals there is any deficiency in the rent
and additional rent and interest to be paid by Tenant to under this Lease,
Tenant shall pay any such deficiency to Landlord and such deficiency shall be
calculated and collected by landlord monthly. No such re-entry or taking
possession of said Premises shall be construed as an election of Landlord's part
to terminate this lease unless a written notice of such intention be given to
Tenant. Notwithstanding any such reletting without termination, Landlord may at
any time thereafter elect to terminate this Lease for such previous breach and
default. Should thereafter elect to terminate this Lease by reason of any
default, in addition to any other Landlord at any time terminate this Lease by
reason of any default, in addition to any other remedy it may have, it may
recover from Tenant the worth at the time of such termination of the excess of
the amount of rent and additional rent reserved in this Lease for the balance of
the Term over the then reasonable rental value of the Premises for the same
period. Landlord shall have the right and remedy to seek redress in the courts
at any time to correct or remedy any default of Tenant by injunction or
otherwise, without such resulting or being deemed a termination of this Lease,
and Landlord, whether this Lease has been or is terminated or not, shall have
the absolute right by court action or otherwise to collect any and all amounts
of unpaid rent or are unpaid at the date of termination. In case it should be
necessary for Landlord to bring any action under this Lease, to consult or place
said lease or any amount payable by Tenant hereunder with an attorney concerning
or for the enforcement of any of Landlord's rights hereunder, then Tenant agrees
in each and any such case to pay to Landlord, Landlord's reasonable attorney's
fees.
27. WAIVER - The rights and remedies of Landlord under this Lease, as well
as those provided or accorded by law, shall be cumulative, and none shall be
exclusive of any other rights or remedies hereunder or allowed by law. A waiver
by Landlord of any breach or breaches, default or defaults of Tenant hereunder
shall not be deemed or construed to be a continuing waiver of such breach or
default nor as a waiver of or permission, expressed or implied, for any
subsequent breach or default, an it is agreed that the acceptance by Landlord of
any installment of rent subsequently to the date the same should have been paid
hereunder, shall in no manner alter or affect the covenant and obligation of
tenant to pay subsequent installments of rent promptly upon the due date
thereof. No receipt of money by Landlord after the termination of this lease
shall in any way reinstate, continue or extend the term above demised.
28. TOXIC OR HAZARDOUS MATERIALS - Tenant shall not store, use or dispose
of any toxic or hazardous materials in violation of applicable laws in, on or
about the Premises without the prior written consent of Landlord. Tenant, at
its sole cost, will comply with all laws relating to Tenant's storage, use and
disposal of hazardous or toxic materials. Tenant shall be solely responsible
for and will defend, indemnify and hold Landlord, its agents and employees,
harmless from and against all claims, costs and liabilities, including
attorney's fees and costs,
7
<PAGE>
arising out of or in connection with the removal, clean-up and restoration work
and materials necessary to return the Premises, and any other property of
whatever nature located on the Premises, to their condition existing prior to
the appearance of toxic or hazardous materials which were placed or used or
caused to be placed or used by the Tenant, its agents, employees, suppliers,
guests, assigns or any person in its name or on its behalf, on the Premises.
Tenant's obligations under this paragraph will survive the termination of this
Lease. Tenant acknowledges that there may exist on the Premises certain known or
unknown hazardous materials that were brought upon or caused to he brought upon
the Premises by parties other than Landlord (Prior Contamination). Tenant
further acknowledges that the Sealriglit Company, Inc., the entity from whom
Landlord purchased the Premises, is currently remediating certain Prior
Contamination under a Consent Order with the Kansas Department of Health &
Environment (KDHE) in case 93-E-355. Tenant agrees to permit the continuance of
the remediation for the time period and under the conditions required by the
KDHE. Tenant also acknowledges that Landlord has advised Tenant that Landlord
intends to conduct certain remediation on other Prior Contamination in certain
areas of the Premises and Tenant agrees to permit the Landlord and or its agents
to enter into the Premises to complete the remediation.
Landlord agrees to indemnify and hold Tenant harmless against all losses,
costs and expenses, including reasonable attorney's fees, which result from
Tenant's liability to any person or entity (including governmental authorities)
for any claims, judgments, penalties or fines which arise from the presence on
the Premises of toxic or hazardous materials which were placed or used or caused
to be placed or used on the Premises by the Landlord, its agents, employees,
suppliers, guests, assigns or any person in its name or on its behalf. As an
express condition precedent to Tenant obtaining the benefit of this indemnity
from Landlord, Tenant agrees that the loss, cost or expense will not arise from
information provided by Tenant to any governmental agency or third party except
as required by law or would be reasonable or prudent under the circumstances
after giving thirty (30) written notice to Landlord. Landlord's obligation
under this paragraph will survive the termination of this lease but shall
terminate on July 18, 2007. Notwithstanding the above, the indemnity referred
to in this paragraph shall not extend to Prior Contamination existing on that
part of the Premises legally described on Exhibit B attached hereto.
29. REAL ESTATE COMMISSION - Neither party has dealt with any broker,
finder or any other person to whom a leasing commission is due.
Any party to this Lease through whom a claim to any broker's, finder's or
other fee is made, contrary to the representations made above in this paragraph,
shall indemnify, defend and hold harmless the other party to this Lease from any
other loss, liability, damage, cost or expense including, without limitation,
reasonable attorney's fees, court costs and other legal expenses paid or
incurred by the other party, that is in any way related to such a claim.
30. NOTICES - Any notice hereunder shall be sufficient if sent by
certified mail, addressed to Tenant at the Premises, and to Landlord where rent
is payable.
8
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31. SUBORDINATION - In the event Landlord holds title to said Premises by
virtue of a lease, then this sublease is and shall remain subject to all of the
terms and conditions of such underlying lease, so far as shall be applicable to
the Premises. This Lease shall also be subject and subordinate in law and equity
to any existing or future mortgage or deeds of trust priced by landlord upon the
Premises or the property of which the Premises form a part, provided, however,
that the holder of any such existing or future Mortgage or Deed of Trust shall
not disturb Tenant's tenancy pursuant to this Lease so long as Tenant is not in
default pursuant to than terms of this Lease.
32. SUCCESSORS - The provisions, covenants and conditions of this Lease
shall bind and inure to the benefit of the legal representatives, heirs,
successors and assigns of each of the parties hereto, except that no assignment
or subletting by Tenant without the written consent of Landlord shall vest any
rights in the assignee or subtenant of Tenant.
33. QUIET POSSESSION - Landlord agrees, so long as Tenant fully complies
with all of the terms, covenants and conditions herein contained on Tenant's
part to be kept and performed, Tenant shall and may peaceably and quietly have,
hold and enjoy the Premises for the Term aforesaid, it being expressly
understood and agreed that the aforesaid covenant of quiet enjoyment shall be
binding upon Landlord, its heirs, successors or assigns, but only during such
party's ownership of the Premises. Landlord and Tenant further covenant and
represent that each has full right, title, power and authority to make, execute
and deliver this Lease.
34. BANKRUPTCY - N/A
35. ENTIRE AGREEMENT - This Lease contains the entire agreement between
the parties, and no modification of this Lease shall be binding upon the parties
unless evidenced by an agreement in writing signed by Landlord and Tenant after
the date hereof. If there be more than one tenant named herein, the provisions
of this Lease shall be applicable to and binding upon such Tenants, jointly and
severally.
36. SUBORDINATION - Tenant shall attorn to any successor to Landlord upon
request and to execute any documents reasonably required or appropriate to
effectuate such an attornment, or the subordination, aforesaid, upon written
notice thereof, and if Tenant this to execute within ten (10) days of receipt of
Landlord's request for the same, Tenant shall be in immediate default this
Lease.
37. ESTOPPEI, CERTIFICATES- Tenant shall at any time upon not less than
ten (10) days' prior written notice from Landlord execute, acknowledge and
deliver to Landlord or to any lender of or purchaser from Landlord a statement
in writing certifying that this Lease is unmodified and in full force and effect
(or if modified stating the nature of such modification) and the date to which
the rent and other charges are paid in advance, if any, and acknowledging that
there are not, to Tenant's knowledge, any uncured defaults on the part of
Landlord or specifying such defaults if any are claimed. Any such statement may
be conclusively relied
9
<PAGE>
upon by any prospective purchaser or encumbrances of the Premises or of the
business of Landlord.
38. RENEWAL OPTION - Subject to the terms of this paragraph, Landlord
grants to Tenant the option to renew the Lease for one term of one to three
years. Said option shall be exercised by Tenant, if not then in default under
the terms of this Lease, by giving Landlord written notice of its intention to
renew on or before July 15, 1999 and to specify the term of the renewal. The
Rent Payments for such renewal period shall be at an agreed fair market rental
rate ("Renewal Rate") for similar property in the metropolitan Kansas City area
for the same period of time and on the same terms, without taking into account
the value of any improvements made by the Tenant from funds other that those
described in Paragraph 39 below. In the event the parties are unable to agree on
the rental rate for the renewal period by August 30, 1999, then the parties
shall select two individuals ("Individuals") by September 30, 1999, who shall
jointly determine the Renewal Rate and whose determination shall be binding on
the parties. If the above Individuals are unable to make a joint determination
of the Renewal Rate by October 30, 1999, then they shall select a third
individual (Arbitrator) who shall determine the Renewal Rate by January 30,
2000, which determination shall be binding on the parties. The parties agree
that the Individuals and Arbitrator will be individuals with an least ten (10)
years experience in the commercial real estate market in the metropolitan Kansas
City area and who have not been employees or independent contractors of either
of the parties nor hold any interest in either of the parties. Each party shall
pay the costs, if any, associated with the individual it selects. The parties
shall equally split the costs associated with the Arbitrator.
39. REIMBURSEMENT OF IMPROVEMENTS - Landlord agrees to reimburse Tenant
for improvements made by Tenant to the Premises to upgrade the existing office
space and rest rooms, to repair the warehouse floor, to repair or replace the
boiler, lighting, sprinkler systems, dock doors, dock revelers, to paint, and
for other repairs to the Premises agreed to in advance by the Landlord. The
maximum amount of the reimbursement shall be $100,000.00 and shall be payable by
Landlord to Tenant within 15 days after the Tenant provides proof to landlord of
payment for the improvements. All improvements shall be approved by Landlord
prior to commencement, which approval shall not be unreasonably or delayed.
40. RELEASE OF FINANCIAL STATEMENTS - Upon written request from Landlord,
Tenant shall deliver to Landlord its most recent financial statements, as filed
with the Internal Revenue Service. Landlord agrees to keep the information
contained therein confidential and to only release same after consent is
received from the Tenant, which consent shall not be unreasonably withheld or
delayed.
Landlord Tenant
LNPJ, L.L.C. Empire Candle, Inc.
10
<PAGE>
By: By:
Printed Name: Printed Name:
Title: Title:
11
<PAGE>
TRACT 1:
Lot 9, FAIRFAX INDUSTRIAL PARK, SECOND PLAT, a subdivision in Kansas City,
Wyandotte County, Kansas.
TRACT II (Parcel A):
A piece or parcel of land situated in Southeast Quarter of Section 34, Township
10, Range 25, in Kansas City, Wyandotte County, Kansas, described as: Beginning
at a point on the East line of Fairfax Road, as now established, which is a
straight line parallel with and 556 feet distant East Measured at right angles
from the West line of the Southeast Quarter of said Section 34, and 340 feet
South of the North line of the Southeast Quarter of said Section 34, when
measured along the East line of said Fairfax Road; thence North along the East
line of said Fairfax Road, a distance of 189.44 feet to a point; thence
Northeasterly along a line curving to the right having a radius of 129 feet a
distance of 169.06 feet to a point 40 feet South measured at right angles from
the North line of Southeast Quarter of said Section 34, and 110.56 feet East of
the East line of said Fairfax Road, when measured alone, a line parallel with
and 40 feet distance South measured at right angles from the North line of the
Southeast Quarter of said Section 34; thence East along a parallel with and 40
feet distant South measured at right angles from the North line of the Southeast
Quarter of said Section 34, a distance of 89.45 feet to a point; thence South
along a straight line parallel with the West line of the Southeast Quarter of
said Section - 34, a distance of 302.21 feet to a point; thence West along a
straight line at right angles to the West line of the Southeast Quarter of said
Section 34, a distance of 200 feet, more or less to the point of beginning,
except that certain mineral estate reserved in the deed executed by the Kansas
City Industrial Land Corn any to Oswego Falls Corporation, dated February 28,
1947 and recorded March 21, 1947, as Document No. 436248 in Book 1091 at Page
355, and all rights and easements thereunder.
TRACT II (Parcel C):
A parcel of land in the Northeast Quarter Section 34, Township 10, Range 25,
Wyandotte County, Kansas, described as follows: Beginning at a point that is 556
feet distant East measured at right angles from the West line of said Northeast
Quarter and that is 40 feet distant North measured at right angles from the
South line of said Northeast Quarter and which said point of beginning is on the
Easterly right-of-way line of Fairfax Road as now established; thence North
alone, said East line of Fairfax Road which is a straight line that is parallel
with and 556 feet distant East measured at right angles from said West line of
the Northeast Quarter a distance of 901.6 feet to a point; thence East alone, a
straight line at right angles to said West line of the Northeast Quarter a
distance of 208 feet to a point; thence South along a straight line that is
parallel with and 764 feet distant East measured at right angles from the West
line of said Northeast Quarter a distance of 901.6 feet, more or less to a point
40 feet distant North measured at right angles from the South line of said
Northeast Quarter; thence West along a straight line parallel with and 40 feet
distant measured at right angles from the South line of said Northeast Quarter a
distance of 208 feet, more or less to the point of beginning except that certain
mineral
12
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estate reserved in the deeds executed by the Kansas City Industrial Land Company
to Oswego Falls Corporation, dated February 6, 1946, and recorded February 19,
1946 as Document No. 419136 in Book 1048 at Pace 606, and dated October 10, 1958
recorded February 9, 1959 as Document No. 595963 in Book 1649 at Page 11 and all
rights and easements thereunder.
13
<PAGE>
TRACT II - PARCEL B: All that part of the Southeast Quarter of Section 34,
Township 10 South, Range 25, East of the Sixth -Principal Meridian, in Kansas
City, Wyandotte County, Kansas, described as follows: Beginning at a point in
the South line of Sunshine Road as now established 60 feet wide at a point
thereon that is 799 feet distant East measured at right angles, from the West
line of said Southeast Quarter, said point also being 30 feet distant South,
measured at right angles, from the North line of said Southeast Quarter; thence
South along a straight line that is parallel with and 799 feet distant East,
measured at right angles, from said West line of said Southeast Quarter, pipe
lines was heretofore granted by The Kansas City Industrial Land Company to Great
Lakes Pipe Line Company, Phillips Petroleum Company and Standish Pipe Line
Company by agreement dated June 16, 1947 and recorded in Book 1109 at Pages 27
to 45 inclusive, records of said Wyandotte County; thence East along the
Northerly line of said 60 foot strip of land heretofore granted for nine lines
by said agreement dated June 16, 1947, which is a straight line at right angles
to the West line of said Southeast Quarter a distance of 64.21 feet, more or
less, to an angle point there that is Go feet distant Northwesterly measured at
right angles, from the Northwesterly line of the property of the Missouri
Pacific Railroad Company; thence Northeasterly along the Northwesterly line of
said 60 foot strip heretofore granted to pipe lines by said agreement dated June
16, 1.947, which is a straight line that is parallel with and 60 feet distant
Northwesterly, measured at right angles, from said Northwesterly line of the
property of the Missouri Pacific Railroad Company, a distance of 437.31 feet
more or less, to a point in said South line of Sunshine Road 60 feet wide;
thence Westerly along said South line of Sunshine Road which is a straight line
that is parallel with and 30 feet distance Southerly, measured at right angles,
from said North line of said southeast Quarter a distance of 202.32 feet, more
or less, to the point of beginning except that certain mineral estate reserved
in the deed executed by the Kansas City Industrial Land Company to Oswego Falls
Corporation, dated June 19, 1948 recorded August 18, 1948 as Document No.
454466 in Book 1163 at Page 166 and all rights and easements thereunder.
14
<PAGE>
GUARANTY OF COMMERCIAL AND INDUSTRIAL LEASE AGREEMENT
THIS GUARANTY OF COMMERCIAL AND INDUSTRIAL LEASE is entered into this 23rd
day of June 1997 in favor of LNPJ, L.L.C. ("Landlord") by Diamond Brands
Incorporated, a Minnesota corporation ("Guarantor").
WHEREAS, Landlord is entering into a Commercial and Industrial Lease
Agreement ("Lease") with Empire Candle, Inc. ("Empire") in which Landlord is
leasing to Empire and Empire is leasing from Landlord certain real property and
improvements located at 2925 Fairfax Trafficway, Kansas City, Wyandotte County,
Kansas ("Premises") for an initial term of three years with total rent payments,
as detailed in Section 4 of the Lease, of $1,240,000.00.
WHEREAS, to induce Landlord to enter into the Lease with Empire and as
Guarantor has a financial interest in Empire and therefore will benefit from
Empire's use of the Premises, the Guarantor has agreed to guarantee all of
Empire's obligations under the Terms of the Lease.
WHEREAS, Guarantor has reviewed the Lease and is familiar with its terms.
NOW THEREFORE, in consideration of entering into the Lease and other good
and valuable consideration receipt of which is hereby acknowledged, the
Guarantor agrees as follows:
1. Guarantor unconditionally guarantees the prompt and punctual of all rental
payments and other sums due to Landlord under the terms of the Lease.
2. Guarantor guarantees the performance by Tenant of all of its other
obligations under the Terms of the Lease.
3. Guarantor waives notice of any default, including default in the payment of
rental payments and consents to all extensions of the Lease and to all
other actions taken by Tenant under terms of the Lease.
4. Guarantor guarantees the amount of any loss or damage to the Premises or to
the Landlord for which Tenant is liable under the terms of the Lease.
5. Guarantor waives any rights it may have to require Landlord, as a condition
precedent to enforcement of this Guaranty, to exhaust any remedies or
rights it may have against the Tenant.
6. Guarantor agrees that this Guaranty shall be governed in all respects by
the law of the State of Kansas.
7. This Guaranty may be executed via facsimile.
15
<PAGE>
8. Any notices which are required to be given by law shall be mailed certified
mail, return receipt requested:
If to the landlord, to:
Michael J. Rainen
c/o Rainen Business Interiors
1330 Burlington
North Kansas City, Missouri 64116
If to Guarantor, to:
Thomas W. Knuesel
Chief Financial Officer
Diamond Brands Incorporated
1800 Cloquet Avenue
Cloquet, MN 55720
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty of
Commercial and Industrial Lease, by its duly authorized as of the year and date
above written.
Guarantor:
Diamond Brands Incorporated
By: Thomas W. Knuesel
Chief Financial Officer
16
<PAGE>
STATE OF MAINE )
) ss.
COUNTY OF FRANKLIN )
Comes now, Thomas W. Knuesel, known to me to be the person who executed the
above and foregoing on behalf of the Guarantor as its Chief Financial Officer
and who acknowledged to me that he did so with full authority of the Guarantor
as his free act and deed and as the free act and deed of the Guarantor.
Notary Public
DEBRA M. MASON
Notary Public, Maine
My Commission Expires February 9, 2003
17
<PAGE>
MINNEAPOLIS WEST
BUSINESS CENTER
LEASE
This Lease is entered into as of, March 17, 1995 between MEPC AMERICAN
--------------
PROPERTIES INC., a Delaware corporation ("Lessor") and DIAMOND BRANDS
--------------
INCORPORATED, a Minnesota Corporation ("Tenant").
- ------------ ---------------------
1. Definitions. In this Lease:
-----------
(a) "Building" means the building at 1660 South Highway 100, St. Louis
Park, Minnesota, located on the Land, commonly known as the Parkdale
Plaza Building,.
(b) "Premises" means the space referred to as Suite No. 590 on the fifth
floor of the Building, which space is shown crosshatched on the
drawing attached to this Lease as Exhibit A, and which for purposes of
this Lease will be deemed to contain 3874 square feet regardless of
actual measurements,
(c) "Term" means the period of five years and no months, beginning on May
1, 1995 and ending on April 30, 2000, subject to the provisions of
Section 7 and the other provisions of this Lease.
(d) "Commencement Date" means the first day of the Term.
(e) "Monthly Base Rent" means $3,228.00 per month, which amount will not
change during the Term unless space is added to or deleted from the
Premises as provided in this Lease or by written amendment of this
Lease.
(f) "Costs" means the estimated monthly Tax Costs plus the estimated
monthly Operating Costs.
(g) "Monthly Rent" means the Monthly Base Rent plus the Costs. The
initial Monthly Rent is $5,892.00, comprised of a Monthly Base Rent of
$3,228.00 plus estimated monthly Operating Costs of $1,808 and
estimated monthly Tax Costs of $856.00.
(h) "Tenant's Share" means the percentage obtained by dividing the square
foot area of the Premises by the total square foot area of the
rentable office space in the Building, which percentage on the date of
this Lease is 1.85% based on the number of square feet stated in
paragraph (b) above and based upon a current total rentable square
footage for the Building of 209,139 square feet.
<PAGE>
(i) "Operating Costs" means all costs, charges and expenses incurred by
Lessor in connection with ownership, operation, security, maintenance
and repair of the Land, the Building, other improvements on the Land,
appurtenances to the Building, parking, roadways, landscaping,
lighting, sidewalks, and common or public areas, including but not
limited to real estate taxes and insurance on common areas, interior
and exterior maintenance, insurance, utilities, fees or expenses for
management by Lessor or any other parry, amortization of capital
investments made to reduce Operating Costs, and amortization of
repairs made to extend the life of the Building and other
improvements. Operating Costs will not include mortgage interest,
depreciation on the Building or fixtures, advertising expenses, real
estate brokers' commissions or the cost of tenant improvements.
(j) "Tax Costs" means all real estate taxes, levies, charges, and
installments of assessments (including interest on deferred
assessments) assessed, levied or imposed on, or allocated to, the Land
and Building and all attorneys' fees, witness fees, court costs and
other expenses of Lessor in connection with any proceeding to contest
these amounts.
(k) "Normal Business Hours" means 8:00 a.m. to 5:00 p.m. Monday through
Friday and 8:00 a.m. to 1:00 p.m. on Saturdays, excluding Sundays and
legal holidays.
(1) "Lease" means this Lease, all Exhibits attached to this Lease, and all
properly executed amendments, modifications and supplements to this
Lease.
(m) "Section" means a section of this Lease.
(n) "Exhibit" means an Exhibit attached to and thereby made a part of this
Lease.
(o) "Land" means the land described on Exhibit B attached to this Lease.
(p) "Taking" means acquisition by a public authority having the power of
eminent domain of all or part of the Land or Building by condemnation
or conveyance in lieu of condemnation.
(q) "Casualty" means a fire, explosion, tornado, or other cause of damage
to or destruction of the Building.
2. Premises.
--------
Lessor leases the Premises to Tenant, and Tenant leases the Premises from
Lessor, for the Term, under the terms and conditions of this Lease.
<PAGE>
3. Rent.
----
Tenant will pay the Monthly Rent to Lessor at P.O. Box 73547 Chicago, Illinois
60673-7547, or such other place as Lessor may designate, in advance on or before
the Commencement Date and on or before the first day of each month during the
Term, without demand, deduction or setoff. The Monthly Rent may change as the
Costs are adjusted annually under Sections 4 and 5. Monthly Rent will begin on
the Commencement Date. If the Term begins on a day other than the first day of
a month, the Monthly Rent for that month will be prorated by multiplying the
Monthly Rent by the number of days of that month included in the Term and
dividing the product by the number of days in that month.
Any Monthly Rent or other amounts payable by Tenant to Lessor under this Lease
which are not paid within 10 days after the date due will bear interest from the
date due to the date paid at the rate of 18% per annum or the maximum rate of
interest permitted by law, whichever is less, and the interest will be paid to
Lessor on demand. In addition, Tenant will pay Lessor a $100 service charge for
all Monthly Rent not paid by the 10/th/ day of the month for which it is
payable, which service charge is to partially cover expense involved in handling
delinquent payments. All amounts to be paid by Tenant to Lessor under this
Lease will be deemed to be additional rent for purposes of payment and
collection.
If any taxes, special assessments, fees or other charges are imposed against
Lessor by any governmental unit or agency with respect to rentals under this
Lease, Tenant will pay these amounts to Lessor when due, except that Tenant will
have no obligation to pay any income tax on rentals unless the tax is imposed in
lieu of real estate taxes.
4. Cost Adjustments.
----------------
The initial Monthly Rent is based in part on the estimated Operating Costs and
Tax Costs. Prior to the first day of each calendar year after the date of this
Lease, or as soon as reasonably possible after the first day of the year, Lessor
will furnish Tenant with an estimate of the Costs if greater than the initial
Costs, and the Monthly Rent will be increased by 1/12th of Tenant's Share of the
difference between the initial estimate of Costs and the current estimate.
After the end of each calendar year, including the year in which the Term
expires, Lessor will give Tenant a statement of the actual Costs for that
calendar year. If the actual Costs exceed the estimated Costs for that year,
Tenant will pay Tenant's Share of the excess to Lessor within 20 days after
receiving the statement. If the actual Costs are less than the estimated Costs
for that year, Lessor will pay Tenant's Share of the difference to Tenant with
the statement. If Tenant does not give Lessor written notice within one year
after receiving Lessor's statement that Tenant disagrees with the statement and
specifying the amounts in dispute, Tenant will be deemed to have waived the
right to contest the statement. Tenant will file no petition in Tax Court
regarding the Tax Costs without Lessor's prior written consent. If Lessor
contests Tax Costs and receives a refund or incurs additional Tax Costs after
adjustments for actual Tax Costs have been made, the actual Tax Costs will be
corrected accordingly and the appropriate adjustment will be made between Lessor
and Tenant. The portion of Costs to be paid by Tenant for the years in
<PAGE>
which the Term begins and ends will be prorated by multiplying the actual Costs
by a fraction, the numerator of which is the number of days of that year in the
Term and the denominator of which is 365.
5. Cost Computations and Allocations.
---------------------------------
Notwithstanding any other provision of this Lease to the contrary, it is agreed
that Lessor will in its reasonable discretion, determine from time to time, the
method of computing and allocating Costs, the allocation of Costs to various
types of space within the Building, and Tenant will be bound thereby. If the
Building is not fully occupied during any partial or full year, an adjustment
will be made in computing the actual Operating Costs for such year so that it is
computed as though the Building had been fully occupied during that year.
6. Fiscal Year.
-----------
The year used to determine Costs may be changed to a different 12-month period
designated by Lessor. If the calendar year is changed to a fiscal year, or if a
fiscal year is changed to a different fiscal year, prorations will be made for
the estimated Costs and the actual Costs so that the same time period is used to
determine each and so that Costs are not included in more than one time period.
7. Possession.
----------
If Tenant begins to conduct business in all or any portion of the Premises
before the Commencement Date, Tenant will pay to Lessor Monthly Rent for the
period from the date Tenant begins to conduct business in the Premises to the
Commencement Date and all other provisions of this Lease will be applicable
during that period.
If Lessor is delayed in delivering possession of all or any portion of the
Premises to Tenant on the Commencement Date, Tenant will take possession of the
Premises on the date when Lessor delivers possession of all of the Premises,
which date will then become the Commencement Date, and the last day of the term
will be extended so that the length of the Term remains the same. If the
extended Term would end on a day other than the last day of a month, the Term
will be further extended to the last day of the month in which the Term ends.
This Lease will not be void or voidable and Lessor will not be liable to Tenant
for any loss or damage resulting from any delay in delivering possession of the
Premises to Tenant, but unless the delay is principally caused by or
attributable to Tenant, its employees, agents or contractors, no Monthly Rent
will be due for the period prior to the date Lessor delivers possession of the
Premises, unless Tenant elects to take possession of a portion of the Premises,
in which case Monthly Rent will be due for the portion of the Premises taken.
Tenant's occupancy of the Premises will constitute Tenant's acceptance of the
Premises.
<PAGE>
If Tenant pays the Monthly Rent and other charges and performs all of Tenant's
obligations under this Lease, Lessor promises that Tenant may peaceably and
quietly possess and enjoy the Premises under this Lease.
8. Use.
---
Tenant will use the Premises for general business office purposes and for no
--------------------------------
other purpose. Tenant will not commit or permit any act or omission which
results in the violation of any law, governmental regulation, or insurance
policy of Lessor, relating to the Building, or which will increase Lessor's
insurance rates on the Building. Tenant will not permit any conduct or
condition which may unduly disturb or endanger other occupants of the Building.
9. Care of Premises.
----------------
Tenant will keep the Premises and the fixtures and equipment in the Premises in
as good condition and repair as they were in at the time possession of the
Premises is tendered to Tenant, except for ordinary wear and damage from fire or
other casualty beyond Tenant's control. If Tenant fails to do so, Lessor may
enter the Premises to perform the maintenance and repairs and charge the costs
to Tenant, together with interest as provided in Section 3.
10. Building Rules.
---------------
Rules and Regulations for the Premises and the Building in effect on the date of
this Lease are attached as Exhibit C. Lessor will have the right to adopt
different or additional reasonable rules and regulations, and to rescind or
amend the attached rules and regulations from time to time. Tenant will abide
by the rules and regulations then in force and will cause Tenant's employees to
observe and comply with them.
11. Compliance with Laws.
--------------------
Tenant will, at its expense, promptly comply with all laws, ordinances, rules,
orders, regulations and other requirements of governmental authorities now or
subsequently pertaining to the Premises. Tenant will pay any taxes or other
charges by any governmental authority on Tenant's property or trade fixtures in
the Premises or relating to Tenant's use of the Premises.
12. Signs.
------
Lessor will provide Building standard signage for the Premises at Lessor's
expense in an amount not to exceed $150.00. Tenant will not place or permit any
other signs on the exterior or windows of the Building, or within the Premises
if visible from the exterior of the Building or from hallways or other common
areas of the Building, except lettering and numerals for identification purposes
on or near doorways as approved in advance by Lessor.
<PAGE>
13. Alterations.
-----------
Tenant accepts the Premises in their present condition and Lessor will have no
obligation to do any redecorating or remodeling or to make any repairs or
alterations, except for the alterations, if any, shown on the attached Exhibit
D.
Tenant will not make any alterations, additions or improvements in or to the
Premises without first obtaining the written consent of Lessor. Tenant will get
Lessor's prior written approval of any contractor or subcontractor who is to
perform work on the Premises at Tenant's request. Lessor may require Tenant to
post a bond, cash or other security to protect the Premises from mechanic's
liens. All alterations by Tenant will be constructed with new materials, in a
good and workmanlike manner, and in compliance with the plans and specifications
approved by Lessor and all applicable laws, ordinances, rules, orders,
regulations, or other requirements of governmental authorities. Tenant will pay
for any labor, services, materials, supplies or equipment furnished or alleged
to have been furnished to Tenant in or about the Premises, and will pay and
discharge any mechanic's, materialmen's or other lien against the Premises
resulting from Tenant's failure to make such payment, or will contest the lien
and deposit with Lessor cash equal to 150% of the amount of the lien. If the
lien is reduced to final judgment, Tenant will discharge the judgment and Lessor
will return the cash deposited by Tenant. Lessor may post notices of
nonresponsibility on the Premises as provided by law.
All alterations, additions and improvements to the Premises made at Lessor's or
Tenant's expense, except movable office furniture and Tenant's movable trade
fixtures and equipment, will become the property of Lessor upon installation and
will be surrendered with the Premises upon termination of this Lease unless
Lessor elects otherwise in writing.
14. Utilities and Services.
----------------------
Lessor will supply reasonable janitor service, elevator service (if elevators
exist in the Building), heat and air conditioning appropriate to the season
during Normal Business Hours, and electricity in reasonable amounts for ordinary
office purposes. The cost of all such services will be a part of the Operating
Costs, Lessor will not be liable for any loss or damage resulting from any
temporary interruption of these services due to repairs, alterations or
improvements, or any variation, interruption or failure of these services due to
governmental controls, unavailability of energy, or any other cause beyond
Lessor's control. No such interruption or failure of these services will be
deemed as an eviction of Tenant or will relieve Tenant from any of its
obligations under this Lease.
Except for payment of Monthly Rent, Tenant will not be required to pay for these
services for ordinary office purposes, but Tenant will pay to Lessor any charges
Lessor establishes for utilities or services provided outside Normal Business
Hours at Tenant's request, or provided because of uses other than ordinary
office uses.
<PAGE>
15. Entry by Lessor.
---------------
Lessor and its agents and contractors and mortgagees will have the right to
enter the Premises at reasonable times for inspecting, cleaning, repairing, or
exhibiting the Premises, but Lessor will have no obligation to make repairs,
alterations or improvements except as expressly provided in this Lease.
16. Relocation.
----------
Lessor may relocate Tenant in substitute leased premises of equal square footage
and approximately equal configuration within the office complex known as
Minneapolis West Business Center upon 60 days written notice to Tenant
specifying the effective date of the relocation. If this is done, Lessor will
provide Tenant with paint, wallcovering and carpeting comparable to those in the
original location, and will move Tenant's office furnishings to the new
location, all at Lessor's expense. If the then current base rental rate at the
new location is less than the Monthly Base Rent, the Monthly Base Rent will be
reduced accordingly. If the then current base rental rate at the new location
is higher than the Monthly Base Rent, the Monthly Base Rent will not be
increased. If Lessor requests Tenant to relocate and Tenant gives Lessor
written notice of objection to relocation within 10 days after Lessor's notice,
Lessor may withdraw the request for relocation by written notice to Tenant
within 10 days after the notice from Tenant. If the request is not withdrawn by
Lessor within the 10-day period, Tenant may terminate this Lease effective as of
the relocation date specified in Lessor's original notice by written notice to
Lessor within 10 days after expiration of the 10-day period for Lessor to
withdraw its request to relocate Tenant.
17. Subordination.
-------------
At the request of any mortgagee or ground lessor, this Lease will be subject and
subordinate to any mortgage or ground lease which may now or hereafter encumber
the Building, and Tenant will execute, acknowledge and deliver to Lessor any
document requested by Lessor to evidence the subordination, Such subordination
is on the condition that Tenant's right of possession of the Premises as
provided in this Lease will not be disturbed by the mortgagee or ground lessor
so long as Tenant is not in default under this Lease. If the interest of Lessor
is transferred to any party by reason of foreclosure of a mortgage or
cancellation of a ground lease, or by delivery of a deed in lieu of foreclosure
or cancellation, Tenant will immediately and automatically attorn to such party.
Tenant agrees that upon notification by Lessor or any mortgagee or ground lessor
of the election of a mortgagee or ground lessor to subordinate its interest in
the Premises to this Lease, this Lease will become prior to the mortgage or
ground lease.
18. Estoppel Certificates.
---------------------
Within 10 days after written request from Lessor, Tenant will execute,
acknowledge and deliver to Lessor a document furnished by Lessor, which document
may be relied upon by Lessor and any prospective purchaser or mortgagee of the
Building, stating (a) that this Lease is unmodified and is in full force and
effect (or if modified, that the Lease is in full force and effect as modified
<PAGE>
and stating the modifications), (b) the dates to which rent and other charges
have been paid, (c) the current Monthly Rent, (d) the dates on which the Term
begins and ends, (e) that Tenant has accepted the Premises and is in possession,
(f) that Lessor is not in default under this Lease, or, if Lessor is in default,
specifying any such default, and (g) including such other information as the
prospective purchaser or mortgagee may require.
19. Waiver of Claims and Assumption of Risks.
----------------------------------------
Lessor and Tenant release each other from any liability for loss or damage by
fire or other casualty covetable by a standard form of 'all risk" insurance
policy, whether or not the loss or damage resulted from the negligence of the
other, its agents or employees. Each party will use reasonable efforts to
obtain policies of insurance which provide that this release will not adversely
affect the rights of the insureds under the policies. The releases in this
Section will be effective whether or not the loss was actually covered by
insurance. Tenant assumes all risk of loss or damage of Tenant's property
within the Premises, including any loss or damage caused by water leakage, fire,
windstorm, explosion, theft, act of any other tenant, or other cause. Lessor
will not be liable to Tenant, or its employees, for loss of or damage to any
property in the Premises.
20. Indemnification.
---------------
Tenant will indemnify Lessor and its agents and employees against all claims,
demands and actions, and all related costs and expenses (including attorneys'
fees) for injury, death, disability or illness of any person, or damage to
property, occurring in the Premises or arising out of Tenant's use of the
Premises, except to the extent caused by the willful misconduct or negligence of
Lessor or someone acting on its behalf.
21. Insurance.
---------
Tenant will keep public liability insurance in force at its expense by an
insurer and policy acceptable to Lessor in its reasonable opinion, The policy
will name Lessor and its mortgagee as additional insureds, for limits of at
least $1,000,000 for bodily injuries or death of one or more persons and at
least $100,000 for property damage, Tenant will carry fire and "all risk"
coverage insurance for Tenant's property and improvements in the Premises.
Tenant will deliver to Lessor the liability and casualty policies or
certificates by the insurer showing this coverage to be in effect with premiums
paid. The insurance will provide that Lessor will be notified in writing 30
days prior to cancellation of, material change in, or failure to renew, the
insurance.
22. Assignmgnt and Subletting.
-------------------------
Tenant may assign this Lease or sublet all or part of the Premises only with
Lessor's prior written consent. If Tenant receives a bona fide offer for an
assignment of Tenant's interest under this Lease or to sublease all or part of
the Premises and Tenant requests Lessor's consent, a copy of the offer will be
furnished to Lessor. In the case of a proposed assignment or sublease of all of
the Premises, Lessor may terminate this Lease, either conditioned on execution
of a new lease
<PAGE>
between Lessor and the party making the offer on the same terms as the offer to
Tenant or without that condition. In the case of a proposed sublease for less
than all of the Premises, Lessor may amend this Lease to exclude the portion of
the Premises to be subleased, either conditioned on execution of a new lease
between Lessor and the party making the offer on the same terms as in the offer
to Tenant or without that condition.
If Lessor fails to give Tenant written notice of its decision to terminate or
amend this Lease within 20 days after receiving a copy of the offer to Tenant,
Lessor will not unreasonably withhold its consent to the assignment or sublease
described in the offer. The provisions of this Section will be binding on
Tenant and any assignee or subtenant of Tenant and will apply to all portions of
the Premises remaining subject to this Lease and to each request by Tenant, or
its assignee or subtenant, for Lessor's consent to a further or subsequent
assignment or subletting.
If Lessor consents to one or more assignments or subleases, Tenant will still
remain liable for all obligations of the Tenant under this Lease.
Lessor's interest in this Lease will be freely assignable and the obligations of
the Lessor arising or accruing under this Lease after an assignment will be
enforceable only against the assignee.
23. Damage or Destruction.
---------------------
If the Premises or Building is damaged by Casualty, the damage (excluding damage
to improvements paid for by Tenant or trade fixtures, equipment or personal
property of Tenant) will be repaired by Lessor at its expense to a condition as
near as reasonably possible to the condition prior to the Casualty, but if more
than 25% of the total rentable area of the Building is rendered untenantable,
Lessor may terminate this Lease as of the date of the Casualty by giving written
notice to Tenant within 30 days after the Casualty. If this Lease is not
terminated, Lessor will begin repairs within 90 days after the Casualty and
complete the repairs within a reasonable time, subject to acts of God, strikes
and other matters not within the control of Lessor. If Lessor fails to begin
and proceed with repairs as required, Tenant may give Lessor notice to do so.
If Lessor has not begun the repairs within 30 days after Tenant's notice, Tenant
may terminate this Lease by written notice to Lessor within 15 days after
expiration of the 30-day period. If this Lease is terminated because or the
Casualty, rents an(i other payments will be prorated as of the termination and
will be proportionately refunded to Tenant or paid to Lessor, as the case may
be. During any period in which the Premises or any portion of the Premises is
made untenantable as a result of the Casualty, the Monthly Rent will be abated
for the period of time untenantable in proportion to the square foot area
untenantable.
24. Eminent Domain.
--------------
If there is a Taking of 25% or more of the Premises or 25% or more of the total
rentable area of the Building, either party may terminate this Lease as of the
date the public authority takes possession, by written notice to the other party
within 30 days after the Taking. If this Lease is so terminated, any rents and
other payments will be prorated as of the termination and will be
proportionately refunded to Tenant, or paid to Lessor, as the case may be. All
damages, awards
<PAGE>
and payments for the Taking will belong to Lessor irrespective of the basis upon
which they were made or awarded, except that Tenant will be entitled to any
amounts specifically awarded for Tenant's trade fixtures or equipment or as a
relocation payment or allowance, If this Lease is not terminated as a result of
the Taking, Lessor will restore the remainder of die Premises to a condition as
near as reasonably possible to the condition prior to the Taking, the rent will
be abated for the period of time the space is untenantable in proportion to the
square foot area untenantable and this Lease will be amended appropriately to
reflect the deletion of the space taken.
25. Defaults.
--------
If (a) Tenant defaults in the payment of rent or other amounts under this Lease
and the default continues for 10 days after written notice by Lessor to Tenant,
(b) Tenant defaults in any other obligation under this Lease and the default
continues for 30 days after written notice by Lessor to Tenant, (c) any
proceeding is begun by or against Tenant to subject the assets of Tenant to any
bankruptcy or insolvency law or for an appointment of a receiver of Tenant or
for any of Tenant's assets, or (d) Tenant makes a general assignment of Tenant's
assets for the benefit of creditors, then Lessor may, with or without
terminating this Lease, cure the default and charge Tenant all costs and
expenses of doing so, and Lessor also may reenter the Premises, remove all
persons and property, and regain possession of the Premises, without waiver or
loss of any of Lessor's rights under this Lease, including Lessor's right to
payment of Monthly Rent. Lessor also may terminate this Lease as to all future
rights of Tenant, without terminating Lessor's right to payment of Monthly Rent
and other charges due under this Lease.
Tenant waives any right of restoration to possession of the Premises after
reentry, notice of termination, or after judgment for possession. If this Lease
is terminated under this Section, Tenant promises and agrees to pay all Monthly
Rent and other charges due for the remainder of the original Term, and all
attorneys' fees and other expenses. If Tenant defaults in any of its
obligations under this Lease, it will promptly pay all costs (including
attorneys' fees) of enforcing Tenant's obligations, whether or not this Lease is
terminated and whether or not suit is brought. No right or remedy will preclude
any other right or remedy, no right or remedy will be exclusive of or dependent
upon any other right or remedy, and any right or remedy may be exercised
independently or in combination.
If Tenant is in default and notice of termination of Tenant's right to
possession has been mailed to Tenant at the Premises and it appears in Lessor's
reasonable judgment that Tenant has abandoned or vacated the Premises, Lessor
may reenter the Premises and retake possession without legal action, without
relieving Tenant of the obligation to pay Monthly Rent or any other obligations
under this Lease, and without any liability to Tenant for re-entry removal of
Tenant's property.
26. Waiver of Lease Provisions.
--------------------------
No waiver of any provision of this Lease will be deemed a waiver of any other
provision or a waiver of that same provision on a subsequent occasion. The
receipt of rent by Lessor with
<PAGE>
knowledge of a default under this Lease by Tenant will not be deemed a waiver of
the default, Lessor will not be deemed to have wived any provision of this Lease
by any action or inaction and no waiver will be effective unless it is done by
expressed written agreement signed by Lessor. Any payment by Tenant and
acceptance by Lessor of a lesser amount than the full amount of all Monthly Rent
and other charges then due will be applied to the earliest amounts due. No
endorsement or statement on any check or letter for payment of rent or other
amount will be deemed an accord and satisfaction, and Lessor may accept such
check or payment without prejudice to its right to recover the balance of any
rent or other amount or to pursue any other remedy provided in this Lease. No
acceptance of payment of less than the full amount due will be deemed a waiver
of the right to the full amount due together with any interest and service
charges.
27. Return of Possession to Lessor.
------------------------------
On expiration of the Term or sooner termination of this Lease, Tenant will
return possession of the Premises to Lessor, without notice from Lessor, in good
order and condition, except for ordinary wear and damage, destruction or
conditions Tenant is not required to remedy under this Lease. If Tenant does
not return possession of the Premises to Lessor, Tenant will pay Lessor all
resulting damages Lessor may suffer and will indemnify Lessor against all claims
made by any new tenant of all or any part of the Premises. Tenant will give
Lessor all keys for the Premises and will inform Lessor of combinations on any
locks and safes on the Premises. Any property left in the Premises after
expiration or termination of this Lease or after the Premises have been vacated
by Tenant will become the property of Lessor to dispose of as Lessor chooses.
28. Holding Over.
------------
If Tenant remains in possession of the Premises after expiration of the Term
without a new lease, it may do so only with written consent by Lessor, and any
such holding over will be from month-to-month subject to all the same provisions
of this Lease, except that the Monthly Base Rent will be the Monthly Base Rent
stated in Lessor's consent if a new Monthly Base Rent is stated, or double the
Monthly Base Rent under this Lease if no new Monthly Base Rent is stated in
Lessor's consent. Any holding over without Lessor's consent will be at double
the Monthly Rent under this Lease. The month-to-month occupancy may be
terminated by Lessor or Tenant on the last day of any month by at least 30 days'
prior written notice to the other.
29. Security Deposit.
----------------
Tenant deposits $none with Lessor as a security deposit. Lessor may commingle
the security deposit with other funds but will refund this amount to Tenant
without interest on termination of this Lease, less any amounts necessary in
Lessor's reasonable opinion to pay the cost of repair or restoration of the
Premises to the condition required under this Lease or to cure any defaults of
Tenant under this Lease.
30. Brokers.
-------
<PAGE>
Lessor and Tenant represent and warrant one to another that except as set forth
by addendum attached to this Lease, neither of them has employed or otherwise
used any broker or agent in relation to this Lease. Lessor will indemnify and
hold Tenant harmless, and Tenant will indemnify and hold Lessor harmless, from
and against any claims for brokerage or other commissions or fees arising out of
any breach of the foregoing representation and warranty by the respective
indemnitors.
31. Notices.
-------
Any notice under this Lease will be in writing, and will be sent by prepaid
certified mail, or by telegram confirmed by certified mail, addressed to Tenant
at the Premises and to Lessor at 1550 Utica Avenue South, Suite 120, St. Louis
Park, Minnesota 55416, or to such other address as is designated in a notice
given under this Section. A notice will be deemed given on the date mailed.
Lessor's statements of Costs and other routine mailings to tenants need not be
sent by certified mail.
32. Governing Law.
-------------
This Lease will be construed under and governed by the laws of Minnesota. If
any provision of this Lease is illegal or unenforceable, it will be severable
and all other provisions will remain in force as though the severable provision
had never been included.
33. Entire Agreement.
-----------------
This Lease contains the entire agreement between Lessor and Tenant regarding the
Premises. Tenant agrees that it has not relied on any statement, representation
or warranty of any person except as set out in this Lease. This Lease may be
modified only by an agreement in writing signed by Lessor and Tenant. No
surrender of the Premises, or of the remainder of the Term, will be valid unless
accepted by Lessor in writing.
34. Successors and Assigns.
----------------------
All provisions of this Lease will be binding on and for the benefit of the
successors and assigns of Lessor and Tenant, except that no person or entity
holding under or through Tenant in violation of any provision of this Lease will
have any right or interest in this Lease or the Premises.
Lessor and Tenant have executed this Lease to be effective as of the date stated
in the first paragraph of this Lease.
Lessor:
<PAGE>
MEPC AMERICAN PROPERTIES INC.
Its: Senior Vice President
---------------------
And
By:
Its: Vice President
--------------
TENANT: DIAMOND BRANDS INCORPORATED
By:
Its:
And
By:
Its:
<PAGE>
EXHIBIT A
FLOOR PLAN
<PAGE>
EXHIBIT B
LAND ON WHICH PARKDALE BUILDINGS ARE LOCATED
Tracts C, D, H and I, Registered Land Survey No. 1481, Files of the Registrar of
Titles, Hennepin County, Minnesota.
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
1. Tenant will not use the Premises in any manner which conflicts with any
law, ordinance, or governmental rule or regulation now or subsequently in
force.
2. Tenant will not install any awnings or other attachments or structures on
the exterior of the Building.
3. Curtains, draperies or other window coverings will not be installed in the
Premises without first obtaining written approval by Lessor of the exterior
color and material.
4. No food will be prepared or cooked in the Premises without prior written
consent by Lessor, and the Premises will not be used for housing, lodging,
sleeping or for any immoral or illegal purpose.
5. Tenant will not connect any apparatus, equipment or device to the water
lines in the Building without first obtaining the written consent of
Lessor.
6. No electrically powered machines or equipment will be used by Tenant in the
Premises except typewriters, adding machines, dictating equipment, personal
computers, microwave ovens and similar small electric units, including
---------
copiers and refrigerators.
--------------------------
7. Tenant will not operate or permit to be operated in the Premises any
musical or sound producing instrument or device which can be heard outside
the Premises,
8. Tenant will not bring into the Building any pollutants, contaminants or
hazardous substances (as now or later defined under state or federal law)
or any items likely to cause fire or explosion. Lessor understands that
-----------------------
Diamond Brands will have samples of its products on the Premises including
--------------------------------------------------------------------------
matches, toothpicks, ice cream and corn dog sticks and other miscellaneous
--------------------------------------------------------------------------
woodenware products.
--------------------
9. Tenant will not bring or permit to be brought into the Building any animals
or birds.
10. Tenant will not disturb, solicit or canvass any occupant of the Building
and will cooperate to prevent same.
11. Tenant will not use any power for the operation of any equipment or device
other than electricity provided by Lessor.
12. Tenant will refer to Lessor all contractors or installation technicians
rendering any service for Tenant for approval by Lessor before any
contractual services are performed. This
<PAGE>
will include but is not limited to installation of telephone or telegraph
equipment, electrical devices and attachments, and any installations
affecting floors, walls, woodwork, trim, windows, ceilings, equipment or
other portions of the Building.
13. The work of the janitor or cleaning personnel after 5:00 p.m. will not be
hindered by Tenant, and the windows may be cleaned at any time. Tenant
will provide adequate waste and rubbish receptacles to facilitate cleaning
services.
14. Movement in or out of the Building of furniture or office equipment, or the
sending or receipt by Tenant of merchandise or materials which requires use
of elevators or stairways or movement through Building entrances will be
restricted to hours designated by Lessor, All such movement will be as
directed by Lessor and will be done in a manner approved by Lessor in
advance. Tenant assumes all risk of damage to any items moved and for any
injury to any person or property, and Tenant will indemnify Lessor against
any resulting, loss or damages.
15. Lessor will not be responsible for any property, equipment, money or
jewelry lost or stolen from the Premises or the public areas of the
Building, regardless of whether or not the loss occurs when the Premises
are locked.
16. Lessor may designate the maximum weight and proper position of any heavy
equipment, including safes and large files to be placed in the Building,
and only those which in the opinion of Lessor will not damage the floors,
structures or elevators may be moved into the Building.
17. Any damage in connection with the moving or installing of Tenant's
furniture, equipment, appliances or other articles will be paid for by
Tenant.
18. Lessor may permit entrance to the Premises by use of pass keys controlled
by Lessor or its employees, contractors or service personnel, for the
purpose of performing Lessor's janitorial services.
19. Lessor may at its option set aside a parking area to be used by Tenant and
its employees, which area will be used by Tenant and its employees to the
exclusion of other areas.
20. Tenant may have no vending machines in the Premises.
<PAGE>
EXHIBIT 'D'
LEASEHOLD IMPROVEMENTS
DATE: 03.17.95.
RE: DIAMOND BRANDS INCORPORATED
PARKDALE PLAZA, SUITE 590
GENERAL NOTES:
1. WALL CONSTRUCTION:
Existing walls.
Walls to be removed.
Typical tenant partition; .5" gypsum board each side
of 2.5" steel studs, walls to extend to u/s of
ceiling only.
Tenant demising wall; .5" gypsum board each side of
2.5" steels studs, walls to extend to u/s of
structure above.
Corridor wall, 1 HR. RATED; .5" type "C" gypsum board
each side of 2.5" steel studs, walls to extend to u/s
of structure above. Note: Stud space in all walls to
be filled with thermal fiber 1.5" acoustical batt.
2. All plan dimensions are approximate. Verify existing conditions and
dimensions before construction begins.
3. Demolish all existing walls/electrical in conflict with new Tenant layout,
FROM CONCRETE SLAB TO CONCRETE SLAB.
4. Front entry and sidelight shall be MEPC Building standard oak with 3' oak
framed sidelight. Assembly shall provide 2OMN rated protection into the
common corridor, with rabbited stops, smoke gasket, automatic door closer,
and lever lockset.
5. Doors and frames shall be new and reused, solid core, oak veneer, 3',
building standard, finished to MEPC building standard.
6. Modify existing ceiling tile and grid to suit new Tenant layout.
7. HVAC shall be modified to suit new Tenant layout as per MEPC building
standards with existing building equipment.
<PAGE>
8. Lighting shall be modified to suit new Tenant layout with building standard
light fixtures, and shall maintain illumination level of 50-60 foot candles
at desk level throughout the premises. All rooms shall have switches to
control their appropriate lighting fixtures.
Page 1 of 4
<PAGE>
LEASEHOLD IMPROVEMENTS, CONT.
DATE:
03.17.95.
RE: DIAMOND BRANDS INCORPORATED
PARKDALE PLAZA, SUITE 590
9. Electrical: ALL NEW BOXES SHALL BE INSTALLED 18" AFF CENTERED
WALL OUTLET
WALL TELEPHONE
(Empty J-box 18" AFF, .5" conduit to ceiling plenum)
SWITCH
EXISTING ELECTRICAL
EXISTING ELECTRICAL TO BE REMOVED.
TELEPHONE/LAN EQUIPMENT & CABLING: Shall be provided and installed at
Tenant's sole direction and cost.
10. Tenant shall provide at Tenant's sole expense, all telephone equipment,
cabling and space within office for such equipment. All cabling passing
through ceiling plenum shall be teflon sheathed and meet with all State and
Local building codes. It shall be the responsibility of Tenant's
contractor to adhere to building codes pertaining to any low-voltage
cabling. Tenant shall provide all furnishings and equipment.
11. All existing cabling not meeting with current building codes shall be
removed in its entirety "from the leasehold space, and any adjoining space
through which cabling passes, by Lessor's contractor, at Lessor's expense.
12. Floor covering and Wall covering shall be as shown on Plan P5, dated
03.14.95. Color selections shall be made from Building standard books.
13. Provide and install plumbing, casework and shelving as shown on Plan P5,
Page a2 and where shown on Plan P5, Dated 03.14.95.
<PAGE>
ESTOPPEL CERTIFICATE
Parkdale Associates
C/o The Taylor Simpson Group
One Rockefeller Plaza, Suite 2300
New York, NY 10020 ("Purchaser")
Re: Lease, identified within Paragraph 14 hereof (as amended, assigned,
modified and supplemented within Paragraph 14 hereof, collectively,
the "Lease'), between MEPC American Properties Inc. ("Owner') and
the undersigned ("Tenant") relating to premises located in the
building identified with Paragraph 14 hereof and located in St.
Louis Park, Minnesota (the "Property")
Ladies and Gentlemen:
The undersigned is the Tenant under the Lease. With tile understanding that
(i) Purchaser will rely upon the statements and representations made by Tenant
herein in purchasing the Property and (ii) Purchaser will be seeking a lender to
provide a loan to Purchaser which lender has not yet been selected (the
"Lender") and Lender will rely upon the statements and representations made by
Tenant herein in providing a loan to Purchase, Tenant hereby certifies,
represents, warrants and confirms to Lender (with the same effect as if this
certificate was addressed to Lender) and Purchaser and their respective
successors and assigns, that, as of the date hereof,
1) The Lease sets forth all of the agreements and understandings of Owner and
Tenant with respect to the portion of the Property demises under the Lease
(the "Leased Premises"); there are no other written or oral agreements or
understandings between Tenant and Owner with respect to the Leased Premises
or the Property; Tenant has not subleased any portion of the Leased
Premises except as described on Exhibit A attached hereto and has not
assigned, whether outright or by collateral assignment, all or any portion
of its rights Linder the Lease; the Lease is in full force and effect in
accordance with its terms; a list describing the original lease and all of
the amendments, assignments, modifications and supplements of or to the
original lease are described within Paragraph 14 hereof-, and the Lease is
not otherwise or further amended, assigned, modified or supplemented.
2) The Commencement Date (as defined in the Lease) is as set forth within
Paragraph 15 hereof. The primary term of the Lease expires on the date set
forth within Paragraph 15
<PAGE>
hereof (the "Expiration Date"). Except as expressly set forth in the Lease,
Tenant has no right to review, extend or reduce the Leased Premises nor any
option, right of First offer, right of first refusal or any similar right
with respect to leasing any portion of the Property. Tenant has not
exercised any of the aforementioned rights which exist under the Lease
except to the extent evidenced by one or more agreements which comprise(s)
a part of the Lease.
Tenant has accepted and is in possession or the Leased Premises, without
reservations Owner and Tenant have fulfilled and compiled with all
conditions precedent to the acceptance and possession of the Leased
Premises by Tenant; any and all improvements required to be furnished by
Owner to Tenant by the terms of the Lease have been completed and furnished
to the full satisfaction of Tenant; and all duties of Owner of an
inducement nature under the Lease have been fully performed by Owner. Owner
has paid all costs and expenses, if any, which the Lease requires Owner, as
landlord, to pay to or on behalf of Tenant. All expenditures have been made
and costs paid that are required of Tenant under the Lease for the
construction of such improvements.
3) The execution of the Lease by Tenant was duly authorized and the Lease was
properly executed. No notice describing or alleging any default in the
performance of either Tenant's or Owner's obligations under the Lease has
been delivered or received by Tenant. To the best of Tenant's knowledge, no
default by Owner or Tenant in the performance of the Lease to be by them
respectively performed exists on the date hereof, and no facts, conditions,
events or nonevent exist which, after the passage of nine, giving of notice
or both would constitute a default under the Lease on the part of either
Owner or Tenant, the right to cancel or terminate the Lease or reduce the
Leased Premises.
4) To the best of Tenant's knowledge, there are no events currently existing
which give Tenant the right to cancel or terminate the Lease or reduce the
Leased Premises.
5) Tenant does not now have any claim, counter-claim, abatement, allowance or
credit against Owner which might be set-off against or reduce past, current
or future rents due under the Lease or which might be used as a defense to
enforcement of the Lease. Upon Purchaser's purchase of the Property and
absent a future default under the Lease by Purchaser, as lessor under the
Lease, Tenant is obligated to pay all sums due and payable to Purchaser
pursuant to the terms of the Lease throughout the term of the Lease without
set off, discount, reduction or relief due to any rental concession,
abatement, credit or otherwise.
6) No rents have been prepaid under the Lease, except for the normal
prepayment thereof for no more than one (1) month in advance nor will
Tenant pay any rent more than one (1) month in advance.
7) The Monthly Base Rent (as defined in the Lease) payable under the Lease, is
currently in the amount set forth within Paragraph 15 hereof attached
hereto and has been paid
<PAGE>
through the date set forth within Paragraph 15 hereof-. The current
Tenant's Share (as defined in the Lease) of estimated Additional Cost (as
defined in the Lease) payable under the Lease is currently in the amount
set forth within Paragraph 15 hereof and has been paid through the date set
forth within Paragraph 15 hereof+.
8) Tenant acknowledges, confirms and conclusively agrees that the Leased
Premises consist of the number of net rentable square feet set forth within
Paragraph 15 hereof and Tenant's Share is the percentage stated within
Paragraph 15 hereof.
9) Tenant has paid Owner a security deposit (the "Security Deposit") in the
amount stated within Paragraph 15 hereof and no portion of the security
deposit has been applied against amounts owing pursuant to the Lease.
Tenant has no claim against Owner for any other deposits or sums.
10) Tenant has not been granted and has not exercised any options or rights of
purchase concerning all or any portion of the Property.
11) There has not been filed by or against nor, to the best knowledge of
Tenant, is there threatened against or contemplated by Tenant, a petition
in bankruptcy, voluntary or otherwise, any assignment for the benefit of
creditors, any petition seeking reorganization or arrangement under the
bankruptcy laws, of the United States or of any state thereof, or any other
action brought under said bankruptcy laws.
12) Unless otherwise indicated on within Paragraph 15 hereof ("the "Tenant's
Current Notice Address"), the address for notices to be sent to Tenant is
as set forth in the Lease.
13) Tenant understands that Purchaser will assign the Lease to Lender and
agrees that if Lender so requests by written notice pursuant to such
assignment, Tenant will pay all rents and other charges due and payable
under the Lease directly to Lender.
* Said date to be no earlier than the last day of the month prior to the month
in which the Closing occurs unless and to the extent said arrears are set forth
in the Submission Matters (as defined in the Contract).
+ Said date to be no earlier than the last day of the month prior to the month
in which the Closing occurs unless and to the extent said arrears are set forth
in the Submission Matters (as defined in the Contract).
14) The term "Lease" shall mean the aggregate of the following: Lease dated
March 17, 1995, between MEPC American Properties Inc. and Diamond BRANDS
Incorporated. Located at 1660 South Highway 100 in the building commonly
known as the Parkdale Plaza Building.
<PAGE>
15) The following relevant facts concern the Lease:
Conunencement Date: 05/01/95
Expiration Date: 04/30/00
Monthly Base Rent: $3,228.00
Monthly Base Rent has been paid through April , 1997
Tenant's Share of current estimated monthly Additional Costs: $3,078.00
Tenant's Share of current estimated monthly Additional Costs has been paid
through April, 1997
Leased Premises consists of: 3,874 net rentable square feet.
Tenant's Share: 1.85 %
----
Security Deposit: -0-
Tenant's Current Notice Address:
Mr. Thomas Knuesel
Diamond Brands, Inc.
1800 Cloquet Avenue
Cloquet, MN 55720
16) The agreements, certification and covenants of Tenant hereunder shall inure
to the benefit of Lender and Owner and their respective heirs, executors,
administrators, personal representatives, successors and assigns, including
any purchaser of the Leased Premises or the Property at a foreclosure sale
or pursuant to a deed-in-lieu of foreclosure or otherwise.
17) The person signing this letter on behalf of Tenant is a duly authorized
agent of the Tenant.
AGREED TO THIS 8/TH/ DAY OF MAY 1997.
(TENANT]
By:
Its:
<PAGE>
EXHIBIT A TO ESTOPPEL CERTIFICATE
[Insert a description of approved sublease(s), if any]
Tenant is in compliance with all of its obligations under all of the above-
mentioned subleases (collectively, the "Sublease") and has neither received nor
delivered a notice alleging a default of any party's obligations under the
Sublease; to the best of Tenant's knowledge, no default by Tenant or any party
under the Sublease in the performance of the Sublease to be by them respectively
performed exists on the date hereof and no event has occurred which, after the
passage of time, giving of notice or expiration of any notice, grace or right to
cure period, would constitute a default under the Sublease. Owner has approved
the Sublease and the subtenants(s) thereunder.
<PAGE>
OHIO VALLEY PLASTICS, INC.
- -------------------------
PLASTICS FOR TODAY & THE FUTURE
P.O. Box 6964
Evansville, IN 47719
Phone: (812) 425-8544
FAX: (812)-425-1520
Mr. John Beach 10-27-95
Forster Inc.
P.O. Box 657
Wilton, Maine 04294
Dear John,
Enclosed you will find two original copies of the proposed Sales Agreement
between Forster Inc. and Ohio Valley Plastics. It is common practice that these
be signed by both parties. Having known you, Rich, and many others in your
organization, signature is not necessary unless you would prefer.
We sincerely appreciate the opportunity to partner with Forster Inc. during the
coming years, as you continue to grow your dynamic business. In addition to the
value package as outlined in the proposed sales agreement, Ohio Valley Plastics
and Huntsman Chemical would be pleased to entertain any additional venues which
will impact your business.
We ask that you allow Ohio Valley Plastics and Huntsman Chemical to provide you
with the finest products, service, cost, and market intelligence available in
the industry today.
Regards,
Dan Raher
Ohio Valley Plastics
<PAGE>
1. SOLD TO:
Forster Inc.
P.O. Box 657
Wilton, Maine 04294
2. SHIP TO:
Forster Inc.
Mill St.
E. Wilton, Maine 04234
3. PERIOD:
January 1, 1996 through December 31, 1996 and year to year thereafter,
unless terminated by either party, giving 90 day written notice.
4. PRODUCT:
Huntsman Prime Polystyrene grades 203, 213, and 334; or other grades
to be mutually agreed upon.
5. QUANTITY:
It is understood that Forster's level of purchase will be
approximately 15 million pounds per year.
6. PRICE:
The price to Forster Inc. on October 27, 1995 for Huntsman crystal
polystyrene products delivered in hoppertruck to E. Wilton, Maine will
be $0.48/lb.
7. PAYMENT TERMS:
Net 30 days from date of invoice or 2% ten days
<PAGE>
8. REBATE:
Ohio Valley Plastics is pleased to offer rebate monies as follows:
1. A $0.035/lb volume rebate will be issued monthly (or directly off
invoice if preferred) on all lbs. of prime Huntsman polystyrene
shipped to Forster.
2. A $0.005/lb transition allowance will be issued directly off
invoice, on all lbs of prime Huntsman polystyrene shipped to
Forster.
3. A $0.02/lb rebate will be issued directly off invoice, on all
lbs. of transition/off-grade crystal shipped to Forster.
9. FREIGHT:
F.O.B. East Wilton, Maine by carrier of sellers choice
10. CONFIDENTIALITY:
The terms and conditions stated within this agreement are
confidential, and shall be seen only by Mr. John Beach and Mr. Rich
Campbell unless given prior consent of Seller.
<PAGE>
EXHIBIT 12.1
Diamond Brands Operating Corp.
Ratio of Earnings to Fixed Charges - Issuer
<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended March 31,
----------------------------------------------- ------------------------------
Pro forma Pro Forma
1993 1994 1995 1996 1997 1997 1997 1998 1998
------ ------ ------ ------ ------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings -
Income before income taxes 5,784 3,578 6,454 13,443 22,005 9,383 3,305 3,762 460
Fixed charges 679 524 4,038 3,971 4,771 17,619 1,011 1,111 4,413
------ ------ ------ ------ ------ ------ ------ ----- ------
Total Earnings (A) 6,463 4,102 10,492 17,414 26,776 27,002 4,316 4,873 4,873
====== ====== ====== ====== ====== ====== ====== ===== ======
Fixed Charges -
Interest 639 492 3,921 3,509 4,210 16,553 818 929 4,182
Amortization of deferred financing costs - - 42 349 340 845 134 118 167
Interest component of operating leases 40 32 75 113 221 221 59 64 64
------ ------ ------ ------ ------ ------ ------ ----- ------
Total fixed charges (B) 679 524 4,038 3,971 4,771 17,619 1,011 1,111 4,413
------ ------ ------ ------ ------ ------ ------ ----- ------
Ratio of Earnings to Fixed Charges
(A divided by B) 9.5 7.8 2.6 4.4 5.6 1.5 4.3 4.4 1.1
====== ====== ====== ====== ====== ====== ====== ===== ======
The ratio of earnings to fixed charges has been calculated by dividing income before taxes and fixed charges by fixed charges.
Fixed charges for this purpose include accretion of debt discounts, cash interest expense, amortization of deferred financing costs
and one third of operating lease payments (the portion deemed to be representative of the interest factor).
</TABLE>
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
------------------------------
DIAMOND BRANDS OPERATING CORP.
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY STATE OF INCORPORATION NAME UNDER WHICH
- ------------------ ---------------------- ----------------
SUBSIDIARY DOES BUSINESS
------------------------
<S> <C> <C>
Empire Candle, Inc. Kansas Empire Candle, Inc.
Forster Inc. Maine Forster Inc. and Forster, Inc.
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement on Form S-4.
<PAGE>
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)
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Maureen Scannell Bateman, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
(DIAMOND BRANDS OPERATINGCORP.)
(Exact name of obligor as specified in its charter)
DELAWARE (411905675)
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
(1800 CLOQUET AVENUE
CLOQUET, MN 55720)
(Address of principal executive offices) (Zip Code)
(10 1/8% SENIOR SUBORDINATED NOTES DUE 2008)
(Title of indenture securities)
<PAGE>
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System,
Washington, D.C., Federal Deposit Insurance Corporation,
Washington, D.C.
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its
parent, State Street Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF
ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN
EFFECT.
A copy of the Articles of Association of the trustee, as now
in effect, is on file with the Securities and Exchange
Commission as Exhibit 1 to Amendment No. 1 to the Statement
of Eligibility and Qualification of Trustee (Form T-1) filed
with the Registration Statement of Morse Shoe, Inc. (File
No. 22-17940) and is incorporated herein by reference
thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the
trustee to commence business was necessary or issued is on
file with the Securities and Exchange Commission as Exhibit
2 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No. 22-
17940) and is incorporated herein by reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE
TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS
SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and
Exchange Commission as Exhibit 3 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of Morse Shoe,
Inc. (File No. 22-17940) and is incorporated herein by
reference thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is
on file with the Securities and Exchange Commission as
Exhibit 4 to the Statement of Eligibility and Qualification
of Trustee (Form T-1) filed with the Registration Statement
of Eastern Edison Company (File No. 33-37823) and is
incorporated herein by reference thereto.
1
<PAGE>
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS
IN DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(B) OF THE ACT.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING
AUTHORITY.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority is annexed hereto as
Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates
to matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the {JUNE 22, 1998}.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Steven Cimalore
NAME: STEVEN CIMALORE
TITLE: VICE PRESIDENT
2
<PAGE>
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by {DIAMOND
BRANDS OPERATING CORP.}. of its {10 1/8% SENIOR SUBORDINATED NOTES DUE 2008}, we
hereby consent that reports of examination by Federal, State, Territorial or
District authorities may be furnished by such authorities to the Securities and
Exchange Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Steven Cimalore
NAME: STEVEN CIMALORE
TITLE: VICE PRESIDENT
DATED: JUNE 22, 1998
3
<PAGE>
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business March 31, 1998,
--------------
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act and in accordance
with a call made by the Commissioner of Banks under General Laws, Chapter 172,
Section 22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin...................................................... 1,144,309
Interest-bearing balances............................................................................... 9,914,704
Securities........................................................................................................ 10,062,052
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary..................................................................... 8,073,970
Loans and lease financing receivables:
Loans and leases, net of unearned income ............................................................... 6,433,627
Allowance for loan and lease losses..................................................................... 88,820
Allocated transfer risk reserve......................................................................... 0
Loans and leases, net of unearned income and allowances................................................. 6,344,807
Assets held in trading accounts................................................................................... 1,117,547
Premises and fixed assets......................................................................................... 453,576
Other real estate owned........................................................................................... 100
Investments in unconsolidated subsidiaries........................................................................ 44,985
Customers' liability to this bank on acceptances outstanding...................................................... 66,149
Intangible assets................................................................................................. 263,249
Other assets...................................................................................................... 1,066,572
----------
Total assets...................................................................................................... 38,552,020
==========
LIABILITIES
Deposits:
In domestic offices..................................................................................... 9,266,492
Noninterest-bearing................................................................................ 6,824,432
Interest-bearing................................................................................... 2,442,060
In foreign offices and Edge subsidiary.................................................................. 14,385,048
Noninterest-bearing................................................................................ 75,909
Interest-bearing................................................................................... 14,309,139
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary..................................................................... 9,949,994
Demand notes issued to the U.S. Treasury and Trading Liabilities.................................................. 171,783
Trading liabilities............................................................................................... 1,078,189
Other borrowed money.............................................................................................. 406,583
Subordinated notes and debentures................................................................................. 0
Bank's liability on acceptances executed and outstanding.......................................................... 66,149
Other liabilities................................................................................................. 878,947
Total liabilities................................................................................................. 36,203,185
----------
EQUITY CAPITAL
Perpetual preferred stock and related
surplus........................................................................................................... 0
Common stock...................................................................................................... 29,931
Surplus........................................................................................................... 450,003
Undivided profits and capital reserves/Net unrealized holding gains (losses)...................................... 1,857,021
Net unrealized holding gains (losses) on available-for-sale securities............................................ 18,136
Cumulative foreign currency translation adjustments............................................................... (6,256)
Total equity capital.............................................................................................. 2,348,835
----------
Total liabilities and equity capital.............................................................................. 38,552,020
----------
</TABLE>
4
<PAGE>
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
5
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 16721 16031
<ALLOWANCES> 1195 981
<INVENTORY> 20744 23020
<CURRENT-ASSETS> 36676 38394
<PP&E> 34177 34771
<DEPRECIATION> 16633 17366
<TOTAL-ASSETS> 94550 95590
<CURRENT-LIABILITIES> 23429 21865
<BONDS> 41605 42260
0 0
0 0
<COMMON> 161 161
<OTHER-SE> 27769 29718
<TOTAL-LIABILITY-AND-EQUITY> 94550 95590
<SALES> 118072 26486
<TOTAL-REVENUES> 118072 26486
<CGS> 78582 18277
<TOTAL-COSTS> 78582 18277
<OTHER-EXPENSES> 12935 3400
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 4550 1047
<INCOME-PRETAX> 22005 3762
<INCOME-TAX> 1376 0
<INCOME-CONTINUING> 20629 3762
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 20629 3762
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<PAGE>
DIAMOND BRANDS OPERATING CORP.
OFFER TO EXCHANGE
SERIES B 10 1/8% SENIOR SUBORDINATED NOTES DUE 2008,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OUTSTANDING
SERIES A 10 1/8% SENIOR SUBORDINATED NOTES DUE 2008
TO: BROKERS, DEALERS, COMMERCIAL BANKS,
TRUST COMPANIES AND OTHER NOMINEES:
Upon and subject to the terms and conditions set forth in the
Prospectus, dated ___________, 1998 (the "Prospectus"), and the enclosed Letter
of Transmittal (the "Letter of Transmittal"), an offer to exchange (the
"Exchange Offer") the registered Series B 10 1/8% Senior Subordinated Notes due
2008 (the "New Notes") for any and all outstanding Series A 10 1/8% Senior
Subordinated Notes due 2008 (the "Old Notes") (CUSIP No. 25256E AA 5 for Old
Notes issued pursuant to Rule 144A under the Securities Act of 1933, as amended
(the "Securities Act") and CUSIP No. U25260 AA 5 for Old Notes issued pursuant
to Regulation S under the Securities Act) is being made pursuant to such
Prospectus. The Exchange Offer is being made in order to satisfy certain
obligations of Diamond Brands Operating Corp. (the "Issuer") and the Issuer's
subsidiaries (each a "Guarantor" and collectively, the "Guarantors") contained
in the Registration Rights Agreement, dated as of April 21, 1998, between the
Issuer, the Guarantors, and Donaldson, Lufkin and Jenrette Securities
Corporation and Morgan Stanley & Co. Incorporated (the "Initial Purchasers").
We are requesting that you contact your clients for whom you hold Old
Notes regarding the Exchange Offer. For your information and for forwarding to
your clients for whom you hold Old Notes registered in your name or in the name
of your nominee, or who hold Old Notes registered in their own names, we are
enclosing the following documents:
1. Prospectus dated ____________, 1998;
2. The Letter of Transmittal for your use and for the information of
your clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange
Offer if certificates for Old Notes are not immediately available or time will
not permit all required documents to reach the Exchange Agent prior to the
Expiration Date (as defined below) or if the procedure for book-entry transfer
cannot be completed on a timely basis; and
4. A form of letter which may be sent to your clients for whose
account you hold Old Notes registered in your name or the name of your nominee,
with space provided for obtaining such clients' instructions with regard to the
Exchange Offer.
Your prompt action is requested. The Exchange Offer will expire at
5:00 p.m., New York City time, on _______________, 1998 (the "Expiration Date")
(30 calendar days following the
<PAGE>
commencement of the Exchange Offer), unless extended by the Issuer. Old Notes
tendered pursuant to the Exchange Offer may be withdrawn at any time before the
Expiration Date.
To participate in the Exchange Offer, a duly executed and properly
completed Letter of Transmittal, with any required signature guarantees and any
other required documents, should be sent to the Exchange Agent and certificates
representing the Old Notes should be delivered to the Exchange Agent, all in
accordance with the instructions set forth in the Letter of Transmittal and the
Prospectus.
If holders of Old Notes wish to tender, but it is impracticable for
them to forward their certificates for Old Notes prior to the expiration of the
Exchange Offer or to comply with the book-entry transfer procedures on a timely
basis, a tender may be effected by following the guaranteed delivery procedures
described in the Prospectus under "The Exchange Offer -- Guaranteed Delivery
Procedures."
Additional copies of the enclosed material may be obtained from the
Exchange Agent, State Street Bank and Trust Company, 61 Broadway, 15th Floor,
Corporate Trust Window, New York, New York 10006, telephone: (617) 664-5587.
Very truly yours,
DIAMOND BRANDS OPERATING CORP.
Enclosures
2
<PAGE>
LETTER OF TRANSMITTAL
DIAMOND BRANDS INCORPORATED
Offer to Exchange
SERIES B 12% SENIOR DISCOUNT DEBENTURES DUE 2009,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OUTSTANDING
SERIES A 12% SENIOR DISCOUNT DEBENTURES DUE 2009
Pursuant to the Prospectus, dated _____________, 1998
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON
________________, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS
MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON ___________, 1998.
DELIVERY TO: STATE STREET BANK AND TRUST COMPANY, EXCHANGE AGENT
<TABLE>
<CAPTION>
<S> <C>
By Mail: By Overnight Mail or Courier:
P.O. Box 778 Two International Place
Boston, Massachusetts 02102 Boston, Massachusetts 02110
Attention: Corporate Trust Department Attention: Corporate Trust Department
Kellie Mullen Kellie Mullen
By Hand in New York to 5:00 p.m.
(as drop agent): By Hand in Boston to 5:00 p.m.
61 Broadway Two International Place
15th Floor Fourth Floor
Corporate Trust Window Corporate Trust
New York, New York 10006 Boston, Massachusetts 02110
</TABLE>
For information call: (617) 664-5587
Delivery of this instrument to an address other than as set forth
above will not constitute a valid delivery.
The undersigned acknowledges receipt of the Prospectus, dated
______________, 1998 (the "Prospectus"), of Diamond Brands Incorporated, a
Minnesota corporation, (the "Issuer"), and this Letter of Transmittal (this
"Letter"), which together constitute the offer (the "Exchange Offer") to
exchange an aggregate principal amount at maturity of up to $84,000,000 of
Series B 12% Senior Discount Debentures due 2009 (the "New Debentures") for an
equal principal amount at maturity of the outstanding Series A 12% Senior
Discount Debentures due 2009 (the "Old Debentures"). State Street Bank and
Trust Company is the exchange agent for the Exchange Offer (the "Exchange
Agent").
<PAGE>
For each Old Debenture accepted for exchange, the holder of such Old
Debenture will receive a New Debenture having a principal amount at maturity
equal to that of the surrendered Old Debenture. The New Debentures will accrete
at a rate of 12 7/8%, compounded semi-annually, to an aggregate principal amount
of $84,000,000 by April 15, 2003. Beginning on April 15, 2003, cash interest on
the New Debentures will accrue and be payable, at a rate of 12 7/8% per annum,
semi-annually in arrears on October 15 and April 15 of each year commencing
October 15, 2003.
Notwithstanding the foregoing, liquidated damages ("Liquidated
Damages") shall become payable in respect of the Old Debentures as follows:
If (a) the Issuer fails to file a registration statement with respect
to the New Debentures (the "Exchange Offer Registration Statement") or a shelf
registration statement covering resales of the Old Debentures (the "Shelf
Registration Statement" and, collectively, the "Registration Statements") as
required by the Registration Rights Agreement on or before the date specified
for such filing, (b) any of such Registration Statements is not declared
effective by the Commission on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date"), (c) the Issuer fails to
consummate the Exchange Offer within 195 days after the date at which the Old
Debentures were issued as required by the Registration Rights Agreement, or (d)
the Shelf Registration Statement or the Exchange Offer Registration Statement is
declared effective but thereafter ceases to be effective or usable in connection
with resales of Transfer Restricted Securities (as defined in "The Exchange
Offer -- Terms of the Exchange Offer" section of the Prospectus) during the
periods specified in the Registration Rights Agreement (each such event referred
to in clauses (a) through (d) above a "Registration Default"), then the Issuer
will pay Liquidated Damages as follows: to each holder of Transfer Restricted
Securities, with respect to such 90-day period immediately following the
occurrence of the first Registration Default in an amount equal to $0.05 per
week per $1,000 principal amount of Transfer Restricted Securities held by such
holder. The amount of the Liquidated Damages will increase by an additional
$0.05 per week per $1,000 principal amount of Transfer Restricted Securities
with respect to each subsequent 90-day period until all Registration Defaults
have been cured, up to a maximum amount of Liquidated Damages of $0.30 per week
per $1,000 principal amount of Transfer Restricted Securities. Following the
cure of all Registration Defaults, the accrual of Liquidated Damages will cease.
The Issuer reserves the right (i) to delay acceptance of any Old
Debentures, to extend the Exchange Offer or to terminate the Exchange Offer and
not permit acceptance of Old Debentures not previously accepted if any of the
conditions set forth in "The Exchange Offer-- Conditions" section of the
Prospectus shall have occurred and shall not have been waived by the Issuer, by
giving oral or written notice of such delay, extension or termination to the
Exchange Agent, or (ii) to amend the terms of the Exchange Offer in any manner
deemed by it to be advantageous to the holders of the Old Debentures. Any such
delay in acceptance, extension, termination or amendment will be followed as
promptly as practicable by oral or written notice thereof to the Exchange Agent.
If the Exchange Offer is amended in a manner determined by the Issuer to
constitute a material change, the Issuer will promptly disclose such amendment
in a manner reasonably calculated to inform the holders of the Old Debentures of
such amendment.
This Letter is to be completed by a holder of Old Debentures either if
Old Debentures are to be forwarded herewith or if a tender of Old Debentures, if
available, is to be made by book-entry transfer to the account maintained by the
Exchange Agent at The Depository Trust Company (the "Book-Entry Transfer
Facility") pursuant to the procedures set forth in "The Exchange Offer" section
of the Prospectus. Holders of Old Debentures whose certificates are not
immediately available, or who are unable to deliver their certificates or
confirmation of the book-entry tender of their Old Debentures into the Exchange
Agent's account at the Book-Entry Transfer Facility (a "Book-Entry
Confirmation") and all other documents required by this Letter to the Exchange
Agent on or prior to the Expiration Date, must tender their Old Debentures
according to the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section
2
<PAGE>
of the Prospectus. See Instruction 1. Delivery of documents to the Book-Entry
Transfer Facility does not constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed
this Letter to indicate the action the undersigned desires to take with respect
to the Exchange Offer.
3
<PAGE>
List below the Old Debentures to which this Letter relates. If the
space provided below is inadequate, the certificate numbers and principal amount
of Old Debentures should be listed on a separate signed schedule affixed hereto.
<TABLE>
- ----------------------------------------------------------------------------------------------
DESCRIPTION OF OLD DEBENTURES 1 2 3
- ----------------------------------------------------------------------------------------------
Aggregate
Name(s) and Address(es) of Certificate Principal Amount Principal Amount
Registered Holder(s) Number(s)* at Maturity of at Maturity
(Please fill in, if blank) Old Debenture(s) Tendered**
- ----------------------------------------------------------------------------------------------
<S> <C>
---------------------------------------------------------
---------------------------------------------------------
Total
- ----------------------------------------------------------------------------------------------
* Need not be completed if Old Debentures are being tendered by book-entry transfer.
** Unless otherwise indicated in this column, a holder will be deemed to have tendered ALL
of the Old Debentures represented by the Old Debentures indicated in column 2. See
Instruction 2. Old Debentures tendered hereby must be in denominations of principal amount
at maturity of $1,000 and any integral multiple thereof. See Instruction 1.
- ----------------------------------------------------------------------------------------------
</TABLE>
[_] CHECK HERE IF TENDERED OLD DEBENTURES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ____________________________________________
Account Number _____________ Transaction Code Number ____________________
[_] CHECK HERE IF TENDERED OLD DEBENTURES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s) __________________________________________
Window Ticket Number (if any)_____________________________________________
Date of Execution of Notice of Guaranteed Delivery________________________
Name of Institution which guaranteed delivery_____________________________
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number____________________ Transaction Code Number ______________
[_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:_____________________________________________________________________
Address:__________________________________________________________________
__________________________________________________________________________
4
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer,
the undersigned hereby tenders to the Issuer the aggregate principal amount at
maturity of Old Debentures indicated above. Subject to, and effective upon, the
acceptance for exchange of the Old Debentures tendered hereby, the undersigned
hereby sells, assigns and transfers to, or upon the order of, the Issuer all
right, title and interest in and to such Old Debentures as are being tendered
hereby.
The undersigned hereby represents and warrants that the undersigned
has full power and authority to tender, sell, assign and transfer the Old
Debentures tendered hereby and that the Issuer 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 accepted
by the Issuer. The undersigned hereby further represents that any New
Debentures acquired in exchange for Old Debentures tendered hereby will have
been acquired in the ordinary course of business of the person receiving such
New Debentures, whether or not such person is the undersigned, that neither the
holder of such Old Debentures nor any such other person is engaged in, or
intends to engage in a distribution of such New Debentures, or has an
arrangement or understanding with any person to participate in the distribution
of such New Debentures, and that neither the holder of such Old Debentures nor
any such other person is an "affiliate," as defined in Rule 405 under the
Securities Act of 1933, as amended (the "Securities Act"), of the Issuer.
The undersigned also acknowledges that this Exchange Offer is being
made based upon the Issuer's understanding of an interpretation by the staff of
the Securities and Exchange Commission (the ("Commission") as set forth in no-
action letters issued to third parties, including Exxon Capital Holdings
Corporation, SEC No-Action Letter (available May 13, 1988), Morgan Stanley & Co.
Incorporated, SEC No-Action Letter (available June 5, 1991) and Shearman &
Sterling, SEC No-Action Letter (available July 2, 1993), that the New Debentures
issued in exchange for the Old Debentures pursuant to the Exchange Offer may be
offered for resale, resold and otherwise transferred by each holder thereof
(other than a broker-dealer who acquires such New Debentures directly from the
Issuer for resale pursuant to Rule 144A under the Securities Act or any other
available exemption under the Securities Act or any such holder that is an
"affiliate" of the Issuer within the meaning of Rule 405 under the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Debentures are acquired
in the ordinary course of such holder's business and such holder is not engaged
in, and does not intend to engage in, a distribution of such New Debentures and
has no arrangement with any person to participate in the distribution of such
New Debentures. If a holder of Old Debentures is engaged in or intends to
engage in a distribution of the New Debentures or has any arrangement or
understanding with respect to the distribution of the New Debentures to be
acquired pursuant to the Exchange Offer, such holder may not rely on the
applicable interpretations of the staff of the Commission and must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction. If the undersigned is a
broker-dealer that will receive New Debentures for its own account in exchange
for Old Debentures, it represents that the Old Debentures to be exchanged for
the New Debentures were acquired by it as a result of market-making activities
or other trading activities and acknowledges that it will deliver a prospectus
in connection with any resale of such New Debentures; 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.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Issuer to be necessary or desirable to complete the
sale, assignment and transfer of the Old Debentures
5
<PAGE>
tendered hereby. All authority conferred or agreed to be conferred in this
Letter and every obligation of the undersigned hereunder shall be binding upon
the successors, assigns, heirs, executors, administrators, trustees in
bankruptcy and legal representatives of the undersigned and shall not be
affected by, and shall survive, the death or incapacity of the undersigned.
This tender may be withdrawn only in accordance with the procedures set forth in
"The Exchange Offer--Withdrawal of Tenders" section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special
Issuance Instructions" below, please deliver the New Debentures (and, if
applicable, substitute certificates representing Old Debentures for any Old
Debentures not exchanged) in the name of the undersigned or, in the case of a
book-entry delivery of Old Debentures, please credit the account indicated above
maintained at the Book-Entry Transfer Facility. Similarly, unless otherwise
indicated under the box entitled "Special Delivery Instructions" below, please
send the New Debentures (and, if applicable, substitute certificates
representing Old Debentures for any Old Debentures not exchanged) to the
undersigned at the address shown above in the box entitled "Description of Old
Debentures."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD
DEBENTURES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE
OLD DEBENTURES AS SET FORTH IN SUCH BOX ABOVE.
6
<PAGE>
- --------------------------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(See Instructions 3 and 4)
To be completed ONLY if certificates for Old Debentures not exchanged and/or
New Debentures are to be issued in the name of and sent to someone other than
the person(s) whose signature(s) appear(s) on this Letter above, or if Old
Debentures delivered by book-entry transfer which are not accepted for
exchange are to be returned by credit to an account maintained at the Book-
Entry Transfer Facility other than the account indicated above.
Issue New Debentures and/or Old Debentures to:
Name(s): ____________________________________________________________________
(Please Type or Print)
_____________________________________________________________________________
(Please Type or Print)
Address:_____________________________________________________________________
(Including Zip Code)
(Complete accompanying Substitute Form W-9)
Credit unexchanged Old Debentures delivered by book-entry transfer to the
Book-Entry Transfer Facility account set forth below.
(Book-Entry Transfer Facility
Account Number, if applicable)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 3 and 4)
To be completed ONLY if certificates for Old Debentures not exchanged
and/or New Debentures are to be sent to someone other than the person(s) whose
signature(s) appear(s) on this Letter above or to such person(s) at an address
other than shown in the box entitled "Description of Old Debentures" on this
Letter above.
Mail New Debentures and/or Old Debentures to:
Name(s):________________________________________________________________________
(Please Type or Print)
________________________________________________________________________________
(Please Type or Print)
Address:________________________________________________________________________
(Including Zip Code)
- --------------------------------------------------------------------------------
IMPORTANT: THIS LETTER (TOGETHER WITH THE CERTIFICATES FOR OLD DEBENTURES OR A
BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR THE NOTICE OF
GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M.,
NEW YORK CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
7
<PAGE>
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9)
Dated:..................................................................., 1998
..............................................................................x
..............................................................................x
(Signature(s) of Owner) (Date)
Area Code and Telephone Number:.........................................
If a holder is tendering any Old Debentures, this Letter must be signed
by the registered holder(s) as the name(s) appear(s) on the certificate(s) for
the Old Debentures or by any person(s) authorized to become registered holder(s)
by endorsements and documents transmitted herewith. If signature is by a
trustee, executor, administrator, guardian, officer or other person acting in a
fiduciary or representative capacity, please set forth full title. See
Instruction 3.
Name(s):..................................................................
..........................................................................
(Please Type or Print)
Capacity:.................................................................
Address:..................................................................
..........................................................................
(Including Zip Code)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by
an Eligible Institution:....................................................
(Authorized Signature)
............................................................................
(Title)
............................................................................
(Name and Firm)
Dated:..................................................................., 1998
- --------------------------------------------------------------------------------
8
<PAGE>
INSTRUCTIONS
Diamond Brands Incorporated
Forming Part of the Terms and Conditions of the Offer to Exchange
Series B 12% SENIOR DISCOUNT DEBENTURES DUE 2009,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OUTSTANDING
Series A 12% SENIOR DISCOUNT DEBENTURES DUE 2009
1. DELIVERY OF THIS LETTER AND OLD DEBENTURES; GUARANTEED DELIVERY PROCEDURES.
This Letter is to be completed by holders of Old Debentures either if
certificates are to be forwarded herewith or if tenders are to be made pursuant
to the procedures for delivery by book-entry transfer set forth in "The Exchange
Offer -- Book-Entry Transfer" section of the Prospectus. Certificates for all
physically tendered Old Debentures, or Book-Entry Confirmation, as the case may
be, as well as a properly completed and duly executed Letter of Transmittal and
any other documents required by this Letter, must be received by the Exchange
Agent at the address set forth herein on or prior to the Expiration Date, or the
tendering holder must comply with the guaranteed delivery procedures set forth
below. Old Debentures tendered hereby must be in denominations of principal
amount at maturity of $1,000 and any integral multiple thereof.
Holders of Old Debentures whose certificates for Old Debentures are
not immediately available or who cannot deliver their certificates and all other
required documents to the Exchange Agent on or prior to the Expiration Date, or
who cannot complete the procedure for book-entry transfer on a timely basis, may
tender their Old Debentures pursuant to the guaranteed delivery procedures set
forth in "The Exchange Offer--Guaranteed Delivery Procedures" section of the
Prospectus. Pursuant to such procedures, (i) such tender must be made through
an Eligible Institution (as defined below), (ii) prior to the Expiration Date,
the Exchange Agent must receive from such Eligible Institution a properly
completed and duly executed Letter of Transmittal and Notice of Guaranteed
Delivery, substantially in the form provided by the Issuer (by mail or hand
delivery), setting forth the name and address of the holder of Old Debentures
and the amount of Old Debentures tendered, stating that the tender is being made
thereby and guaranteeing that within three New York Stock Exchange ("NYSE")
trading days after the date of execution of the Notice of Guaranteed Delivery,
the certificates for all physically tendered Old Debentures, or a Book-Entry
Confirmation, as the case may be, and any other documents required by this
Letter will be deposited by the Eligible Institution with the Exchange Agent,
and (iii) the certificates for all physically tendered Old Debentures, in proper
form for transfer, or Book-Entry Confirmation, as the case may be, and all other
documents required by this Letter, are received by the Exchange Agent within
three NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
The method of delivery of this Letter, the Old Debentures and all
other required documents is at the election and risk of the tendering holders,
but the delivery will be deemed made only when actually received or confirmed by
the Exchange Agent. If Old Debentures are sent by mail, it is suggested that
the mailing be made sufficiently in advance of the Expiration Date to permit
delivery to the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date.
See "The Exchange Offer" section of the Prospectus.
9
<PAGE>
2. PARTIAL TENDERS (NOT APPLICABLE TO HOLDERS OF OLD DEBENTURES WHO TENDER BY
BOOK-ENTRY TRANSFER).
If less than all of the Old Debentures evidenced by a submitted
certificate are to be tendered, the tendering holder(s) should fill in the
aggregate principal amount at maturity of Old Debentures to be tendered in the
box above entitled "Description of Old Debentures--Principal Amount at Maturity
Tendered." A reissued certificate representing the balance of nontendered Old
Debentures will be sent to such tendering holder, unless otherwise provided in
the appropriate box on this Letter, promptly after the Expiration Date. ALL OF
THE OLD DEBENTURES DELIVERED TO THE EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN
TENDERED UNLESS OTHERWISE INDICATED.
3. SIGNATURES OF THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES.
If this Letter is signed by the registered holder of the Old
Debentures tendered hereby, the signature must correspond exactly with the name
as written on the face of the certificates without any change whatsoever.
If any tendered Old Debentures are owned of record by two or more
joint owners, all such owners must sign this Letter.
If any tendered Old Debentures are registered in different names on
several certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter as there are different registrations of
certificates.
When this Letter is signed by the registered holder of the Old
Debentures specified herein and tendered hereby, no endorsements of certificates
or separate bond powers are required. If, however, the New Debentures are to be
issued, or any untendered Old Debentures are to be reissued, to a person other
than the registered holder, then endorsements of any certificates transmitted
hereby or separate bond powers are required. Signatures on such certificates
must be guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder
of any certificates specified herein, such certificates must be endorsed or
accompanied by appropriate bond powers, in either case signed exactly as the
name of the registered holder appears on the certificates and the signatures on
such certificates must be guaranteed by an Eligible Institution.
If this Letter or any certificates or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Issuer,
proper evidence satisfactory to the Issuer of their authority to so act must be
submitted.
ENDORSEMENTS ON CERTIFICATES FOR OLD DEBENTURES OR SIGNATURES ON BOND
POWERS REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED BY A FIRM WHICH IS A
MEMBER OF A REGISTERED NATIONAL SECURITIES EXCHANGE OR A MEMBER OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC., BY A COMMERCIAL BANK OR TRUST COMPANY
HAVING AN OFFICE OR CORRESPONDENT IN THE UNITED STATES OR BY AN "ELIGIBLE
GUARANTOR" INSTITUTION WITHIN THE MEANING OF RULE 17AD-15 UNDER THE SECURITIES
EXCHANGE ACT OF 1934 (AN "ELIGIBLE INSTITUTION").
SIGNATURES ON THIS LETTER NEED NOT BE GUARANTEED BY AN ELIGIBLE
INSTITUTION, PROVIDED THE OLD DEBENTURES ARE TENDERED: (I) BY A REGISTERED
HOLDER OF OLD DEBENTURES (WHICH TERM, FOR PURPOSES OF THE EXCHANGE OFFER,
INCLUDES ANY PARTICIPANT IN THE BOOK-ENTRY TRANSFER FACILITY SYSTEM WHOSE NAME
APPEARS ON A SECURITY POSITION LISTING AS THE HOLDER OF SUCH OLD DEBENTURES)
TENDERED WHO
10
<PAGE>
HAS NOT COMPLETED THE BOX ENTITLED "SPECIAL ISSUANCE INSTRUCTIONS" OR "SPECIAL
DELIVERY INSTRUCTIONS" ON THIS LETTER OR (II) FOR THE ACCOUNT OF AN ELIGIBLE
INSTITUTION.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Old Debentures should indicate in the applicable
box the name and address to which New Debentures issued pursuant to the Exchange
Offer and/or substitute certificates evidencing Old Debentures not exchanged are
to be issued or sent, if different from the name or address of the person
signing this Letter. In the case of issuance in a different name, the employer
identification or social security number of the person named must also be
indicated. A holder of Old Debentures tendering Old Debentures by book-entry
transfer may request that Old Debentures not exchanged be credited to such
account maintained at the Book-Entry Transfer Facility as such holder of Old
Debentures may designate hereon. If no such instructions are given, such Old
Debentures not exchanged will be returned to the name or address of the person
signing this Letter.
5. TAX IDENTIFICATION NUMBER.
Federal income tax law generally requires that a tendering holder
whose Old Debentures are accepted for exchange must provide the Issuer (as
payor) with such Holder's correct Taxpayer Identification Number ("TIN") on
Substitute Form W-9 below, which, in the case of a tendering holder who is an
individual, is his or her social security number. If the Issuer is not provided
with the current TIN or an adequate basis for an exemption, such tendering
holder may be subject to a $50 penalty imposed by the Internal Revenue Service.
In addition, delivery of New Debentures to such tendering holder may be subject
to backup withholding in an amount equal to 31% of all reportable payments made
after the exchange. If withholding results in an overpayment of taxes, a refund
may be obtained.
Exempt holders of Old Debentures (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. See the enclosed Guidelines of
Certification of Taxpayer Identification Number on Substitute Form W-9 (the "W-9
Guidelines") for additional instructions.
To prevent backup withholding, each tendering holder of Old Debentures
must provide its correct TIN by completing the "Substitute Form W-9" set forth
below, 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 Internal Revenue Service that such
holder is subject to a backup withholding as a result of a failure to report all
interest or dividends or (iii) the Internal Revenue Service has notified the
holder that such holder is no longer subject to backup withholding. If the
tendering holder of Old Debentures is a nonresident alien or foreign entity not
subject to backup withholding, such holder must give the Issuer a completed Form
W-8, Certificate of Foreign Status. These forms may be obtained from the
Exchange Agent. If the Old Debentures are in more than one name or are not in
the name of the actual owner, such holder should consult the W-9 Guidelines for
information on which TIN to report. If such holder does not have a TIN, such
holder should consult the W-9 Guidelines for instructions on applying for a TIN,
check the box in Part 2 of the Substitute Form W-9 and write "applied for" in
lieu of its TIN. Debenture: checking this box and writing "applied for" on the
form means that such holder has already applied for a TIN or that such holder
intends to apply for one in the near future. If such holder does not provide
its TIN to the Issuer within 60 days, backup withholding will begin and continue
until such holder furnishes its TIN to the Issuer.
6. TRANSFER TAXES.
The Issuer will pay all transfer taxes, if any, applicable to the
transfer of Old Debentures to it or its order pursuant to the Exchange Offer.
If, however, New Debentures and/or substitute Old Debentures
11
<PAGE>
not exchanged 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 Old Debentures
tendered hereby, or if tendered Old Debentures are registered in the name of any
person other than the person signing this Letter, or if a transfer tax is
imposed for any reason other than the transfer of Old Debentures to the Issuer
or its order pursuant to the Exchange Offer, 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 herewith, the amount of such
transfer taxes will be billed directly to such tendering holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT IS NOT NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD DEBENTURES SPECIFIED IN THIS
LETTER.
7. WAIVER OF CONDITIONS.
The Issuer reserves the absolute right to waive satisfaction of any or
all conditions enumerated in the Prospectus.
8. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old Debentures, by execution of this Letter,
shall waive any right to receive notice of the acceptance of their Old
Debentures for exchange.
Neither the Issuer, the Exchange Agent nor any other person is
obligated to give notice of any defect or irregularity with respect to any
tender of Old Debentures nor shall any of them incur any liability for failure
to give any such notice.
9. MUTILATED, LOST, STOLEN OR DESTROYED OLD DEBENTURES.
Any holder whose Old Debentures have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests
for additional copies of the Prospectus and this Letter, may be directed to the
Exchange Agent, at the address and telephone number indicated above.
12
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYOR'S NAME: DIAMOND BRANDS INCORPORATED
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
<S> <C>
SUBSTITUTE Part 1 -- PLEASE PROVIDE YOUR TIN IN THE
Form W-9 BOX AT RIGHT AND CERTIFY BY SIGNING AND TIN:_____________________________
DATING BELOW. (Social Security Number or
Employer Identification Number)
----------------------------------------------------------------------------------------
Department of the Part 2 -- TIN Applied For [_]
Treasury
----------------------------------------------------------------------------------------
Internal Revenue CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
Service
(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).
Payor's Request For (2) I am not subject to backup withholding either because: (a) I am exempt from
Taxpayer backup withholding or (b) I have not been notified by the Internal Revenue Service
Identification Number (the "IRS") that I am subject to backup withholding as a result of a failure to
("TIN") and report all interest or dividends, or (c) the IRS has notified me that I am no longer
Certification subject to backup witholding, and
(3) any other information provided on this form is true and correct.
SIGNATURE...................................................... DATE.................
- ----------------------------------------------------------------------------------------------------------------
You must cross out item (2) of the above certification if you have been notified by the IRS that you are
subject to backup withholding because of underreporting of interest or dividends on your tax return and you
have not been notified by the IRS that you are no longer subject to backup withholding.
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 2 OF SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of the exchange, 31% of all
reportable payments made to me thereafter will be withheld until I provide a
number.
________________________________________________________ ___________________
Signature Date
- --------------------------------------------------------------------------------
13
<PAGE>
NOTICE OF GUARANTEED DELIVERY FOR
DIAMOND BRANDS OPERATING CORP.
This form or one substantially equivalent hereto must be used to
accept the Exchange Offer of Diamond Brands Operating Corp. (the "Issuer") made
pursuant to the Prospectus, dated ___________, 1998 (the "Prospectus"), and the
enclosed Letter of Transmittal (the "Letter of Transmittal") if certificates for
Old Notes are not immediately available or if the procedure for book-entry
transfer cannot be completed on a timely basis or time will not permit all
required documents to reach the Issuer prior to 5:00 P.M., New York City time,
on the Expiration Date of the Exchange Offer. Such form may be delivered by mail
or hand delivery to State Street Bank and Trust Company (the "Exchange Agent")
as set forth below. In addition, in order to utilize the guaranteed delivery
procedure to tender Old Notes pursuant to the Exchange Offer, a completed,
signed and dated Letter of Transmittal must also be received by the Exchange
Agent prior to 5:00 P.M., New York City time, on the Expiration Date.
Capitalized terms not defined herein are defined in the Prospectus.
DELIVERY TO: STATE STREET BANK AND TRUST COMPANY, EXCHANGE AGENT
By Mail: By Overnight Mail or Courier:
P.O. Box 778 Two International Place
Boston, Massachusetts 02102 Boston, Massachusetts 02110
Attention: Corporate Trust Department Attention: Corporate Trust Department
Kellie Mullen Kellie Mullen
By Hand in New York to 5:00 p.m. By Hand in Boston to 5:00 p.m.
(as drop agent): Two International Place
61 Broadway Fourth Floor
15th Floor Corporate Trust
Corporate Trust Window Boston, Massachusetts 02110
New York, New York 10006
For information call:
(617) 664-5587
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the Issuer
the principal amount of Old Notes set forth below, pursuant to the guaranteed
delivery procedure described in "The Exchange Offer -- Guaranteed Delivery
Procedures" section of the Prospectus.
<PAGE>
Principal Amount of Old Notes Tendered: Name(s) of Record Holders(s):
$________________________________________ ___________________________________
(Please Type or Print)
Address(es): (Please Type or Print
Certificate Nos. (if available):
_________________________________________ ___________________________________
_________________________________________ ___________________________________
(Including Zip Code)
If Old Notes will be delivered by
book-entry transfer to The Depositary Area Code and Telephone Number(s):
Trust Company, provide account number.
___________________________________
Signature(s):
Account Number___________________________ ___________________________________
Dated____________________________________ ___________________________________
THE ACCOMPANYING GUARANTEE MUST BE COMPLETED.
2
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm that is a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office correspondent in the United
States or any "eligible guarantor" institution within the meaning of Rule 17Ad-
15 of the Securities Exchange Act of 1934, as amended, hereby (a) guarantees to
deliver to the Exchange Agent, at one its address set forth above, the
certificates representing all tendered Old Notes, in proper form for transfer,
or a Book-Entry Confirmation, together with a properly completed and duly
executed Letter of Transmittal), with any required signature guarantees, and any
other documents required by the Letter of Transmittal within three New York
Stock Exchange trading days after the date of execution of this Notice of
Guaranteed Delivery.
Name of Firm:__________________________ ___________________________________
(Authorized Signature)
Address:_______________________________ Title:_____________________________
_______________________________________ Name:______________________________
(Including Zip Code) (Please Type or Print)
Area Code and
Telephone Number:______________________ Dated:_______________________, 1998
<PAGE>
DIAMOND BRANDS OPERATING CORP.
OFFER TO EXCHANGE
SERIES B 10 1/8% SENIOR SUBORDINATED NOTES DUE 2008,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OUTSTANDING
SERIES A 10 1/8% SENIOR SUBORDINATED NOTES DUE 2008
TO OUR CLIENTS:
Enclosed for your consideration is a Prospectus of Diamond Brands
Operating Corp., a Delaware corporation (the "Issuer"), dated _________, 1998
(the "Prospectus"), and the enclosed Letter of Transmittal (the "Letter of
Transmittal") relating to the offer to exchange (the "Exchange Offer") of
registered Series B 10 1/8% Senior Subordinated Notes due 2008 (the "New Notes")
for any and all outstanding Series A 10 1/8% Senior Subordinated Notes due 2008
(the "Old Notes") (CUSIP No. 25256E AA 5 for Old Notes issued pursuant to Rule
144A under the Securities Act of 1933, as amended (the "Securities Act") and
CUSIP No. 425260 AA 5 for Old Notes issued pursuant to Regulation S under the
Securities Act), upon the terms and subject to the conditions described in the
Prospectus. The Exchange Offer is being made in order to satisfy certain
obligations of the Issuer and the Issuer's subsidiaries (each a "Guarantor" and
collectively, the "Guarantors") contained in the Registration Rights Agreement,
dated as of April 21, 1998, between the Issuer, the Guarantors and Donaldson,
Lufkin & Jenrette Securities Corporation and Morgan Stanley & Co. Incorporated
(the "Initial Purchasers").
This material is being forwarded to you as the beneficial owner of the
Old Notes carried by us in your account but not registered in your name. A
TENDER OF SUCH OLD NOTES MAY ONLY BE MADE BY US AS THE HOLDER OF RECORD AND
PURSUANT TO YOUR INSTRUCTIONS.
Accordingly, we request instructions as to whether you wish us to
tender on your behalf the Old Notes held by us for your account, pursuant to the
terms and conditions set forth in the enclosed Prospectus and Letter of
Transmittal. We also request that you confirm that we may, on your behalf, make
the representations and warranties contained in the Letter of Transmittal.
Your instructions should be forwarded to us as promptly as possible in
order to permit us to tender the Old Notes on your behalf in accordance with the
provisions of the Exchange Offer. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON ____________, 1998 (THE "EXPIRATION DATE") (30 CALENDAR
DAYS FOLLOWING THE COMMENCEMENT OF THE EXCHANGE OFFER), UNLESS EXTENDED BY THE
ISSUER. ANY OLD NOTES TENDERED PURSUANT TO THE EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME BEFORE 5:00 P.M., NEW YORK CITY TIME ON THE EXPIRATION DATE.
Your attention is directed to the following:
1. The Exchange Offer is for any and all Old Notes.
2. The Exchange Offer is subject to certain conditions set forth in
the Prospectus in the section captioned "The Exchange Offer -- Conditions."
3. Any transfer taxes incident to the transfer of Old Notes from the
holder to the Issuer will be paid by the Issuer, except as otherwise provided in
the Instructions in the Letter of Transmittal.
<PAGE>
4. The Exchange Offer expires at 5:00 p.m., New York City time, on
the Expiration Date unless extended by the Issuer.
If you wish to have us tender your Old Notes, please so instruct us by
completing, executing and returning to us the instruction form set forth below.
The Letter of Transmittal is furnished to you for information only and may not
be used directly by you to tender Old Notes.
INSTRUCTIONS WITH RESPECT TO THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter enclosing the
Prospectus, dated ___________, 1998, of Diamond Brands Operating Corp., a
Delaware corporation, and the related specimen Letter of Transmittal.
- --------------------------------------------------------------------------------
This will instruct you to tender the number of Old Notes indicated below
held by you for the account of the undersigned, pursuant to the terms and
conditions set forth in the Prospectus and the related Letter of Transmittal.
(Check one).
Box 1 [_] Please tender my Old Notes held by you for my account. If I do not
wish to tender all of the Old Notes held by you for my account, I
have identified on a signed schedule attached hereto the number of
Old Notes that I do not wish tendered.
Box 2 [_] Please do not tender any Old Notes held by you for my account.
- --------------------------------------------------------------------------------
Dated____________________, 1998 ____________________________________________
Signature(s)
____________________________________________
____________________________________________
Please print name(s)
____________________________________________
Area Code and Telephone Number(s)
____________________________________________
Tax Identification or Social Security Number
UNLESS A SPECIFIC CONTRARY INSTRUCTION IS GIVEN IN THE SPACE PROVIDED, YOUR
SIGNATURE(S) HEREON SHALL CONSTITUTE AN INSTRUCTION TO US TO TENDER ALL OLD
NOTES.
2
