AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 28, 1998
REGISTRATION NO. 333-58223
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
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: [_]
----------------
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 AUGUST 28, 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 on Form S-4 together with all amendments
and exhibits, the "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 jointly and severally
guaranteed, fully and unconditionally, 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 (30 calendar days following the commencement of the Exchange
Offer, which will occur on the date of effectiveness of the Registration
Statement) 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 under "Available Information") 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)
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FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PARTICIPANTS
IN THE EXCHANGE OFFER, SEE "RISK FACTORS" BEGINNING ON PAGE 15 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. 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 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, and joint and several with guarantees of
each other Guarantor. 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.
i
<PAGE>
PROSPECTUS SUMMARY
Prior to the Recapitalization (as defined herein under "--The
Recapitalization"), 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 under "Unaudited Pro
Forma Consolidated Financial Data") 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 under "--The Recapitalization"), and the Empire
Acquisition (as defined herein under "--Corporate Information") 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 six months ended June 30, 1998 are
to such data that give effect to the Recapitalization as if it had occurred on
January 1, 1997.
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 under "--Summary
Historical and Pro Forma Consolidated Financial Data") of $31.6 million, which
represented a pro forma EBITDA margin (as defined herein under "--Summary
Historical and Pro Forma Consolidated Financial Data") of 26.2%. For the six
months ended June 30, 1998, the Company generated net sales of $58.6 million
and EBITDA of $11.9 million, which represented an EBITDA margin of 20.4%.
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
under "--Corporate Information") 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
1
<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 $1.3 million had been expended in the six months ended
June 30, 1998.
2
<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
has taken initial steps to explore potential international opportunities,
in particular, in Canada and the Caribbean, and expects to further explore
such opportunities in the future. 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. Although the Company does not currently have any particular
strategic acquisition opportunities identified, it intends to consider
regularly and 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.
3
<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") at $0.01 per share until the Warrants expire
in April 2008. The values assigned to the Warrants and Holdings Preferred Stock
were $12.3 million and $34.7 million, respectively, based upon the sale prices
of comparable preferred stock instruments in the marketplace.Dividends in
respect of Holdings Preferred Stock accumulate at 12% per annum (representing a
15% per annum effective yield) to its mandatory redemption value of $47.0
million on the mandatory redemption date on October 15, 2009. Holdings has the
option, at any time, to redeem Holdings, Preferred Stock at a price equal to
the Liquidation Preference (as defined herein under "Capital Stock of Holdings
and the Issuer") plus all accumulated and unpaid dividends. 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 $211.4 million, subject to certain working capital
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 $13.98 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 Equity Repurchase price of $13.98 per
share was determined based upon a competitive process with potential investors
managed by Donaldson, Lufkin & Jenrette Securities Corporation on behalf of the
Company. 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 repaid substantially all
of the Company's funded debt obligations existing immediately before the
consummation of the Recapitalization (the "Debt Retirement")in the amount of
$51.8 million.
Funding requirements for the Recapitalization (which was consummated on April
21, 1998) were $296.5 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)
$10.6 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 Debt Retirement, the issuance and sale by Holdings
of Holdings Preferred Stock, the Warrants and the Holdings Senior Discount
Debentures and the Offering and the borrowing by the Issuer of funds under the
Bank Facilities (which proceeds were distributed to Holdings) were effected in
connection with the Recapitalization. The Recapitalization was accounted for as
a recapitalization transaction for accounting purposes.
4
<PAGE>
The following table sets forth the sources and uses of funds in connection
with the Recapitalization:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
SOURCES:
Bank Facilities (1)........................................ $ 90,582
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................................... $296,470
========
USES:
Equity Repurchase.......................................... $211,421
Debt Retirement............................................ 51,834
Implied Value of the Retained Shares (3)................... 15,000
Transaction fees and expenses (4).......................... 18,215
--------
Total uses of funds...................................... $296,470
========
</TABLE>
- --------
(1) Represents (i) $10.6 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 deferred financing costs of $9.8 million, legal and advisory fees
of $4.7 million, management bonus payments of $1.6 million, bridge financing
fees of $1.0 million, compensation expense related to repurchase of common
stock upon exercise of stock options of $0.6 million, and other
recapitalization expenses of $0.5 million. All costs except for the deferred
financing cost of $9.8 million and $1.3 million in legal and advisory fees
have been expensed by the Company in the period which includes the date of
the Recapitalization.
5
<PAGE>
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.
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.
6
<PAGE>
THE EXCHANGE OFFER
Registration Rights The Old Notes were issued on April 21, 1998 (the
Agreement................... "Issue Date") to 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
7
<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
(30 calendar days following the commencement of
the Exchange Offer, which will occur on the date
of effectiveness of the Registration Statement),
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
of such Old Notes. Interest on the New Notes is
payable on October 15 and April 15 of each year,
commencing October 15, 1998.
8
<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."
9
<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, fully
and unconditionally, 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
under "Description of the New Notes--Registration
Rights; Liquidated Damages"), 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 under "Description of
the New Notes--Certain Definitions"); 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 under
"Description of the New Notes--Certain
Definitions") (other than Restricted Subsidiaries
that do not guarantee any indebtedness of the
Issuer or any other Restricted Subsidiary). The
Subsidiary Guarantees (as defined herein under
"Description of the New Notes--Guarantees") 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 under "Description
of the New Notes -- Certain Definitions") 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 June 30, 1998, the
Issuer and the Guarantors had approximately
$86.1 million of Senior Debt. The Indenture
permits the Issuer and the Guarantors to incur
additional indebtedness,
10
<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 under "Description of Holdings
Indebtedness") 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 under
"Description of the New Notes -- Certain
Definitions"), which is permitted in limited
circumstances, and the Issuer or its Restricted
Subsidiaries has Excess Proceeds (as defined
herein under "Description of the New Notes --
Repurchase at the Option of Holders -- Asset
Sales"), 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."
11
<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.
12
<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 six months ended June 30, 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 six months ended June 30, 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 six months ended June 30, 1998 gives effect to the
Recapitalization as if it had occurred on January 1, 1997. 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>
SIX MONTHS
YEAR ENDED DECEMBER 31, PRO FORMA ENDED JUNE 30, PRO FORMA
-------------------------------------------- DECEMBER 31, ---------------- JUNE 30,
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 $54,675 $58,558 $58,558
Gross profit............ 10,730 8,223 21,169 27,169 39,490 40,186 17,045 17,210 17,210
Operating income........ 6,423 4,070 10,417 17,301 26,555 26,781 11,031 9,829 9,829
Net income (1).......... 3,957 3,578 4,102 7,636 20,629 5,151 7,495 4,468 514
Other Data:
Depreciation and
amortization (2)....... $ 1,207 $ 1,250 $ 3,761 $ 4,204 $ 4,668 $ 4,856 $ 2,225 $ 2,105 $ 1,032
Cash flows from
operating activities .. 4,881 4,371 4,453 13,847 21,313 -- 7,831 4,473 --
Cash flows used in
investing activities .. (836) (585) (44,539) (1,979) (28,746) -- (25,946) (1,273) --
Cash flows from (used in)
financing activities .. (1,710) (3,082) 36,652 (11,868) 7,433 -- 18,115 (3,200) --
EBITDA (3).............. 7,630 5,320 14,178 21,505 31,223 31,637 13,286 11,934 11,934
EBITDA margin (4)....... 22.8% 17.0% 18.3% 23.8% 26.4% 26.2% 24.3% 20.4% 20.4%
Capital expenditures.... $ 836 $ 585 $ 1,926 $ 1,979 $ 4,050 $ 4,050 $ 1,250 $1,273 $1,273
CREDIT DATA:
Cash interest expense............................................ $ 16,934 -- -- $8,467
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 DECEMBER 31, AS OF JUNE 30,
------------------ ---------------
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital....... $ 5,325 $ 6,483 $ 6,989 $ 5,409 $ 13,247 $ $ 27,313
Total assets.......... 16,720 17,328 69,630 66,503 94,550 106,874
Total debt, including
current maturities... 7,629 7,347 46,713 34,845 49,497 186,125
Stockholders' equity
(deficit)............ 5,246 6,024 10,118 17,754 27,930 (96,547)
</TABLE>
13
<PAGE>
- --------
(1) For the years ended December 31, 1993, 1995 and 1996 and the
period from April 21, 1998 to June 30, 1998, the Company was
a Subchapter C corporation for federal income tax purposes.
For the years ended December 31, 1994 and 1997, the six
months ended June 30, 1997 and the period from January 1,
1998 to April 20, 1998, the Company was 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. 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 generally accepted accounting principles
("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.
(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).
14
<PAGE>
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 June 30,
1998, the Issuer and its Guarantors had outstanding approximately $186.1
million of total indebtedness (including approximately $86.1 million of Senior
Debt) and stockholders' deficit of approximately $96.5 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 (including its current quarterly principal debt
service requirement of $125,000 under the Bank Facilities), 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
15
<PAGE>
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 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, prospective holders of the New Notes should not
place undue emphasis on the market data and predictions of future trends
contained in the Prospectus.
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
16
<PAGE>
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. The
Company does not maintain any key-man or similar insurance policy in respect of
Dr. Nakra or any of its other senior management or key personnel. 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
17
<PAGE>
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
18
<PAGE>
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
June 30, 1998, the Issuer had outstanding approximately $86.1
million of Senior Debt (all of which was secured borrowings) and the
Issuer had approximately $18.8 million of additional revolving borrowing
availability under the Revolving Credit Facility. See "--Restrictive Debt
Covenants," "Description of the Bank Facilities" and "Description of
the New Notes."
RISKS OF INCREASED LEVERAGE; ADDITIONAL SENIOR DEBT
The Indenture and the Bank Facilities, subject to certain significant
restrictive debt covenants contained therein, allow the Issuer to incur
additional Senior Debt from time to time. A highly leveraged transaction in
which the Company incurs significant additional Senior Debt could adversely
affect the holders of the New Notes. Holders of Senior Debt of the Issuer will
be entitled to receive payment in full of all obligations due in respect of such
Senior Debt before holders of the 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
holders of Senior Debt. See "--Restrictive Debt Covenants" 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
19
<PAGE>
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
20
<PAGE>
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
Upon consummation of the Exchange Offers, subject to certain exceptions,
holders of Old Notes who do not exchange their Old Notes for New Notes pursuant
to the Exchange Offer will no longer be entitled to registration rights and
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 (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. 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. See "The
Exchange Offer--Terms of the Exchange Offer."
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.
21
<PAGE>
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 to purchase shares of Holdings Common Stock at
$0.01 per share until the Warrants expire in April 2008. The values assigned to
the Warrants and Holdings Preferred Stock were $12.3 million and $34.7 million,
respectively, based upon the sale prices of comparable preferred stock
instruments in the marketplace. Dividends in respect of Holdings Preferred
Stock accumulate at 12% per annum (representing a 15% per annum effective
yield) to its mandatory redemption value of $47.0 million on the mandatory
redemption date of October 15, 2009. Holdings has the option, at any time, to
redeem Holdings Preferred Stock at a price equal to the Liquidation Preference
plus all accumulated and unpaid dividends. 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 $211.4 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. The Equity Repurchase price of $13.98 per
share was determined based upon a competitive process with potential investors
managed by Donaldson, Lufkin & Jenrette Securities Corporation on behalf of the
Company. 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 repaid substantially
all of the Company's funded debt obligations existing immediately before the
consummation of the Recapitalization in the amount of $51.8 million.
Funding requirements for the Recapitalization (which was consummated on
April 21, 1998) were $296.5 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) $10.6 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 Debt Retirement, the issuance and sale by Holdings
of Holdings Preferred Stock, the Warrants and the Holdings Senior Discount
Debentures and the Offering and the borrowing by the Issuer of funds under the
Bank Facilities (which proceeds were distributed to Holdings) were effected in
connection with the Recapitalization. The Recapitalization was accounted for as
a recapitalization transaction for accounting purposes.
22
<PAGE>
The following table sets forth the sources and uses of funds in connection
with the Recapitalization:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
----------
<S> <C>
SOURCES:
Bank Facilities (1)............................................. $ 90,582
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........................................ $296,470
========
USES:
Equity Repurchase............................................... $211,421
Debt Retirement................................................. 51,834
Implied Value of the Retained Shares (3)........................ 15,000
Transaction fees and expenses (4)............................... 18,215
--------
Total uses of funds........................................... $296,470
========
</TABLE>
- --------
(1) Represents (i) $10.6 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 deferred financing costs of $9.8 million, legal and advisory fees
of $4.7 million, management bonus payments of $1.6 million, bridge
financing fees of $1.0 million, compensation expense related to repurchase
of common stock upon exercise of stock options of $0.6 million, and other
recapitalization expenses of $0.5 million. All costs except for the
deferred financing cost of $9.8 million and $1.3 million in legal and
advisory fees have been expensed by the Company in the period which
includes the date of the Recapitalization.
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.
23
<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.
CAPITALIZATION
The following table sets forth as of June 30, 1998 the actual capitalization
of the Issuer. 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" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF June 30,
1998
-----------------
(IN THOUSANDS)
<S> <C> <C>
Debt (including current maturities):
Revolving Credit Facility (1).............................. $ 6,250
Term Loan Facilities (2)................................... 79,875
Notes offered in the Offering.............................. 100,000
Total debt............................................... 186,125
Stockholders' equity (deficit)............................... (96,547)
Total capitalization.................................. $ 89,578
</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."
24
<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 six months ended June 30, 1998 (the "Unaudited Pro Forma
Consolidated Statements of Operations").
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 six
months ended June 30, 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, 1997. 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 certain assumptions that
management of the Issuer believes are reasonable in the circumstances. The pro
forma adjustments are preliminary in nature. The Equity Repurchase price is
subject to adjustment based upon the amount of working capital, as defined, as
of April 21, 1998. The final determination of the working capital adjustment is
contingent upon the resolution of a dispute between the Stockholders and
Sponsors in the amount of $1.4 million. In the opinion of management, all
adjustments have been made that are necessary to present fairly the pro forma
data.
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.
25
<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 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 (3) -- 1,681
-------- ------ ----- -------- --------
Operating income
(loss)............... 26,555 386 (160) -- 26,781
Interest expense........ 4,550 64 270 (4) 12,946 (5) 17,830
-------- ------ ----- -------- --------
Income (loss) before
income taxes......... 22,005 322 (430) (12,946) 8,951
Provision for income
taxes.................. 1,376 -- -- 2,424 (6) 3,800
-------- ------ ----- -------- --------
Income (loss)
from continuing
operations before
nonrecurring charges
directly atrributable
to the Recapitali-
zation................ $ 20,629 $ 322 $(430) $(15,370) $ 5,151
======== ====== ===== ======== ========
</TABLE>
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
HISTORICAL RECAPITALIZATION PRO FORMA
---------- ---------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales............................. $58,558 $ -- $58,558
Cost of sales......................... 41,348 -- 41,348
------- ------- -------
Gross profit........................ 17,210 -- 17,210
Selling, general and administrative
expenses............................. 6,540 -- 6,540
Goodwill amortization................. 841 -- 841
------- ------- -------
Operating income.................... 9,829 -- 9,829
Interest expense...................... 6,155 2,760 (5) 8,915
------- ------- -------
Income (loss) before income taxes... 3,674 (2,760) 914
Provision (benefit) for income taxes.. (794) 1,194 (6) 400
------- ------- -------
Income (loss)
from continuing
operations before
nonrecurring charges
directly atrributable
to the Recapitalization............. $ 4,468 $ (3,954) $ 514
======= ======== ======
</TABLE>
See accompanying notes to Unaudited Pro Forma Consolidated Statements of
Operations.
26
<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) Reflects the additional amortization of goodwill related to the Empire
Acquisition for the period from January 1, 1997 to February 28, 1997.
(4) Reflects two months of 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.
(5) 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 SIX
FOR THE YEAR MONTHS ENDED
ENDED DECEMBER 31, JUNE 30,
1997 1998
------------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Interest on the Notes (a)................ $10,125 $5,062
Interest on the Bank Facilities:
Revolving Credit Facility (b).......... 484 242
Term A Loan Facility (b)............... 2,325 1,163
Term B Loan Facility (c)............... 4,000 2,000
----- -----
Total cash interest
expense............................. 16,934 8,467
Amortization of deferred financing costs. 896 448
----- -----
Total pro forma interest expense..... 17,830 8,915
Less: amount in historical statements of
operations
(Holdings and Empire)................... 4,614 6,155
Less: pro forma interest expense
adjustment for Empire................... 270 --
------- ------
Adjustment to interest expense........... $12,946 $2,760
======= ======
</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%.
A 1/8% variance in the effective interest rate would have increased/decreased
interest expense by $0.2 million for the year ended December 31, 1997 and
$0.1 million for the six months ended June 30, 1998.
(6) 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.
27
<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 six months ended June 30, 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 six months ended June 30, 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 six months ended June 30, 1998 gives effect to the
Recapitalization as if it had occurred on January 1, 1997. 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>
SIX MONTHS
YEAR ENDED DECEMBER 31, PRO FORMA ENDED JUNE 30, PRO FORMA
-------------------------------------------- DECEMBER 31, ---------------- JUNE 30,
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 $54,675 $58,558 $58,558
Cost of sales........... 22,808 23,066 56,490 63,032 78,582 80,528 37,630 41,348 41,348
------- ------- ------- ------- -------- -------- ------- ------- -------
Gross profit........... 10,730 8,223 21,169 27,169 39,490 40,186 17,045 17,210 17,210
Selling, general and
administrative
expenses............... 4,307 4,153 10,152 9,148 11,414 11,724 5,334 6,540 6,540
Goodwill amortization... -- -- 600 720 1,521 1,681 680 841 841
------- ------- ------- ------- -------- -------- ------- ------- -------
Operating income....... 6,423 4,070 10,417 17,301 26,555 26,781 11,031 9,829 9,829
Interest expense........ 639 492 3,963 3,858 4,550 17,830 2,160 6,155 8,915
------- ------- ------- ------- -------- -------- ------- ------- -------
Income before provision
for income taxes...... 5,784 3,578 6,454 13,443 22,005 8,951 8,871 3,674 914
Provision for income
taxes.................. 1,827 -- 2,352 5,807 1,376 3,800 1,376 (794) 400
------- ------- ------- ------- -------- -------- ------- ------- -------
Net income............. $ 3,957 $ 3,578 $ 4,102 $ 7,636 $ 20,629 $ 5,151 $ 7,495 $ 4,468 $ 514
======= ======= ======= ======= ======== ======== ======= ======= =======
UNAUDITED PRO FORMA
INCOME TAX DATA:
Income before income
taxes.................. $ 5,784 $ 3,578 $ 6,454 $13,443 $ 22,005 $ 8,951 $ 8,871 $ 3,674 $ 914
Provision for income
taxes(1)............... 2,140 1,324 2,700 5,807 9,000 3,800 3,500 1,500 400
------- ------- ------- ------- -------- -------- ------- ------- -------
Pro forma net income.... $ 3,644 $ 2,254 $ 3,754 $ 7,636 $ 13,005 $ 5,151 $ 5,371 $ 2,174 $ 514
======= ======= ======= ======= ======== ======== ======= ======= =======
OTHER DATA:
Depreciation and
amortization (2)....... $ 1,207 $ 1,250 $ 3,761 $ 4,204 $ 4,668 $ 4,856 $ 2,255 $ 2,105 $ 2,105
Cash flows from
operating activities .. 4,881 4,371 4,453 13,847 21,313 -- 7,831 4,473 --
Cash flows used in
investing activities .. (836) (585) (44,539) (1,979) (28,746) -- (25,946) (1,273) --
Cash flows from (used in)
financing activities .. (1,710) (3,082) 36,652 (11,868) 7,433 -- 18,115 (3,200) --
EBITDA (3).............. 7,630 5,320 14,178 21,505 31,223 31,637 13,286 11,934 11,934
EBITDA margin (4)....... 22.8% 17.0% 18.3% 23.8% 26.4% 26.2% 24.3% 20.4% 20.4%
Capital expenditures.... $ 836 $ 585 $ 1,926 $ 1,979 $ 4,050 $ 4,050 $ 1,250 $1,273 $ 1,273
28
<PAGE>
CREDIT DATA:
Pro Forma Pro Forma
December 31, June 30,
1997 1998
------------ ---------
Cash interest expense............................................ $ 16,934 -- -- $ 8,467
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
As of
As of December 31, June 30
---------------------------------------------------- -------
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
(in thousands)
Balance Sheet Data:
Working capital ........ $ 5,325 $ 6,483 $ 6,989 $ 5,409 $13,247 $ 27,313
Total assets ........... 16,720 17,328 69,630 66,503 94,550 106,874
Total debt, including
current maturities ... 7,629 7,347 46,713 34,845 49,497 186,125
Stockholders' equity
(deficit) ............ 5,246 6,024 10,118 17,754 27,930 (96,547)
</TABLE>
- --------
(1) For the years ended December 31, 1993, 1995 and 1996 and the
period from April 21, 1998 to June 30, 1998, the Company was
a Subchapter C corporation for federal income tax purposes.
For the years ended December 31, 1994 and 1997, the six
months ended June 30, 1997 and the period from January 1,
1998 to April 20, 1998, the Company was 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. 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.
(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).
29
<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 six months ended June 30, 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.
30
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------------------- ---------------------------
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% $ 9.6 17.6% $ 9.8 16.7%
Cutlery................. 27.9 35.9 32.6 36.1 35.4 30.0 18.7 34.2 20.3 34.6
Candles................. -- -- -- -- 25.5 21.6 6.7 12.3 11.1 18.9
Woodenware.............. 25.7 33.1 28.7 31.8 30.2 25.6 15.6 28.6 15.8 27.0
Institutional/Other..... 13.8 17.8 17.5 19.4 16.7 14.1 9.0 16.3 8.3 14.2
----- ----- ----- ----- ------ ----- ---- ---- ---- ----
Total gross sales...... 85.0 109.4 98.6 109.3 128.7 109.0 59.6 109.0 65.3 111.4
Discounts and allow-
ances.................. (7.3) (9.4) (8.4) (9.3) (10.6) (9.0) (4.9) 9.0 (6.7) (11.4)
----- ----- ----- ----- ------ ----- ---- ---- ---- ----
Net sales.............. $77.7 100.0% $90.2 100.0% $118.1 100.0% $ 54.7 100.0% $ 58.6 100%
===== ===== ===== ===== ====== ===== ==== ==== ==== ====
EBITDA (1).............. $14.2 18.3% $21.5 23.8% $ 31.2 26.4% $ 13.4 24.5% $ 5.8 9.9%
===== ===== ===== ===== ====== ======
One Time/
Nonrecurring(2) ...... -- -- 2.0 3.4
---- ---- ---- ----
Adjusted EBITDA (3) .... $ 13.4 24.5% $ 13.9 23.7%
==== ==== ==== ====
</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.
(2) Represents one time/non recurring charges primarily in the Candle division,
incurred in connection with the Recapitalization, relating to unusual
customer allowances ($0.3 million), inventory shrinkage ($0.4 million),
devaluation of inventory ($0.3 million ), write down for obsolescence ($0.1
million), severance of candle division chief operating officer ($0.1
million), write-off of receivables relating to the Venture Stores bankruptcy
($0.1 million) and recruiting and relocation costs to strengthen management
team ($0.2 million). The Company has made a claim for a refund of the
Equity Repuchase amount, totaling $1.5 million, under the Recapitalization
Agreement. In addition, the Company also incurred a devaluation of inventory
to actual cost at its Maine facilities of $0.5 million.
(3) Represents EBITDA excluding Recapitalization Expenses and One
Time/Nonrecurring Expenses.
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>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------- ---------------------------
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% $54.7 100.0% $58.6 100.0%
Cost of sales........... 56.5 72.7 63.0 69.8 78.6 66.6 37.7 68.9 41.4 70.6%
----- ----- ------ ----- ------ ----- ----- ----- ----- -----
Gross profit............ 21.2 27.3 27.2 30.2 39.5 33.4 17.0 31.1 17.2 29.4
Selling, general and
administra-
tive expenses.......... 10.1 13.0 9.2 10.2 11.4 9.6 5.3 9.7 6.5 11.1
Goodwill amortization... 0.6 0.8 0.7 0.8 1.5 1.3 0.7 1.3 0.8 1.4
----- ----- ------ ----- ------ ----- ----- ----- ----- -----
Operating income(loss).. 10.5 13.5 17.3 19.2 26.6 22.5 11.0 20.1 9.8 16.7
Interest expense........ 4.0 5.1 3.9 4.3 4.6 3.9 2.2 4.0 6.2 10.6
----- ----- ------ ----- ------ ----- ----- ----- ----- -----
Income (loss)
before provision
for income taxes....... $ 6.5 8.4% $ 13.4 14.9% $ 22.0 18.6% $ 8.8 16.1% $(3.7) (6.3%)
===== ===== ====== ===== ====== ===== ===== ===== ===== =====
</TABLE>
31
<PAGE>
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
NET SALES. Net sales for the six months ended June 30, 1998, increased 7.1%
to $58.6 million from $54.7 million for the six months ended June 30 1997,
primarily due to the Empire Acquisition which added net sales of $3.0 million.
The remaining increase in 1998 net sales resulted from the continued growth in
Cutlery, and the introduction of Reflections candles into the grocery trade,
which added $2.0 million in gross sales. The increase in gross sales was
offset somewhat by increased promotional and slotting allowance spending of
$1.8 million, primarily for Cutlery and Candles, including $0.3 million of
Candle allowances. Gross sales of Cutlery products increased from 8.6% to $20.3
million, primarily as a result of growth in both branded and private label
products.
GROSS PROFIT. Gross profit increased $0.2 million to $17.2 million for the
six months ended June 30, 1998 from the six months ended June 30, 1997, while
gross margin declined from 31.1% to 29.4%. The increased gross profit reflects
the impact of the Empire Acquisition ($0.8 million) and the increased volume of
sales reflected above, offset by certain inventory and production problems
incurred with the candle product line. The Company has made a claim against the
former shareholders under the Recapitalization Agreement to recover these costs.
Management believes these inventory problems were one time and nonrecurring in
nature and that the production problems are being addressed. In addition, the
Company incurred a devaluation of inventory to actual cost in its Maine
facilities of $0.5 million. Excluding the effects of these factors, gross
margin would have been 31.9%
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses as a percentage of net sales increased to 11.1% for the
six months ended June 30, 1998 from 9.7% in the six months ended June 30, 1997.
The Company had non-recurring costs relating to the severance of the Chief
Operating Officer of the Candle division ($0.1 million), the write-off of
receivables as a result of the Venture Stores bankruptcy ($0.1 million) and
expensing of recruiting and relocation costs ($0.2 million) to strengthen the
management team. In addition, the Company incurred higher expenses to support
the introduction of Reflections candles into the grocery trade.
GOODWILL AMORTIZATION. Goodwill amortization in the six months ended June 30,
1998 increased to $0.8 million, from $0.7 million in the six months ended June
30, 1997 as the result of the Empire Acquisition.
INTEREST EXPENSE. Interest expense for the six months ending June 30, 1998
increased to $6.2 million from $2.2 million for the six months ended June 30,
1997. This increase is the result of increased debt load and deferred financing
costs associated with the Recapitalization.
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.
32
<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 $7.8 million and $4.5 million for
the six months ended June 30, 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
33
<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 six months ended
June 30, 1997 and 1998 were $1.3 million. 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 $211.4 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 June 30, 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 $10.6 million was used to
consummate the Recapitalization and of which approximately $6.3 million was
drawn as of such date; 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.
34
<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 to become Year
2000 compliant. In connection with this process, the Company has retained two
information technology consulting groups. The Company is dependent on these
consulting groups to assess the impact of the Year 2000 issue and to recommend
any necessary corrective action. The core of the new computer systems and
software applications which are Year 2000 complaint have already been installed
and by the end of the year 1998, these systems and applications are expected to
be functioning, with only enhancing features to be added in 1999. The Company
expects to complete the process by June 1999.
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. At June 30, 1998, the Comapny had
spent approximately $168,000. 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 computer systems and software
applications, the Company is not likely to initiate other major systems
projects in connection with the Year 2000 issue. Although 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,
the Company does not intend to develop contingency plans. In the event that the
Company is unsuccessful in its efforts to enhance its computer systems and
software applications to be Year 2000 compliant, it could experience cost
overruns stemming from customer billing and collection problems. These problems
are not likely, however, to have an adverse material effect on the Company's
results of operations.
35
<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 six months ended June 30, 1998, the Company generated net sales of
$58.6 million and EBITDA of $11.9 million, which represented an EBITDA margin of
20.4%
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
36
<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 $1.3 million had been expended in the six months ended
June 30, 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.
37
<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 has taken initial steps to explore potential international
opportunities, in particular, in Canada and the Caribbean, and expects to
further explore such opportunities in the future. 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. At any given time, the Company may be in various stages of
considering such opportunities. Although the Company does not currently
have any particular strategic acquisition opportunities identified, it
intends to consider regularly and 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 SIX MONTHS FISCAL YEAR SIX MONTHS
ENDED DECEMBER 31, ENDED JUNE 30, ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------- --------------- ---------------------------- -----------------
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>
Wooden Lights........... $17.6 $19.8 $ 20.9 $ 20.9 $ 9.6 $ 9.8 20.7% 20.1% 16.2% 15.9% 16.2% 15.0%
Cutlery................. 27.9 32.6 35.4 35.4 18.7 20.3 32.8 33.1 27.5 26.9 31.3 31.3
Candles................. -- -- 25.5 28.3 6.7 11.1 -- -- 19.8 21.5 11.3 17.0
Woodenware.............. 25.7 28.7 30.2 30.2 15.6 15.8 30.2 29.1 23.5 23.0 26.2 24.2
Institutional/Other..... 13.8 17.5 16.7 16.7 9.0 8.3 16.3 17.7 13.0 12.7 15.0 12.7
----- ----- ------ ------ ------- ------- ----- ----- ----- ----- ----- -----
Total................ $85.0 $98.6 $128.7 $131.5 $ 59.0 $ 65.3 100.0% 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.
38
<PAGE>
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, 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
39
<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
40
<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.
41
<PAGE>
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.
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.
42
<PAGE>
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.
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 June 30, 1998, the Company had 743 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.
43
<PAGE>
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.
44
<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
Alfred Aragona.......... 57 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.
ALFRED ARAGONA
DIRECTOR
Mr. Aragona has been a director of Holdings, the Issuer and the Guarantors
since July 1998. Mr. Aragona is Chairman and CEO of Cafe Valley, a national
baked goods company and Chairman of Pacific Grain Products, Inc., an
international grain company. From 1986 to 1992, Mr. Aragona served as President
and CEO of Uncle Ben's, Inc.
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
45
<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.
BOARD COMMITTEES
The Board of Directors of Holdings, the Issuer and the Guarantors have each
approved the formation of an audit committee (the "Audit Committee") and a
compensation committee (the "Compensation Committee"). Mr. Seaver and Mr. Kent
are the only members of each of the Audit and Compensation Committees. No other
Audit and Compensation Committee members have been appointed, but the Board of
Directors of Holdings, the Issuer and the Guarantors may appoint additional
members in the future. The Audit Committee will recommend to the Board of
Directors the accounting firm to be selected as independent auditors and
reviews matters relating to public disclosure, corporate practices, regulatory
and financial reporting, accounting procedures and policies, financial and
accounting controls, and transactions involving conflicts of interest. The
Audit Committee also will review the planned scope and results of audits, the
annual reports of the stockholders, the proxy statement and will make
recommendations regarding approval to the Board of Directors.
The Compensation Committee of Holdings, the Issuer and the Guarantors will
review and make recommendations to the Board of Directors from time to time
regarding compensation of officers and non-employee directors. The Compensation
Committee will also administer the Company's stock-based compensation and
incentive plans and make decisions regarding the grant of stock options and
other awards to officers and employees thereunder. Mr. Seaver also serves on the
compensation committees of the boards of directors of Favorite Brands
International, Inc., Java City and Pacific Grain Product.
46
<PAGE>
Director Compensation
Members of the Board of Directors of Holdings, the Issuer and the Guarantors
are not currently compensated for their services as directors. Outside
directors may in the future be compensated in a form and amount to be decided
by the Compensation Committee and the Board of Directors of each of the
respective companies.
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
$6,087 to the profit sharing plan.
47
<PAGE>
The option grants in 1997 for the named executive officers are shown in the
following table.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
NUMBER OF OPTION TERM
SECURITIES EXERCISE OF -----------------------------
NAME AND PRINCIPAL UNDERLYING OPTION BASE PRICE EXPIRATION
POSITION GRANTED ($/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. Pursuant to the Transaction Advisory Agreement (as
defined herein under "Certain Relationships and Related Transactions"), the
Company paid Dr. Nakra a transaction advisory fee of $250,000, representing
10% of the aggregate fees paid to equity investors with respect to the
Recapitalization, and will pay him 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.
48
<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 of $13.98 per share 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 and registration rights. Such shares are also subject to
customary tag-along and bring- along provisions which give Dr. Nakra the right
to sell an equal proportion of his shares of Holdings Common Stock in the event
that the Sponsors sell more than 10% of their shares of Holdings Common Stock,
and that require Dr. Nakra to sell (at the Sponsors' election) all of his shares
of Holdings Common Stock in the event that the Sponsors receive a bona fide
offer to sell all of their shares of Holdings Common Stock.
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 $13.98 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 change
of control agreements. The bonus payments were provided for by the Company from
the proceeds payable to the Stockholders in the Equity Repurchase.
49
<PAGE>
The Company and Mr. Campbell are parties to an employment agreement, dated
May 26, 1992, and amended April 27, 1994. Mr. Campbell's agreement provides for
an initial two-year term and then renews automatically for successive one-year
terms unless either party gives notice of its intent not to renew at least 90
days prior to expiration of the current term. In addition to a base salary, Mr.
Campbell is also entitled to a performance bonus as described below. 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
then-current base salary.
The Company has entered into change of control agreements with each of
Mr. Knuesel, Mr. Mathews, and Mr. Young (collectively, the "Executives"). The
agreements provide that each Executive's employment may be terminated by such
Executive or by the Company for any reason or no reason at all. If the Company
terminates such Executive's employment for other than cause or the Executive
terminates his employment for good reason, such Executive is entitled to his
full base salary through the time his notice of termination of employment is
given and a severance payment equal to his annual base salary plus an amount
equal to his annual target bonus. The total severance payment will not exceed
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 addition,
for 12 months after termination of his employment the Executive is entitled to
continue participation in the health insurance plan of the Company as if he were
an executive of the Company. The change of control employment agreements also
provide a prohibition on disclosing confidential information and a non-compete
provision which prohibits the Executives from engaging in certain competitive
activities under certain circumstances for one year after termination of each
Executive's employment. Other than the change of control agreements, none of the
Executives has any employment agreement with the Company.
In 1997, the annual base salary for Messrs. Knuesel, Mathews, Young and
Campbell was $128,000, $128,000, $133,000 and $123,000, respectively. In 1998,
the annual base salary for Messrs. Knuesel, Mathews, Young and Campbell was
$137,000, $137,000, $152,000 and $137,000, respectively.
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 annual target EBITDA, return on invested capital and other
mutually agreed upon individual performance goals. The amount of each
executive's annual bonus under the bonus program 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. Until July 1998, the Board of Directors, upon recommendations of the
President and CEO, determined officer bonuses. A Compensation Committee was
formed in July 1998 and future compensation decisions are expected to be made
by the Compensation Committee and recommended to the Board of Directors for
approval.
The Company does not maintain any key-man or similar insurance policy in
respect of Dr. Nakra or any of its other senior management or key personnel.
However, the purchase of key-man life insurance may be considered in the future
by the Compensation Committee of the Board of Directors.
50
<PAGE>
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 Implied Value of
Holdings Common Stock of $13.98 per share, 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."
51
<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.
52
<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.
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 (representing a 15% per annum
effective yield), payable semi-annually to the mandatory redemption value of
$47.0 million on the mandatory redemption date of October 15, 2009. Dividends
will compound to the extent not paid. Shares of Holdings Preferred Stock may be
redeemed at the option of Holdings, at any time, 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. The pay-in-kind feature of
Holdings Preferred Stock also permits Holdings the option to pay dividends by
the issuance of additional shares of Holdings Preferred Stock having an
aggregate liquidation preference equal to the amount of dividend being paid,
rather than by cash 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>
- --------
53
<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.
(6) Seaver Kent - TPG Partners, L.P. is an entity affiliated with Alexander M.
Seaver. Mr. Seaver disclaims beneficial ownership of all shares owned by
such entity.
(7) Seaver Kent - TPG Partners, L.P. is an entity affiliated with Bradley R.
Kent. Mr. Kent disclaims beneficial ownership of all shares owned by such
entity.
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) -- -- --
Alfred Aragona.......... -- -- -- --
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>
54
<PAGE>
- --------
(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. The Company is
currently in compliance with all financial covenants, tests and ratios to which
it is subject under the Bank Facilities.
The following is a summary of certain financial tests which apply to the
Company under the Bank Facilities (capitalized terms have the meanings set
forth in the Bank Facilities):
Minimum Fixed Charge Coverage Ratio. The Minimum Fixed Charge Coverage Ratio
(a ratio of EBITDA to certain interest expense, capital expenditure expense,
scheduled principal payments under the Bank Facilities and dividends) for any
computation period shall not be less than the ratio set forth below opposite
the period in which such computation period ends:
Period Ending Ratio
------------- -----
March 31, 1999 - March 31, 2001 1.2
June 30, 2001 - March 31, 2002 1.3
June 30, 2002 - December 31, 2002 1.4
March 31, 2003 - September 30, 2003 1.3
March 31, 2005 - March 31, 2006 0.5
57
<PAGE>
Maximum Leverage Ratio. The Maximum Leverage Ratio (a ratio of total
indebtedness to EBITDA) on any computation period shall not exceed the ratio
set forth below opposite the period in which such computation period ends:
Period Ending Ratio
------------- -----
June 30, 1998 - December 31, 1998 6.6
March 31, 1999 - June 30, 1999 6.5
September 30, 1999 6.3
March 31, 2000 6.0
June 30, 2000 5.9
September 30, 2000 5.7
March 31, 2001 5.4
June 30, 2001 5.3
September 30, 2001 5.1
March 31, 2002 4.9
June 30, 2002 4.7
September 30, 2002 4.6
March 31, 2003 4.4
June 30, 2003 4.3
September 30, 2003 4.2
March 31, 2004 - March 31, 2006 4.0
Interest Coverage Ratio. The Interest Coverage Ratio (a ratio of EBITDA to
certain interest expense under the Bank Facilities) for any consecutive
four-fiscal quarter period ending on the dates set forth below to be less than
the correlative ratio indicated:
Period Ending Ratio
------------- -----
March 31, 1999 - June 30, 1999 1.60
September 30, 1999 - March 31, 2000 1.70
June 30, 2000 - September 30, 2000 1.80
December 31, 2000 - March 31, 2001 1.90
June 30, 2001 - September 30, 2001 2.00
March 31, 2002 - June 30, 2002 2.20
September 30, 2002 2.30
March 31, 2003 2.50
June 30, 2003 2.60
September 30, 2003 2.70
March 31, 2004 - March 31, 2006 2.75
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
(including the Notes and the Senior Discount Debentures), 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.
58
<PAGE>
THE EXCHANGE OFFER
The following is a summary of the material provisions of the Registration
Rights Agreement. This summary does not purport to summarize all of the
provisions of the Registration Rights Agreement, and reference also 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 within 45 days
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
59
<PAGE>
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
60
<PAGE>
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 (30 calendar days
following the commencement of the Exchange Offer, which will occur on the date
of effectiveness of the Registration Statement), 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.
61
<PAGE>
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. 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.
62
<PAGE>
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 herein 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 June 30, 1998, the Issuer had Senior Debt of approximately $86.1 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, fully and unconditionally, 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 $86.1 million of Senior Debt outstanding as
of June 30, 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
$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.
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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.
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.
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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.
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.
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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.
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.
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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
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.
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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.
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).
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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 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."
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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
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.
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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.
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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"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 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."
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of the material 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.
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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. Under recently enacted legislation,
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
generally will be subject 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.
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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.
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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.
99
<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
AND JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
JUNE 30, 1998:
Unaudited Consolidated Balance Sheet as of December 31, 1997 and June
30, 1998 ............................................................. F-15
Unaudited Consolidated Statements of Operations for the Six
Months Ended June 30, 1997 and 1998 .................................. F-16
Unaudited Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 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 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 shares
authorized; 16,112 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 ("Holdings") 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. Holding'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, Holdings 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>
On February 28, 1997, Holdings acquired Empire (the "Empire Acquisition").
Certain assets were acquired and liabilities assumed by Holdings 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 Holdings 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.
The postretirement medical benefit is a union negotiated commitment. The
fixed amounts are paid annually and do not change due to inflationary or health
care cost trends.
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:
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") for $0.01 per share. 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 $211.4 million, subject to certain working capital
adjustments, from the Stockholders, all outstanding shares of Holdings' capital
stock other than 1,073,268 shares (the "Retained Shares") of Holdings Common
Stock 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 Diamond
Brands Operating Corp. ("Operating Corp") and, immediately prior to the
consummation of the Recapitalization, Holdings transferred substantially all of
its assets and liabilities to Operating Corp. Holdings' current operations are,
and future operations are expected to be, limited to owning the stock of
Operating Corp., preferred stock, and senior discount debentures. Operating
Corp. repaid substantially all of the Company's funded debt obligations
existing immediately before the consummation of the Recapitalization (the "Debt
Retirement") in the amount of $51.8 million.
Funding requirements for the Recapitalization (which was consummated on
April 21, 1998) 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) $45.1 million of gross proceeds
from the offering of the 12 7/8% Holdings senior discount debentures; (iii)
$80.0 million of borrowings under senior secured term loan facilities (the
"Term Loan Facilities"); (iv) borrowings under a senior secured revolving
credit facility having availability of up to $25.0 million and (v) $100.0
million of gross proceeds from the offering of the 10 1/8% senior subordinated
notes. The $100.0 million senior subordinated notes are guaranteed fully and
unconditionally on a joint and several basis by the subsidiaries of Operating
Corp.
The Recapitalization was 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 OPERATING CORP.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable, net of allowances of $689 and
$1,195............................................... $17,525 $15,526
Inventories........................................... 21,347 20,744
Deferred tax asset.................................. 2,709 --
Prepaid expenses...................................... 1,957 406
------- -------
Total current assets................................ 43,538 36,676
------- -------
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $17,202 and $16,715.................... 17,554 17,544
GOODWILL................................................ 38,612 39,454
DEFERRED FINANCING COSTS................................ 7,170 876
------- -------
Total assets........................................ $106,874 $94,550
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt.................. $ 1,250 $ 7,892
Accounts payable...................................... 5,161 4,500
Accrued expenses...................................... 9,814 11,037
------- -------
Total current liabilities............................. 16,225 23,429
------- -------
DEFERRED INCOME TAXES......................... 735 --
POSTRETIREMENT BENEFIT OBLIGATIONS.................... 1,586 1,586
LONG-TERM DEBT, net of current maturities............. 184,875 41,605
------- -------
Total liabilities..................................... 203,421 66,620
------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.01 par value; 50,000 shares
authorized; 1 and 16,112 shares issued
and outstanding...................................... 1 161
Additional paid in capital............................ -- 774
Retained earnings (accumulated deficit)............... (96,548) 26,995
------- -------
Total stockholders' equity (deficit).................. (96,547) 27,930
------- -------
$106,874 $94,550
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets
F-15
<PAGE>
DIAMOND BRANDS OPERATING CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
-----------------
1997 1998
------- -------
<S> <C> <C>
NET SALES...................................................... $54,675 $58,558
COST OF SALES.................................................. 37,630 41,348
------- -------
Gross Profit................................................. 17,045 17,210
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................... 5,344 6,540
GOODWILL AMORTIZATION.......................................... 680 841
------- -------
Operating income............................................. 11,031 9,829
INTEREST EXPENSE............................................... 2,160 6,155
------- -------
Income before provision (benefit) for income taxes........... 8,871 3,674
PROVISION (BENEFIT) FOR INCOME TAXES........................... 1,376 (794)
------- -------
Net income................................................... $ 7,495 $ 4,468
======= =======
PRO FORMA NET INCOME:
Income before provision for income taxes...................... $ 8,871 $ 3,674
Pro forma income tax expense (Note 2)......................... 3,500 1,500
------- -------
Pro forma net income.......................................... $ 5,371 $ 2,174
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-16
<PAGE>
DIAMOND BRANDS OPERATING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
-----------------
1997 1998
------ -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $7,495 $ 4,468
Adjustments to reconcile net income to cash provided
by operating activities
Depreciation and amortization............................. 2,432 3,092
Deferred income taxes..................................... 1,376 (1,974)
Change in operating assets and liabilities, net of effects
of acquisition
Accounts receivable..................................... (5,201) (1,999)
Inventories............................................. (1,417) (603)
Prepaid expenses........................................ 259 (1,551)
Accounts payable........................................ 1,078 661
Accrued expenses........................................ 1,809 2,379
------ -------
Net cash provided by operating activities............... 7,831 4,473
------ -------
INVESTING ACTIVITIES
Acquisition of Empire, net of cash received...............(24,696) --
Purchases of property, plant and equipment................ (1,250) (1,273)
------ -------
Net cash used for investing activities..................(25,946) (1,273)
------ -------
FINANCING ACTIVITIES
Borrowings from bank revolving line of credit............... 21,200 23,700
Repayments to bank revolving line of credit.................(16,100) (22,450)
Borrowings on long-term debt................................ 21,000 180,000
Repayments of long-term debt................................ (3,572) (44,622)
S-Corp distributions to shareholders........................ (4,043) (5,488)
Distributions to parent company............................. -- (127,059)
Debt issuance costs......................................... (370) (7,281)
------ -------
Net cash provided by (used for) financing activities...... 18,115 (3,200)
------ -------
NET INCREASE IN CASH AND CASH EQUIVALENTS..................... -- --
CASH AND CASH EQUIVALENTS, beginning of period................ -- --
CASH AND CASH EQUIVALENTS, end of period...................... $ -- $ --
====== =======
</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 Operating Corp. ("Operating Corp") and Operating Corp.'s
wholly owned subsidiaries, Forster, Inc. and Empire Candle, Inc. after
elimination of all material intercompany balances and transactions.
Operating Corp. and its subsidiaries are collectively referred to as "the
Company". The Company is a leading manufacturer and marketer of a broad
range of consumer products, including wooden matches and firestarters,
plastic cutlery and straws, scented, citronella and holiday candles, and
toothpicks, clothespins and wooden crafts. The Company's products are
marketed primarily in the United States and Canada under the nationally
recognized Diamond, Forster and empire brand names.
The 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. 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 for the year ended December 31, 1997.
2. 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 provided for the recapitalization of the Company.
Pursuant to the Recapitalization Agreement, in April 1998, Operating Corp.'s
parent, Diamond Brands Incorporated (Holdings) purchased from the existing
stockholders 15,129,232 shares of the Company's common stock for $211.4
million by Operating Corp. (i) issuing $100.0 million of senior subordinated
notes and (ii) entering into a bank credit agreement which provided for
$80.0 million in term loan facilities and a $25.0 million revolving credit
facility. The proceeds of such were used to partially fund the
Recapitalization.
3. LONG TERM DEBT
In April 1998, the Company completed offerings of $100.0 million of 10 1/8%
senior subordinated notes due 2008. The net proceeds to the Company for the
offerings, after discounts, commissions and other offering costs were $95.4
million and were used to repay existing indebtedness and purchase common
stock of the Company.
The Company also entered into a bank credit agreement which provides for
$80.0 million in term loan facilities with interest rates from LIBOR (5.69%
at June 30, 1998) plus 2.0% to LIBOR plus 2.25% due in installments through
March, 2006 and $25.0 million revolving credit facility of LIBOR plus 2.0%.
As of June 30, 1998, the Company was in compliance with the provisions of
its debt covenants.
4. 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 six months ended June 30, 1997. The Company would be
subject to a tax on built-in gains if certain assets were 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 and prior to the recapitalization is included in the individual
returns of the 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 period from January 1, 1998 to
April 20, 1998 and the six months ended June 30, 1997. Effective with the
recapitalization in April 1998, the Company elected C corporation status and
recognized deferred income taxes for temporary differences between the tax
and financial reporting bases of the Company.
The unaudited pro forma income tax expense is presented assuming the Company
had been a C corporation since January 1, 1997 for the six months ended June
30, 1998 and 1997.
5. NEW ACCOUNTING PRONOUNCEMENTS
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 disclosure relating to the company's operating
segments. The Company believes that the effect on it of adopting SFAS No.
131 will not be significant.
F-18
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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..................................................... i
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 15
The Recapitalization...................................................... 22
New Chief Executive Officer............................................... 23
The Sponsors.............................................................. 23
Use of Proceeds........................................................... 24
Capitalization............................................................ 24
Unaudited Pro Forma Consolidated Financial Data........................... 25
Selected Historical and Pro Forma Consolidated Financial Data............. 28
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 30
Business.................................................................. 36
Management................................................................ 45
Certain Relationships and Related Transactions............................ 51
Description of Holdings Indebtedness...................................... 52
Capital Stock of Holdings and the Issuer.................................. 53
Description of the Bank Facilities........................................ 56
The Exchange Offer........................................................ 59
Description of the New Notes.............................................. 67
Certain United States Federal Income Tax Considerations................... 96
Plan of Distribution...................................................... 99
Legal Matters............................................................. 99
Experts................................................................... 99
Index to Consolidated Financial Statements................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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
II-1
<PAGE>
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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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.
II-4
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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.
II-5
<PAGE>
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.
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<PAGE>
Pursuant to the requirements of the Securities Act, each registrant has duly
caused this Amendment No. 1 to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Cloquet,
State of Minnesota, on August 28, 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 Amendment No.
1 to the registration statement has been signed by the following persons in the
capacities and on the dates indicated, on August 28, 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/ Alfred Aragona Director: Diamond Brands Operating
------------------------------------- Corp.; Empire Candle, Inc.;
ALFRED ARAGONA 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
NO. DESCRIPTION
--- -----------
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.
3.7 Stockholders Agreement, dated as of April 21, 1998,
among Diamond Brands Incorporated, Seaver Kent-TPG
Partners, L.P., Seaver Kent I Parallel, L.P., Naresh K.
Nakra and the Stockholders named therein (the
"Stockholders Agreement")
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 (the "Credit Agreement")
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 Agreements, 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 Agreements, 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 Agreements, 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 Agreements, 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
Agreements, 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,
between Diamond Brands Incorporated and Wells Fargo
Bank, N.A.
4.11+ Holdings Guaranty Agreement, dated as of April 21,
1998, between 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
- ------------
+ previously filed, amended or updated pages only
<PAGE>
NO. DESCRIPTION
--- -----------
4.13 Tax Sharing Agreement, dated April 21, 1998, by and
between Diamond Brands Incorporated and Diamond Brands
Operating Corp.
4.14 Tax Sharing Agreement, dated April 21, 1998, among
Diamond Brands Operating Corp. and each of its
subsidiaries
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
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
<PAGE>
NO. DESCRIPTION
--- -----------
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.
10.28 Management Advisory Agreement, dated April 21, 1998,
between Diamond Brands Incorporated and Seaver Kent &
Co., L.L.C.
10.29 Transaction Advisory Agreement, dated April 21, 1998,
between Diamond Brands Incorporated and Seaver Kent &
Co. L.L.C.
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>
<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 _________________________
/s/ Gary Cooper
_________________________
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 Forster Acquisition Co.
_________________________________________
and its principal business location in Maine is 79 Depot Street,
________________________
(physical location -
Wilton, Maine 04294
________________________________________________
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:
Peter B. Webster
________________________________________________________________________
(name)
One Portland Square, Portland, Maine 04101
________________________________________________________________________
(physical location - street (not P.O. Box), city, state and zip code)
P.O. Box 586, Portland, Maine 04112-0586
________________________________________________________________________
(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 2 (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 [X] 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
one directors, (see (S)703.1.a) and the maximum number, if any,
shall be seven 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) Common
Par value of each share (if none, so state) $ 10.00 Number
of shares authorized 10,000
[_] 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 $100,000
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 June 11, 1992
______________________
/s/ Peter B. Webster
_____________________________________ Street 81 W. Main Street
_________________________________
(signature) (residence address)
Peter B. Webster Yarmouth Maine 04096
_____________________________________ ________________________________________
(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>
Filing Fee (See Sec. 1401)
- ---------------------------------------- -----------------------------------
For Use by The Secretary State FILE NO. 19922196 D PAGES 2
File No. 19922196D FEE PAID $ 35.00
Fee Paid $35.00 DCN 1922411600004 LNME
C.B. -------- ------------- FILED ---------------
Date -------- 08/28/1992
[Stamp of Deputy Secretary of State]
STATE OF MAINE
ARTICLES OF AMENDMENT
(Amendment by Shareholders
Voting as One Class)
Pursuant to 13-A MRSA sections 805 and 807) the undersigned
corporation adopts these Articles of Amendment:
FIRST: All outstanding shares were entitled to vote on the following
amendment as one class.
SECOND: The amendment set out in Exhibit A attached was adopted by the
shareholders (Circle one)
B. by unanimous written consent on August 25, 1992
-----------------------
THIRD: Shares outstanding and entitled to vote and shares voted for
and against said amendment were:
Number of Shares Outstanding NUMBER NUMBER
and Entitled to Vote Voted for Voted Against
------------------------------- --------- -------------
100 100 0
FOURTH: If such amendment provides for exchange, reclassification
or cancellation of issued shares, the manner in which this
shall be effected is contained in Exhibit B attached if it
is not set forth in the amendment itself.
FIFTH: (Complete if Exhibits do not give this information.) If the
amendment changes the number or par values of authorized shares',
the number of shares the corporation has authority to issue thereafter,
is as follows:
Class Series (if Any) Number of Shares Par Value (If Any)
----- --------------- ---------------- ------------------
The aggregate par value of all such shares (of all classes and
series) having par value is $
----------.
The total number of all such shares (of all classes and series)
without par value is shares
----------
SIXTH: Address of the registered office in Maine:
P. O. Box 586
One Portland Square, Portland, ME 04101
-----------------------------------------------------------------
(street, city and zip code)
Forster Acquisition Co.
-----------------------------------------------------------------
(Name of Corporation - Typed or Printed)
By* /s/ Peter B. Webster
--------------------------------------------------------------
(signature)
Peter B. Webster - Clerk
-----------------------------------------------------------------
(type or print name and capacity)
By*
--------------------------------------------------------------
(signature)
-----------------------------------------------------------------
(type or print name and capacity)
MUST BE COMPLETED FOR VOTE OF
SHAREHOLDERS
- --------------------------------
I certify that I have custody of
the minutes showing the above
action by the shareholders.
/s/ Peter B. Webster
- --------------------------------
(signature of clerk)
- --------------------------------
Dated: August 28, 1992
--------------------------
* In addition to any such certification of custody of minutes
this document MUST be signed by (1) the Clerk OR (2) the
President or vice-president AND the Secretary, an assistant
secretary or other officer the bylaws designate as second
certifying officer OR (3) if no such officers, a majority of
the directors or such directors designated by a majority of
directors then in office OR (4) if no directors, the
holders, or such of them designated by the holders, of
record of a majority of all outstanding shares entitled to
vote theron OR (5) the holders of all outstanding shares.
NOTE: This form should not be used if any class of shares is entitled to vote
as a separate class for any of the reasons set out in section 806, or because
the articles so provide. For vote necessary for adoption see section 805.
<PAGE>
Exhibit A
VOTED: To change the name of the Corporation to
Forster Mfg. Co., Inc.
FURTHER
VOTED: To authorize each of the officers, acting singly,
to file Articles of Amendment with the Secretary of State
and execute any other document and take any other action
necessary or convenient to effectuate such change and
this vote.
<PAGE>
Filing Fee $20.00
- ---------------------------------------- -----------------------------------
For Use by The Secretary State FILE NO. 19922196 D PAGES 1
File No. 19922196D FEE PAID $ 20.00
Fee Paid $20.00 DCN 1923011401011 CLRO
C.B. -------- ------------- FILED ---------------
Date -------- 10/27/1992
[Stamp of Deputy Secretary of State]
STATE OF MAINE
CHANGE OF CLERK or
REGISTERED OFFICE or BOTH
Pursuant to 13-A MRSA section 304 the undersigned
corporation advises you of the following change(s):
FIRST: The name registered office of the clerk appearing on the
record in Secretary of State's office
Peter B. Webster, PO Box 586
-----------------------------------------------------------------
One Portland Square, Portland, ME 04112-0586
-----------------------------------------------------------------
(street, city, state and zip code)
SECOND: The name and physical location of the registered office of
the successor (new) clerk, who must be a Maine resident, are:
Bruce Coggeshall
-----------------------------------------------------------------
(name)
One Monument Square, Portland, ME 04101
-----------------------------------------------------------------
(street address (not P.O. Box), city, state and zip code)
-----------------------------------------------------------------
(mailing address if different from above)
THIRD: Upon a change in clerk this must be completed:
(X) Such change was authorized by the board of directors and the
power to make such change is not reserved to the shareholders by
articles or the bylaws.
( ) Such change was authorized by the shareholders.
(Complete the following)
I certify that I have custody of the minutes showing the above action
by the shareholders.
---------------------------------------
(signature of new clerk, secretary or
assistant secretary)
FORSTER MFG. CO., INC.
-----------------------------------------------------------------
(Name of Corporation)
By* /s/ Bruce A. Coggeshall
--------------------------------------------------------------
(signature)
Bruce A. Coggeshall, Clerk
-----------------------------------------------------------------
(type or print name and capacity)
By*
--------------------------------------------------------------
(signature)
-----------------------------------------------------------------
(type or print name and capacity)
Dated: October 23, 1992
--------------------------
This document MUST be signed by (1) the Clerk OR (2) the
President or vice-president AND the Secretary, an assistant
secretary or other officer the bylaws designate as second
certifying officer OR (3) if no such officers, a majority of the
directors or such directors designated by a majority of directors
then in office OR (4) if no directors, the holders, or such of
them designated by the holders, of record of a majority of all
outstanding shares entitled to vote thereon OR (5) the holders of
all outstanding shares.
FORM NO. MCBA-3 REV. 90 SUBMIT COMPLETED FORMS TO: Secretary of State
Station 101
Augusta, Maine 04333
<PAGE>
-----------------------------------
FILE NO. 19922196 D PAGES 2
FEE PAID $ 35.00
DCN 1933091600010 AMEN
------------- FILED ---------------
11/05/1993
[Stamp of Deputy Secretary of State]
STATE OF MAINE
ARTICLES OF AMENDMENT
(Amendment by Shareholders
Voting as One Class)
Pursuant to 13-A MRSA sections 805 and 807, the undersigned
corporation adopts these Articles of Amendment:
FIRST: All outstanding shares were entitled to vote on the following
amendment as one class.
SECOND: The amendment set out in Exhibit A attached was adopted by
shareholders (Circle one)
A. at a meeting legally called and held on, OR
B. by unanimous written consent on August 2, 1993
--------------------
THIRD: Shares outstanding and entitled to vote and shares voted for
and against said amendment were:
Number of Shares Outstanding NUMBER NUMBER
and Entitled to Vote Voted for Voted Against
------------------------------- --------- -------------
100 100 -0-
FOURTH: If such amendment provides for exchange, reclassification
or cancellation of issued shares, the manner in which this
shall be effected is contained in Exhibit B attached if it
is not set forth in the amendment itself.
FIFTH: If the amendment changes the number or par values of authorized
shares, the number of shares the corporation has authority to issue
thereafter, is as follows:
Class Series (if Any) Number of Shares Par Value (If Any)
----- --------------- ---------------- ------------------
The aggregate par value of all such shares (of all classes and
series) having par value is $
----------.
The total number of all such shares (of all classes and series)
without par value is shares.
----------
SIXTH: Address of the registered office in Maine is:
One Monument Square, Portland, ME 04101
-----------------------------------------------------------------
(street, city and zip code)
Forster MRG. Co., INC.
-----------------------------------------------------------------
(Name of Corporation)
By* /s/ Bruce A. Coggeshall
--------------------------------------------------------------
(signature)
Bruce A. Coggeshall, Clerk
-----------------------------------------------------------------
(type or print name and capacity)
By*
--------------------------------------------------------------
(signature)
--------------------------------------------------------------
(type or print name and capacity)
MUST BE COMPLETED FOR VOTE OF
SHAREHOLDERS
- --------------------------------
I certify that I have custody of
the minutes showing the above
action by the shareholders.
/s/ Bruce A. Coggeshall
- --------------------------------
(signature of clerk, secretary
or asst. secretary)
- --------------------------------
Dated: 8-24-93
--------------------------
- ---------------------------------------------
* In addition to any such certification of custody of minutes
this document MUST be signed by (1) the Clerk OR (2) the
President or vice-president AND the Secretary, an assistant
secretary or other officer the bylaws designate as second
certifying officer OR (3) if no such officers, a majority of
the directors or such directors designated by a majority
then in office OR (4) if no directors, the holders, or such
of them designated by the holders, of record of a majority
of all outstanding shares entitled to vote thereon OR (5) the
holders of all outstanding shares.
NOTE: This form should not be used if any class of shares is entitled to vote
as a separate class for any of the reasons set out in section 806, or because
the articles so provide. For vote necessary for adoption see section 805.
FORM NO. MCBA-3 REV. 90 SUBMIT COMPLETED FORMS TO: Secretary of State
Station 101
Augusta, Maine 04333
<PAGE>
EXHIBIT A
VOTED: To amend the Articles of Incorporation of this
corporation by striking therefrom the following language:
"The Board of Directors is authorized to increase or
decrease the number of directors, and the minimum number
shall be one (1) director (See section 703, 1.A.) and the
maximum number, if any shall be seven (7) directors."
and substituting in place thereof the following
language:
"The Board of Directors is authorized to increase
or increase or decrease the number of directors,
and the minimum number shall be one (1) director,
(see section 703, 1.A.) and the maximum number, if
any, shall be (8) directors."
VOTED: To further amend this corporation's Articles of
Incorporation by changing its name from Forster
Mfg. Co., Inc. to Forster Inc.
<PAGE>
- -----------------------------------
FILE NO. 19922196 D PAGES 1
FEE PAID $ 105.00
DCN 193309160011 ANME
- ------------- FILED ---------------
11/05/1993
[Stamp of Deputy Secretary of State]
STATE OF MAINE
STATE OF INTENTION
TO DO BUSINESS UNDER
AN ASSUMED NAME
Pursuant to 13-A MRSA section 307, the undersigned, a corporation
(incorporated under the laws of the State of Maine), gives notice
of its intention to do business in the this State under an
assumed name.
FIRST: The name of the corporation is Forster Inc.
----------------------------------
SECOND: The address of the registered office of the corporation in the
State of Maine is
One Monument Square, Portland, ME 04101
-----------------------------------------------------------------
(street, city, state and zip code)
THIRD: The corporation intends to transact business under the assumed
name of
Forster Mfg. Co., Inc.
-----------------------------------------------------------------
COMPLETE THE FOLLOWING IF APPLICABLE
FOURTH: If such assumed name is to be used at fewer than all of the
corporation's places of business in this State, the location(s)
where it will be used is (are):
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
By* /s/ Bruce A. Coggeshall
--------------------------------------------------------------
(signature)
Bruce A. Coggeshall, Clerk
-----------------------------------------------------------------
(type or print name and capacity)
By*
--------------------------------------------------------------
(signature)
--------------------------------------------------------------
(type or print name and capacity)
Dated: 8-23-93
--------------------------
This document MUST be signed by (1) the Clerk OR (2) the President
or vice-president AND the Secretary, an assistant secretary or
other officer the bylaws designate as second certifying officer OR
(3) if no such officers, a majority of the directors or such directors
designated by a majority then in office OR (4) if no directors, the
holders, or such of them designated by the holders, of record of a
majority of all outstanding shares entitled to vote thereon OR (5) the
holders of all outstanding shares.
FORM NO. MCBA-5 REV. 90 SUBMIT COMPLETED FORMS TO: Secretary of State
Station 101
Augusta, Maine 04333
<PAGE>
- -----------------------------------
FILE NO. 19922196 D PAGES 1
FEE PAID $ 105.00
DCN 193309160011 ANME
- ------------- FILED ---------------
11/05/1993
[Stamp of Deputy Secretary of State]
STATE OF MAINE
STATE OF INTENTION
TO DO BUSINESS UNDER
AN ASSUMED NAME
Pursuant to 13-A MRSA section 307, the undersigned, a corporation
(incorporated under the laws of the State of Maine), gives notice
of its intention to do business in the this State under an
assumed name.
FIRST: The name of the corporation is Forster Inc.
----------------------------------
SECOND: The address of the registered office of the corporation in the
State of Maine is
One Monument Square, Portland, ME 04101
-----------------------------------------------------------------
(street, city, state and zip code)
THIRD: The corporation intends to transact business under the assumed
name of
Forster
-----------------------------------------------------------------
COMPLETE THE FOLLOWING IF APPLICABLE
FOURTH: If such assumed name is to be used at fewer than all of the
corporation's places of business in this State, the location(s)
where it will be used is (are):
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
By* /s/ Bruce A. Coggeshall
--------------------------------------------------------------
(signature)
Bruce A. Coggeshall, Clerk
-----------------------------------------------------------------
(type or print name and capacity)
By*
--------------------------------------------------------------
(signature)
--------------------------------------------------------------
(type or print name and capacity)
Dated: 8-23-93
--------------------------
This document MUST be signed by (1) the Clerk OR (2) the President
or vice-president AND the Secretary, an assistant secretary or
other officer the bylaws designate as second certifying officer OR
(3) if no such officers, a majority of the directors or such directors
designated by a majority then in office OR (4) if no directors, the
holders, or such of them designated by the holders, of record of a
majority of all outstanding shares entitled to vote thereon OR (5) the
holders of all outstanding shares.
FORM NO. MCBA-5 REV. 90 SUBMIT COMPLETED FORMS TO: Secretary of State
Station 101
Augusta, Maine 04333
<PAGE>
Minimum Fee $80 (See ss. 1401 sub-ss. 19)
-----------------------------------
FILE NO. 19922196 D PAGES 5
FEE PAID $ 80.00
DCN 1970021600014 MERG
------------- FILED ---------------
12/30/1996
/s/ Gary Cooper
-------------------------
Deputy Secretary of State
-----------------------------------------
A True Copy When Attested by Signature
-------------------------
Deputy Secretary of State
-----------------------------------------
BUSINESS CORPORATION
STATE OF MAINE
(Merger of Domestic and Foreign Corporations)
ARTICLES OF MERGER
Forster Holdings, Inc.
- --------------------------------------------------
A corporation organized under the laws of Delaware
INTO
Foster Inc.
- --------------------------------------------------
A corporation organized under the laws of Maine
Pursuant to 13-A MRSA ss. 906, the preceding
corporations adopt these Articles of Merger:
FIRST: The laws of the State(s) of Delaware, under which the
foreign corporation(s) is (are) organized, permit such
merger.
SECOND: The name of the surviving corporation is Forster Inc.
and it is to be governed by the laws of the State of
Maine.
THIRD: The plan of merger is set forth in Exhibit A attached
hereto and made a part hereof.
FOURTH: As to each participating domestic corporation, the
shareholders of which voted on such plan of merger,
the number of shares outstanding and the number of
shares entitled to vote on such plan and the number of
such shares voted for and against the plan are as
follows:
Number
Name of of Shares Number of Shares
Corporation Outstanding Entitled to Vote
----------- ----------- ----------------
Forster Inc. 100 100
Forster Holdings, Inc. 1,656,147.36 1,656,147.36
NUMBER NUMBER
Voted for Voted Against
--------- -------------
100 0
1,656,147.36 0
FIFTH: If the shares of any class were entitled to vote as a
class, the designation and number of the oustanding
shares of each such class, and the number of shares of
each such class voted for and against the plan, are as
follows:
Name of Designation Number of Shares
Corporation of Class Outstanding
- ----------- ----------- ----------------
Forster Holdings, Common 795,522.36
Inc.
Forster Holdings, Series A 860,625
Inc. Cumulative Prefered
NUMBER NUMBER
Voted For Voted Against
- --------- -------------
795,522.36 0
860,625 0
(Include the following paragraph if the merger was authorized
without the vote of the shareholders of the surviving
corporation. Omit if not applicable.)
SIXTH: The plan of merger was adopted by the participating
corporation which is to become the surviving corporation
in the merger without any vote of its shareholders,
pursuant to section 902, subsection 5. The number of
shares of each class outstanding immediately prior to the
effective date of the merger, and the number of shares
of each class to be issued or delivered pursuant to the
plan of merger of the surviving corporation are set
forth as follows:
Number of Shares Outstanding Number of Shares to Be Issued
Designation Immediately Prior to Effective Or Delivered Pursuant to the
of Class Date of Merger Merger
- ----------- ------------------------------ -----------------------------
N/A
<PAGE>
SEVENTH: The address of the registered office of the surviving
corporation in the State of Maine is*
One Portland Square, Portland, Maine 04101
-------------------------------------------------------
(street, city, state and zip code)
The address of the registered office of the merged
corporation in the State of Delaware is*
1209 Orange Street, Wilmington, Delaware 19801
-------------------------------------------------------
(street, city, state and zip code)
EIGHTH: Effective date of the merger (if other than date of
filing of Articles) is December 31, 1996
--------------------------------
(Not to exceed 60 days from date of filing of the Articles)
DATED 12/27/96 Forster Inc.
---------- --------------------------------
(participating domestic corporation)
- -------------------------------- **By--------------------------------
MUST BE COMPLETED FOR VOTE (signature)
OF SHAREHOLDERS
- ---------------------------
I certify that I have custody Edward A. Michael, President
of the minutes showing the above --------------------------------
action by the shareholders. (type or print name and capacity)
Forster Inc. **By---------------------------------
- -------------------------------- (signature)
(name of corporation)
- -------------------------------- Edward A. Michael, Secretary
(signature of clerk, ---------------------------------
secretary or asst. secretary) (type or print name and capacity)
- --------------------------------
DATED 12/27/96 Forster Holdings Inc.
---------- --------------------------------
(participating domestic corporation)
- -------------------------------- **By--------------------------------
MUST BE COMPLETED FOR VOTE (signature)
OF SHAREHOLDERS
- ---------------------------
I certify that I have custody Edward A. Michael, President
of the minutes showing the above --------------------------------
action by the shareholders. (type or print name and capacity)
Forster Holdings, Inc. **By--------------------------------
- -------------------------------- (signature)
(name of corporation)
- -------------------------------- Edward A. Michael, Secretary
(signature of clerk, ---------------------------------
secretary or asst. secretary) (type or print name and capacity)
- --------------------------------
NOTE: If a foreign corporation is the survivor of this merger,
see ss. 906.4 and ss. 908.3 as to whether Form MBCA-10Ma
is required.
*Give address of registered office in Maine. If the corporation
does not have a registered office in Maine, the address given
should be the principal or registered office in the State of
incorporation.
- -----------------------------------------------------------------
**This document MUST be signed by (1) the Clerk OR (2) the
President or a vice-president and the Secretary or an assistant
secretary; or such other officer as the bylaws may designate as a
2nd certifying officer OR (3) if there are no such officers, then
a majority of the Directors or such directors as may be
designated by a majority of directors then in office OR (4) if
there are no such directors, then the Holders, or such of them as
may be designated by the holders, of record of a majority of all
outstanding shares entitled to vote thereon OR (5) the Holders of
all of the outstanding shares of the corporation.
SUBMIT COMPLETED FORMS TO: CORPORATE EXAMINING SECTION,
SECRETARY OF STATE,
101 STATE HOUSE STATION,
AUGUSTA, ME 04333-0101
TEL. (207) 287-4195
FORM NO. MBCA-10C Rev. 96
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
between
FORSTER INC.
(the Surviving Corporation)
and
FORSTER HOLDINGS, INC.
(the Merging Corporation)
THIS AGREEMENT AND PLAN OF MERGER (this "Plan"), dated
effective December 27, 1996, between FORSTER INC., a Maine
corporation ("Forster" or the "Surviving Corporation"), and
FORSTER HOLDINGS, INC., a Delaware corporation ("FHI" or the
"Merging Corporation").
RECITALS
--------
1. The Surviving Corporation is duly organized, validly
existing and in good standing under the laws of the State of
Maine and is a wholly-owned subsidiary of the Merging Corporation.
2. The Merging Corporation is duly-organized, validly
existing and in good standing under the laws of the State of
Delaware and owns One Hundred Percent (100%) of the issued and
outstanding shares of the Surviving Corporation. The Merging
Corporation is a wholly-owned subsidiary of Diamond Brands
Incorporated, a Minnesota corporation ("DBI").
3. The Surviving Corporation has an authorized capital
structure, as of the date of this Agreement, of Ten Thousand
(10,000) shares of common stock, $10.00 par value per share
("Forster Stock"), and as of the date of this Agreement, One
Hundred (100) shares of Forster Stock are issued and outstanding.
4. The Merging Corporation has an authorized capital
structure, as of the date of this Agreement, of Two Million
(2,000,000) shares of common stock, $.01 par value per share (the
"FHI Common Stock), and Two Million (2,000,000) shares of
preferred stock, $.01 par value per share, Eight Hundred
Seventy-Five Thousand (875,000) of which shares are designated as
Series A Cumulative Preferred Stock, $9.4018 stated value per
share (the "FHI Preferred Stock"). As of the date of this
Agreement, Seven Hundred Ninety-Five Thousand Five Hundred
Twenty-Two and 36/100 (795,522.36) shares of FHI Common Stock
are issued and outstanding, and Eight Hundred Sixty Thousand,
Six Hundred Twenty-Five (860,625) shares of FHI Preferred Stock
are issued and outstanding.
5. The directors of the Merging Corporation and the
Surviving Corporation have determined that it is advisable and in
the best interests of the respective corporations and their
<PAGE>
stockholders for the Merging Corporation to merge with and into
the Surviving Corporation (the "Merger) in accordance with the
applicable provisions of the Maine Business Corporation Act (the
"Maine Act"), the Delaware General Corporation Law (the
"Delaware Law"), and the Internal Revenue Code (the "Code").
6. The Surviving Corporation and the Merging Corporation
desire and intend that the Merger be a tax-free reorganization
within the meaning of the applicable provisions of the Act and
the Code.
NOW, THEREFORE, pursuant to and in accordance with the
Maine Act, the Delaware Law, and the Code, the Merging
Corporation and the Surviving Corporation (collectively, the
"Corporations") agree to merge into a single corporation, which
will be the Surviving Corporation, and the Corporations agree
upon and prescribe, as follows, the terms and conditons of the
Merger, the mode of carrying the Merger into effect, and the
manner and basis of exchanging the shares of the FHI Common
Stock and the FHI Preferred Stock and transferring the assets
and liabilities of the Merging Corporation to the Surviving
Corporation.
I. Merger
---------
1.1 Merger. On the Effective Date, as defined herein, the
Merging Corporation will merge with and into the Surviving
Corporation, and the separate existence of the Merging
Corporation will cease, subject to the terms and conditions of
this Agreement.
1.2 Surviving Corporation. The name of the Surviving
Corporation will be Forster Inc.
1.3 Time of Merger. The Merger will be effective at 11:59
p.m. E.S.T., December 31, 1996 (the "Effective Date").
1.4 Articles and Bylaws. After the Effective Date, the
Articles of Incorporation, as amended to date, of the Surviving
Corporation will remain in effect as the Articles of
Incorporation, and the Bylaws of the Surviving Corporation,
existing immediately prior to the Effective Date, will remain in
effect as the Bylaws of the Surviving Corporation.
1.5 Directors and Officers. After the Effective Date, the
Directors and Officers of the Surviving Corporation immediately
prior to the Effective Date will continue to be the Directors
and Officers of the Surviving Corporation until such other
persons are duly elected and qualified.
1.6 Succession to All Rights and Obligations. As of the
Effective Date, the Surviving Corporation will automatically
succeed to all of the assets and rights of the Corporations and
will be responsible and liable for all the liabilities and
obligations of each Corporation. A claim by or against, or a
pending proceeding by or against, either Corporation may be
prosecuted by the Surviving Corporation as if the Merger had not
taken place, or the Surviving Corporation may be substituted in
the place of the Merging Corporation.
2
<PAGE>
1.7 Registered Address. Before and after the Effective
Date, the registered address in the State of Maine of the
Surviving Corporation will be One Portland Square, Portland,
Maine 04101.
II. Exchange of Shares
-----------------------
2.1 Outstanding FHI Common Stock and FHI Preferred Stock.
As of the Effective Date, all of the 795,522.36 shares of FHI
Common Stock and 860,625 shares of FHI Preferred Stock issued
and outstanding will be canceled and retired.
2.2 Outstanding Forster Stock. As of the Effective Date,
all of the 100 shares of Forster Stock owned by the Merging
Corporation will be canceled and reissued to DBI, and the
Surviving Corporation will become a wholly-owned subsidiary of
DBI.
III. General Provisions
------------------------
3.1 Approval. This Agreement has been approved by the
Board of Directors and Shareholders of the Corporations where
required by the Maine Act and the Delaware Law.
3.2 Execution. The officers of the Corporations will
execute all such other documents and will take all such other
action as may be necessary or advisable to make this Agreement
and the Merger effective.
3.3 Abandonment. Notwithstanding the approval of this
Agreement by the Corporations, this Agreement may be abandoned
by either party at any time prior to the issuance of a
Certificate of Merger by the Secretary of State of the State
of Maine.
IN WITNESS WHEREOF, this Agreement has been executed by the
duly authorized and designated officers of the Merging
Corporation and the Surviving Corporation as of December 27,
1996.
The Merging Corporation: The Surviving Corporation:
- ----------------------- -------------------------
FORSTER HOLDINGS, INC. FORSTER INC.
By: /s/ Edward A. Michael By: /s/ Edward A. Michael
----------------------- -----------------------
Edward A. Michael Edward A. Michael
President President
3
- -------------------------------------------------------------
STOCKHOLDERS AGREEMENT
among
DIAMOND BRANDS INCORPORATED,
SEAVER KENT - TPG PARTNERS, L.P.,
SEAVER KENT I PARALLEL, L.P.,
and
NARESH K. NAKRA
and
THE STOCKHOLDERS NAMED HEREIN
---------------------------------------------
Dated as of April 21, 1998
----------------------------------------------
- ------------------------------------------------------------
<PAGE>
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT, dated as of April 21, 1998
(this "Agreement"), among Diamond Brands Incorporated, a
Minnesota corporation (the "Company"), Seaver Kent - TPG
Partners, L.P., a Delaware limited partnership ("SK-TPG
Partners"), Seaver Kent I Parallel, L.P., a Delaware limited
partnership ("SK Parallel" and, together with SK-TPG Partners,
"SKC"), and Naresh K. Nakra and each of the parties listed on
Exhibit A hereto (each, a "Rollover Stockholder" and collectively
the "Rollover Stockholders") and each of the parties listed on
Exhibit B hereto (each, along with Naresh K. Nakra and each
Rollover Stockholder, an "Investor" and collectively, the
"Investors").
WHEREAS, as of the date hereof, each of SKC and the
Investors owns the securities of the Company as set forth on
Exhibit C hereto; and
WHEREAS, the parties hereto wish to restrict the
transfer of the Shares (as hereinafter defined) and to provide
for certain other rights under certain conditions.
NOW, THEREFORE, in consideration of the mutual
promises and agreements set forth herein, the adequacy of which
are hereby acknowledged, the parties hereto agree as follows:
1. Definitions. As used in this Agreement, the following
terms shall have the meanings set forth below:
"Affiliate" of any Person means such Person's spouse
and descendants and any trust solely for the benefit of such
Person and/or such Person's spouse and/or descendants and any
other Person directly or indirectly controlling, controlled by or
under direct or indirect common control with such Person. For the
purposes of this definition, "control," when used with respect to
any Person, means the power to direct or cause the direction of
the management or policies of such Person, directly or
indirectly, whether through the ownership of voting securities,
by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Business Day" means any day other than a Saturday,
Sunday or other day on which commercial banks in the State of New
York are authorized or required by law or executive order to
close.
"Commission" means the Securities and Exchange
Commission or any similar agency then having jurisdiction to
enforce the Securities Act.
"Common Stock" means Common Stock, par value $.01 per
share, of the Company or any other capital stock of the Company
into which such stock is reclassified or reconstituted.
"HSR Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Initial Public Offering" means the Company's initial
Public Offering resulting in net proceeds to the Company of at
least $50 million.
"Involuntary Transfer" means any transfer, proceeding
or action by or in which a Stockholder shall be deprived or
divested of any right, title or interest in or to any of the
Shares, including, without limitation, any seizure under levy of
attachment or execution, any transfer in connection with
bankruptcy (whether pursuant to the filing of a voluntary or an
involuntary petition under the United States
<PAGE>
Bankruptcy Code of 1978, or any modifications or revisions
thereto) or other court proceeding to a debtor in possession,
trustee in bankruptcy or receiver or other officer or agency, any
transfer to a state or to a public officer or agency pursuant to
any statute pertaining to escheat or abandoned property and any
transfer pursuant to a divorce or separation agreement or a final
decree of a court in a divorce action.
"Involuntary Transferee" has the meaning assigned such
term in Section 3.3.1.
"New Issuance" has the meaning assigned such term in
Section 3.4.
"Offered Securities" has the meaning assigned such
term in Section 3.1.1.
"Offering Notice" has the meaning assigned such term
in Section 3.1.1.
"Offer Price" has the meaning assigned such term in
Section 3.1.1.
"Permitted Transferees" has the meaning assigned such
term in Section 2.2.
"Person" means any individual, firm, corporation,
partnership, limited liability company, trust, incorporated or
unincorporated association, joint venture, joint stock company,
governmental body or other entity of any kind.
"Public Offering" means any offer for sale of Common
Stock pursuant to an effective Registration Statement filed under
the Securities Act, other than on a Form S-4 or Form S-8.
"Registration Statement" means a registration
statement filed pursuant to the Securities Act.
"Rightholder" has the meaning assigned such term in
Section 3.2.1.
"Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations of the Commission
thereunder.
"Selling Stockholder" has the meaning assigned such
term in Section 3.1.1.
"Series A Preferred Stock" has the meaning assigned
such term in the recitals to this Agreement.
"Shares" means, with respect to each holder of Common
Stock, all shares, whether now owned or hereafter acquired, of
Common Stock owned thereby; provided, however, that for the
purposes of any computation of the number of Shares either
outstanding or held by any Stockholder or otherwise to be
determined pursuant hereto, including for purposes of voting in
Section 4.1 the shares of Common Stock issuable upon conversion,
exercise or exchange of all securities or obligations which are
by their terms convertible into shares of Common Stock and any
option, warrant or other subscription or purchase right with
respect to Common Stock shall be deemed outstanding whether or
not such conversion, exercise or exchange has actually been
effected.
-2-
<PAGE>
"Stockholders" shall mean SK-TPG Partners, SK
Parallel, the Investors and any transferee thereof or other
holder of capital stock of the Company who has agreed to be bound
by the terms and conditions of this Agreement in accordance with
Section 2.4, and the term "Stockholder" shall mean any such
Person.
"SK Transferee" has the meaning assigned such term in
Section 3.2.1.
"Third Party Purchaser" has the meaning assigned such
term in Section 3.1.1.
"transfer" has the meaning set forth in Section 2.1.
2. Restrictions on Transfer of Shares.
2.1. Limitation on Transfer. No Stockholder shall
sell, give, assign, hypothecate, pledge, encumber, grant a
security interest in or otherwise dispose of (whether by
operation of law or otherwise) (each a "transfer") any Shares or
any right, title or interest therein or thereto, except in
accordance with the provisions of this Agreement; provided,
however, that any transferee obtaining any interest in or right
to vote such Shares hereunder shall agree to be bound by this
Agreement and shall comply with Section 2.4. Any attempt to
transfer any Shares or any rights thereunder in violation of the
preceding sentence shall be null and void ab initio and the
Company shall not register any such transfer.
2.2. Permitted Transfers. Notwithstanding anything to the
contrary contained in this Agreement, but subject to Sections 2.3
and 2.4, each of the Stockholders may transfer Shares in
accordance with this Section 2.2 (the Persons to whom the
Stockholders may so transfer Shares are referred to hereinafter
as "Permitted Transferees").
2.2.1. Transfers by SKC. At any time, SKC may,
subject to Section 3.2, transfer Shares to any Person.
2.2.2. Transfers by Investors. At any time, each
Investor may (subject to Sections 2.3 and 2.4), transfer
Shares to any of their respective Affiliates, any other
Investor, to SKC or to a successor trust to such Investor
which has the same beneficiaries. At any time, each
Investor may, subject to Section 3.1, transfer Shares to
any Person.
2.3. Permitted Transfer Procedures. If any Stockholder
wishes to transfer Shares to a Permitted Transferee under this
Section 2, such Stockholder shall give notice to the Company of
its intention to make any transfer permitted under this Section 2
not less than ten (10) days prior to effecting such transfer,
which notice shall state the name and address of each Permitted
Transferee to whom such transfer is proposed and the number of
Shares proposed to be transferred to such Permitted Transferee.
2.4. Transfers in Compliance with Law; Substitution of
Transferee. Notwithstanding any other provision of this
Agreement, no transfer may be made pursuant to this Section 2 or
Section 3 unless (a)
-3-
<PAGE>
the Permitted Transferee has agreed in writing to be bound by the
terms and conditions of this Agreement, (b) the transfer complies
in all respects with the applicable provisions of this Agreement,
and (c) the transfer complies in all respects with applicable
federal and state securities laws, including, without limitation,
the Securities Act. If requested by the Company in its reasonable
judgment, an opinion of counsel, for such transferring
Stockholder shall be supplied to the Company at such transferring
Stockholder's expense, to the effect that such transfer complies
with the applicable federal and state securities laws; provided,
however, that no such opinion shall be required with respect to a
transfer to a successor trust to an Investor which has the same
beneficiaries. Any attempt to transfer any Shares or rights
hereunder in violation of this Agreement shall be null and void
ab initio and the Company shall not register such transfer. Upon
becoming a party to this Agreement, a Permitted Transferee shall
be substituted for, and shall enjoy the same rights and be
subject to the same obligations as its predecessor hereunder only
to the extent that this Agreement specifically states that such
Permitted Transferee shall enjoy the particular right or be
subject to the particular obligation of its predecessor, as the
case may be.
3. Proposed Voluntary Transfers.
3.1. Proposed Voluntary Transfers by an Investor.
3.1.1. Offering Notice. If an Investor (a
"Selling Stockholder") wishes to sell or otherwise transfer
all or any portion of its Shares to any Person (other than
to a Permitted Transferee that is an Affiliate thereof) (a
"Third Party Purchaser"), such Selling Stockholder shall
offer such Shares first to the Company by sending written
notice (the "Offering Notice") to the Company, which shall
state (a) the number of Shares proposed to be sold or
otherwise transferred (the "Offered Securities") and (b)
the proposed purchase price per Share which the Selling
Stockholder is willing to accept (the "Offer Price"). Upon
delivery of the Offering Notice, such offer shall be
irrevocable unless and until the rights of first offer
provided for herein shall have been waived by the Company
or shall have expired under Section 3.1.2.
3.1.2. The Company's Option. For a period of
fifteen (15) days after the giving of the Offering Notice
pursuant to Section 3.1.1 (the "Option Period"), the
Company or its designee shall have the right to purchase
all (but not less than all) of the Offered Securities at a
purchase price equal to the Offer Price and upon the terms
and conditions set forth in the Offering Notice.
3.1.3. Exercise of Option. The option of the
Company under Section 3.1.2 shall be exercisable by
delivering written notice of the exercise thereof, prior to
the expiration of the 15-day period referred to in Section
3.1.2, to the Selling Stockholder with a copy to the other
stockholders. The failure of the Company to respond within
such 15-day period to the Selling Stockholder shall be
deemed to be a waiver of its rights under Sections 3.1.1
and 3.1.2.
3.1.4. Closing of the Sale to the Company (or its
designee). If the Company exercises its option under Section
3.1.2, the closing of the purchase of Offered Securities by
the Company (or its designee) under Section 3.1.2 shall be
held at the principal office of the Company at 11:00 a.m.,
local time, on the 45th day after the giving of the Offering
Notice pursuant to Section 3.1.1 or at such other time and
place as the parties to the transaction may agree. At such
closing, the Selling Stockholder shall deliver to the
Company (or its designee) certificates representing the
-4-
<PAGE>
Offered Securities, duly endorsed for transfer and
accompanied by all requisite transfer taxes, if any, and
such Offered Securities shall be free and clear of any
liens, claims, options, charges, encumbrances or rights
(other than those arising hereunder), and the Selling
Stockholder shall so represent and warrant, and shall
further represent and warrant that it is the sole beneficial
and record owner of such Offered Securities. The Company (or
its designee purchaser) shall deliver at the Closing to the
Selling Stockholder payment in full in immediately available
funds for the Offered Securities purchased by it. At such
Closing, all of the parties to the transaction shall execute
such additional documents as are otherwise necessary or
appropriate.
3.1.5. Sale to Third Party Purchaser. Unless the
Company elects to purchase all of the Offered Securities
pursuant to Section 3.1.2, the Selling Stockholder may sell
the offered securities to the Third Party Purchaser at a
price per Share equal to the Offer Price set forth in the
Offering Notice and otherwise on the terms and conditions
set forth in the Offering Notice; provided, however, that
such sale is bona fide and made pursuant to a contract
entered into within sixty (60) days of the earlier of the
waiver by the Company of its option to purchase the Offered
Securities or the expiration of the Option Period (the
earlier of such dates being referred to herein as the
"Contract Date"); and provided, further, that there is full
compliance with Section 2.4.
If such sale is not consummated within forty-five (45) days of
the Contract Date for any reason, then the restrictions provided
for herein shall again become effective, and no transfer of such
offered Securities may be made thereafter by the Selling
Stockholder without again offering the same to the Company in
accordance with this Section 3.1.
3.2. Proposed Voluntary Transfers by SKC; Tag Along Right
and Bring Along Right.
3.2.1. Tag Along Right.
(a) If SKC shall have received a bona fide
offer from (or shall have entered into a bona fide written
agreement with) a Person or Persons that is not an
Affiliate of SKC (each, a "SKC Transferee") to purchase
greater than 10% of SKC's Shares in the aggregate in a
transaction or series of substantially contemporaneous
transactions, then SKC shall send written notice to the
Stockholders and their respective Permitted Transferees
(each, a "Rightholder") which shall state (i) the number of
Shares proposed to be sold or otherwise transferred to the
SKC Transferees (the "SKC Offered Securities"), (ii) the
proposed purchase price per Share to be paid by the SKC
Transferees, (iii) the name of the SKC Transferees and (iv)
the projected closing date of the sale or transfer of the
SKC Offered Securities, which in no event shall be prior to
fifteen (15) days after the giving of such written
notice to each Rightholder and (v) that SKC shall
sell or otherwise transfer the SKC Offered Securities
subject to the rights of each Rightholder contained in this
Section 3.2.1.
(b) For a period of fifteen (15) days after
the giving of the notice pursuant to clause (a) above, each
Rightholder shall have the right to sell to the SKC
Transferees that number of Shares held by such Rightholder
equal to that percentage of the SKC Offered Securities
determined by multiplying (i) the number of SKC Offered
Securities by (ii) a fraction derived by dividing (x) the
total number of Shares then owned by such Rightholder, by
(y) the total number of
-5-
<PAGE>
Shares owned by all holders of Common Stock participating in
the sale to the SKC Transferees (including the Shares owned
by SKC, such Rightholder and all other Rightholders). To the
extent that such Rightholder exercises its right to sell
Shares pursuant to this Section 3.2.1, the number of Shares
of SKC Offered Securities to be sold to the SKC Transferees
by SKC shall be reduced proportionately.
(c) The rights of each Rightholder under
this Section 3.2.1 shall be exercisable by delivering
written notice thereof, prior to the expiration of the
15-day period referred to in clause (b) above, to SKC with
a copy to the Company. The failure of such Rightholder to
respond within such period to SKC shall be deemed to be a
waiver of its rights, as the case may be, under Section
3.1.2.
3.2.2. Bring Along Right. If SKC shall have
received a bona fide offer from a SKC Transferee to
purchase all of its Shares, then SKC shall have the right
to deliver a written notice (a "Buyout Notice") to each
Stockholder which shall state (i) that SKC proposes to
effect such transaction, (ii) the proposed purchase price
per Share to be paid by the SKC Transferee, and (iii) the
name of the SKC Transferee, and which attaches a copy of
any written agreement between SKC and the other parties to
such transaction which establishes the terms of such
transaction. Each such Stockholder agrees that, upon
receipt of a Buyout Notice, each such Stockholder shall be
obligated to sell all of its Shares upon the same terms and
conditions of such transaction applicable to SKC, unless
such sale would result in a violation of applicable laws or
regulations (and otherwise take all necessary action to
cause consummation of the proposed transaction, including
voting such Shares in favor of such transaction);
including, without limitation the same per Share
consideration as received by SKC.
3.3. Involuntary Transfers.
3.3.1. Rights of First Offer Upon Involuntary
Transfer. If an Involuntary Transfer of any Shares (the
"Transferred Shares") owned by an Investor or its Permitted
Transferees shall occur, the Company (or its designee)
shall have the same rights as specified in Section 3.1.3
with respect to such Transferred Shares as if the
Involuntary Transfer had been a proposed voluntary transfer
by a Selling Stockholder; provided, however, that (a) the
time periods shall run from the date of receipt by the
Company of notice of the Involuntary Transfer and (b) such
rights shall be exercised, as set forth in Section 3.3.2,
by notice to the involuntary transferee of such Transferred
Shares (the "Involuntary Transferee") rather than to the
Stockholder who suffered or will suffer the Involuntary
Transfer.
3.3.2. Company Option. For a period of 30 days
after the receipt by the Company of notice of the
Involuntary Transfer in accordance with Section 3.3.1(a)
hereof, the Company or its designee shall have the right to
purchase all of the Transferred Shares at the purchase
price set forth in Section 3.3.4 by delivering written
notice, prior to the expiration of such 30-day period, to
the Involuntary Transferee, with a copy to SKC and the
other Stockholders. The failure of the Company to respond
within such 30-day period shall be deemed to be a waiver of
the Company's rights under this Section 3.3.2.
-6-
<PAGE>
3.3.3. SKC and Investor Options. If the Company
does not elect to purchase all of the Transferred Shares
owned by the Investors or its Permitted Transferees
pursuant to Section 3.3.2, then for a period of sixty (60)
days after the receipt by the Stockholders of notice of the
Involuntary Transfer of such Transferred Shares in
accordance with Section 3.3.1(a) hereof, each of SKC and
the Investors shall have the right to purchase that
percentage of such Transferred Shares determined by
dividing (a) the total number of Shares then owned by SKC
(in the case of a purchase by SKC) or the Investors (in the
case of a purchase by an Investor) as the case may be, by
(b) the total number of Shares held by SKC or the Investors
in the aggregate, by delivering written notice, prior to
the expiration of such 60-day period, to the Involuntary
Transferee, with a copy to the Company. If SKC or any
Investor as the case may be, does not elect to purchase all
of the Transferred Shares that it is entitled to purchase
pursuant to this Section 3.3.3, then the other or others,
if such other or others elected to purchase all of the
Transferred Shares that it is entitled to purchase pursuant
to this Section 3.3.3, shall have the right to purchase all
of such Transferred Shares not so purchased. The failure of
SKC or an Investor, as the case may be, to respond within
such 60-day period shall be deemed to be a waiver of its
rights under this Section 3.3.3.
3.3.4. Purchase Price. If the Company, SKC, or an
Investor, as the case may be, elects to purchase all of the
Transferred Shares, then the Company, SKC, or the Investor,
as the case may be, shall purchase the Transferred Shares
at a purchase price equal to the Fair Value (as hereinafter
defined) thereof. The Fair Value of the Transferred Shares
shall be determined by an independent appraiser, which
shall be a nationally recognized independent investment
banking firm or nationally recognized independent expert
experienced in the valuation of corporations. The
determination of the appraiser shall be conclusive and
binding upon the Company, SKC, and the Investors. If the
Company elects to purchase all of the Transferred Shares
pursuant to Section 3.3.2, then within five (5) Business
Days of such election, the Company shall appoint such
appraiser. In the event that the Company does not elect to
purchase all of the Transferred Shares, (a) if SKC elects
to purchase the Transferred Shares pursuant to Section
3.3.3, then SKC appoint such appraiser within five (5)
Business Days of such election and (b) if SKC does not
elect to purchase the Transferred Shares that it is
entitled to purchase pursuant to Section 3.3.3, then the
Investors who elected to purchase the Transferred Shares
shall appoint such appraiser within five (5) Business Days
of such election. For purposes of this Section 3.3.4, the
"Fair Value" of the Transferred Shares means the fair
market value of the such Transferred Shares determined by
the appraiser based upon all considerations that the
appraiser determines to be relevant.
3.35. Closing. The closing of any purchase under
this Section 3.3 shall be held at the principal office
of the Company at 11:00 a.m., local time, on the fifth
Business Day after delivery of written notice to the
Involuntary Transferee in accordance with Section 3.3.2
or Section 3.3.3, as applicable, or at such other time
and place as the parties to the transaction may agree.
At such closing, the Involuntary Transferee shall
deliver to the Company, SKC, or the Investor, as the
case may be, certificates, if applicable, or other
instruments or documents representing the Transferred
Shares being purchased under this Section 3.3, duly
endorsed with a signature guarantee for transfer and
accompanied by all requisite transfer taxes, if any,
and such Transferred Shares shall be free and clear of
any Liens, including, without limitation, any Lien
arising through the action or inaction of
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the Involuntary Transferee, and the Involuntary
Transferee shall so represent and warrant, and shall
further represent and warrant that it is the beneficial
owner of such Transferred Shares. The Company, SKC, or the
Investor, as the case may be, shall deliver to the
Involuntary Transferee at the closing payment in full in
immediately available funds for such Transferred Shares. At
such closing, all of the parties to the transaction shall
execute such additional documents as are otherwise
necessary or appropriate.
3.3.6. General. In the event that the provisions
of this Section 3.3 shall be held to be unenforceable with
respect to any particular Involuntary Transfer, the
Company, SKC, and the Investors shall have the rights
specified in Section 3.3 with respect to any transfer by an
Involuntary Transferee of such Shares, and each Stockholder
agrees that any Involuntary Transfer shall be subject to
such rights, in which case the Involuntary Transferee shall
be deemed to be the Selling Stockholder for purposes of
Section 3.1 of this Agreement and shall be bound by the
provisions of Section 3.1 and the other provisions of this
Agreement.
3.3.7. Issuances of Capital Stock by the Company;
Preemptive Right. The Company shall give each of the
Stockholders and their respective Affiliates who are
Permitted Transferees thirty (30) days' prior written
notice of the proposed issuance of any capital stock or any
security convertible for or exchangeable into capital stock
(each a "New Issuance") (other than capital stock, not in
excess of ten percent of the outstanding capital stock, on
a fully diluted basis, to be issued in connection with an
employee stock option plan that is approved by the
Company's Board of Directors, an issuance of capital stock
as a stock split or stock dividend, an issuance of capital
stock pursuant to the exercise of any option, warrant or
convertible security outstanding on the date of this
Agreement, an issuance of capital stock pursuant to the
exercise of any option, warrant or convertible security
issued after the date hereof, or the issuance of capital
stock upon the conversion of any share of convertible
capital stock outstanding on the date hereof or upon
conversion of any share of convertible capital stock
subsequently issued in respect of shares of convertible
capital stock outstanding on the date hereof). Such notice
shall specify the number and class of securities to be
issued, the rights, terms and privileges thereof and the
price at which such securities will be issued. By written
notice to the Company given within fifteen (15) days of
being notified of such New Issuance, each such Stockholder
shall be entitled to purchase that percentage of the New
Issuance determined by dividing (a) the total number of
Shares owned by such Stockholder by (b) the sum of (i) the
total number of Shares then owned by all Stockholders
participating in such purchase (including such
Stockholder's Shares) plus (ii) the total number of shares
of Common Stock owned by other stockholders of the Company
which have been granted preemptive rights which are similar to
those provided to the Stockholders in this Section 3.4 and
which are participating in such purchase, whether or not such
conversion, exercise or exchange has actually been
effective); provided, however, that no Stockholder shall
have any right to purchase securities pursuant to this
Section 3.4 if such securities to this Section 3.4 would be
required to be registered under the Securities Act when the
securities being issued in the New Issuance would not
otherwise be required to be so registered. If any such
Stockholder (or any other Person which has been granted
preemptive rights which are similar to those provided to
the Stockholders in this Section 3.4) does not fully
subscribe for the number or amount of shares of capital
stock or securities convertible for or exchangeable into
capital stock that it is entitled to purchase (or that it
would otherwise have been entitled to purchase but for
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the proviso to the preceding sentence) pursuant to this Section
3.4, then each Stockholder participating in such purchase
to the full extent provided for in the preceding sentence
shall have the right to purchase that percentage of the New
Issuance not so subscribed for, determined by dividing (a)
the total number of Shares then owned by such fully
participating Stockholder by (b) the total number of Shares
then owned by all fully participating Stockholders who
elect to purchase shares or other securities pursuant to
this Section 3.4 (including such Stockholder's Shares).
The closing of any purchase pursuant to this Section 3.4
shall be held at the time and place of the closing of, and on the
same terms and conditions as, the New Issuance, or at such other
time and place as the parties to the transaction may agree.
4. Corporate Governance.
4.1. Director and Observer; Voting. So long as the
Rollover Stockholders, together with their Affiliates own in the
aggregate Shares representing more than 10% of the outstanding
Shares, the Rollover Stockholders shall be entitled to elect one
member of the Company's Board of Directors and to designate one
individual to attend (whether by person or by telephone) and
observe any regular or special meeting of the Company's Board of
Directors. The Company's Board of Directors shall be the
operative decision making body of the Company and its
Subsidiaries. All reasonable out-of-pocket expenses of such
director and observer incurred in connection with attending any
such meeting shall be paid by the Company. All of the
Stockholders agree that all of the Common Stock will be voted
and/or stockholder consents provided with respect thereto in
order to effect the first sentence of this section and will be
voted otherwise in such proportions as to provide voting power to
each of the Stockholders (as so directed in writing by such
Stockholder) in the same proportion as such Stockholder would
have been entitled to vote the Common Stock if all warrants
outstanding as of this date of this Agreement had been exercised
in full, and each Stockholder hereby irrevocably appoints SK-TPG
as its proxy for purposes of voting any shares of Common Stock
held by such Stockholder in accordance with these provisions so
long as this Agreement is effective; provided, however, that the
provisions of this sentence shall terminate and be of no force or
effect at such time as a majority of the outstanding shares of
Common Stock of the Company are owned, collectively, by the
owners of the warrants outstanding as of the date of this
Agreement and their assigns; provided, further, that in
connection with any merger or sale of assets involving the
Company, the Company shall extend to all Stockholders such
dissenters' rights as would have been available to an objecting
stockholder under applicable Minnesota law. Notwithstanding the
preceding sentence, each of Mellon Bank as Trustee of the General
Motors Employes Domestic Group Pension Trust (and its successors
and assigns to any Shares) and New York Life Insurance Company
(and its successor and assigns to any Shares) does not appoint
SK-TPG as its proxy but does agree to vote any shares of Common
Stock as to which it is entitled to vote in the same manner as a
majority of the shares of Common Stock voted by the other
Stockholders in accordance with the foregoing so long as the
provisions of the preceding sentence remain in effect.
4.2. Affiliated Transactions. The Company shall not
conduct any business or enter into any transaction with or for
the benefit of any Stockholder unless the terms of such business
or transaction are not materially less favorable to the Company
than those that could be obtained in a comparable arm's-length
transaction with a non-affiliate and are approved by the
Company's Board of Directors after full disclosure thereof.
Notwithstanding the foregoing limitation, the Company may enter
into any or all of the following:
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<PAGE>
4.2.1. The payment of compensation for the
personal services of officers, directors and employees, so
long as the Company's Board of Directors in good faith
shall have approved the terms thereof and deemed the
services to be performed for such compensation to be fair
consideration therefor.
4.2.2. The payment of reasonable fees to members
of the Board of Directors.
4.2.3. Indemnities of officers and directors.
5. Registration Rights.
5.1. Right to Include in Initial Public Offering.
Each Investor who owns more than 1% of the shares shall be permitted
to include their Shares in an Initial Public Offering and
subsequent Public Offerings of the Company on the same basis as
SKC. Each Investor and SKC agrees that, in connection with each
underwritten Public Offering of the Company, Investor or SKC, as
applicable, shall not sell or transfer, or offer to sell or
transfer, any equity securities of the Company for such period as
the managing underwriter of such offering reasonably determines
is necessary to effect the underwritten Public Offering not to
exceed 120 days.
5.2. Underwriting Adjustment. If the Initial Public
Offering referred to in Section 5.1 involves an underwritten
offering, and the Company's managing underwriter shall advise the
Company that, in its opinion, the number of Shares that are held
by stockholders who have the right to register their Common Stock
pursuant to such Initial Public Offering and that are requested
to be included in such offering exceeds the number which can be
sold in such offering, then the Company will include in such
offering, to the extent of the number of Shares which the Company
is so advised can be sold in such offering any Shares that each
of the Investors proposes to include in such offering pro rata on
the basis of the percentage of Shares requested by all
stockholders to be included thereby in such offering.
5.3. Expenses. With respect to any Registration
Statement that includes any Shares pursuant to Sections 5.1 and
5.2, the Company shall pay all reasonable expenses (other than
underwriting discounts and commissions) whether or not such
registration becomes effective.
5.4. Registration Procedures.
5.4.1. General. Whenever SKC requests that any shares
of Common Stock ("Registrable Shares") be registered pursuant to
this Agreement, the Company shall, as expeditiously as reasonably
possible:
(a) In connection with the preparation and filing
of each registration statement registering Registrable Shares
under this Agreement, the Company will give the holders of
Registrable Shares on whose behalf such Registrable Shares are to
be so registered and the underwriter and their respective counsel
and accountants, a reasonable opportunity to participate in the
preparation of such registration statement, each prospectus
included therein or filed with the Commission, and each amendment
thereof or
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supplement thereto, and will give each of them such
access to its books and records and such opportunities to discuss
the business of the Company with its officers, its counsel and
the independent public accountants who have certified its
financial statements, as shall be reasonably necessary, in the
opinion of such holders or such underwriters or their respective
counsel, in order to conduct a reasonable and diligent
investigation within the meaning of the Securities Act. Without
limiting the foregoing, each registration statement, prospectus,
amendment, supplement or any other document filed with respect to
a registration under this Agreement shall be subject to review
and reasonable approval by the holders of Registrable Shares in
such registration and by their counsel with respect to provisions
relating to such holders.
(b) prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to
keep such registration statement effective for a period of not
less than 120 days or such shorter period which will terminate
when all Registrable Shares covered by such registration
statement have been sold (but not before the expiration of the 90
day period referred to in Section 4(3) of the Securities Act and
Rule 174 or other comparable provisions thereunder, if
applicable), and comply with the provisions of the Securities Act
applicable to it with respect to the disposition of all
securities covered by such registration statement during the
applicable period.
(c) furnish to each holder of Registrable
Shares included in such registration statement, upon request, and
the managing underwriter or underwriters, without charge, at least
one copy of the registration statement and any post-effective
amendment thereto and such number of copies of the prospectus
(including any preliminary prospectus) and any amendments or
supplements thereto, as such holder of Registrable Shares or
managing underwriter may reasonably request in order to
facilitate the disposition of the Registrable Shares being sold
by such holder.
(d) notify any holder on whose behalf
Registrable Shares are being registered under this Agreement of
any stop order issued or threatened by the Commission and take all
reasonable actions required to prevent the entry of such stop
order or to remove it if entered and make every reasonable effort
to obtain the withdrawal of any order suspending the
effectiveness of the registration statement at the earliest
possible moment.
(e) enter into a written agreement with the
managing underwriter or underwriters selected by the Company in
such form and containing such representations and warranties by
the Company and such other terms and provisions as are
customarily contained in the underwriting agreements with respect
to secondary distributions, including, without limitation,
provisions relating to indemnification and contribution. The
holders on whose behalf Registrable Shares are to be distributed
by such underwriters shall be parties to any such underwriting
agreement, and the representations and warranties by, and the
other agreements on the part of, the Company to and for the
benefit of such underwriters shall also be made to and for the
benefit of such holders of Registrable Shares. The indemnity
provisions of such underwriting agreement shall comply with the
provisions of Section 5.4.2.
(f) on or prior to the date on which the
registration statement is declared effective, use its reasonable
best efforts to register or qualify, and cooperate with the
holders of Registrable Shares included in such registration
statement, the underwriter or underwriters, and their counsel in
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<PAGE>
connection with the registration or qualification of, the
Registrable Shares covered by the registration statement for
offer and sale under the securities or blue sky laws of each
state and other jurisdiction of the United States as any such
underwriter reasonably requests in writing, to use its best
efforts to keep each such registration or qualification
effective, including through new filings, or amendments or
renewals, during the period such registration statement is
required to be kept effective and to do any and all acts or
things necessary or advisable to enable the disposition in all
such jurisdictions of the Registrable Shares covered by the
applicable registration statement, provided, however, that the
Company will not be required (i) to qualify generally to do
business in any jurisdiction where it would not otherwise be
required to qualify but for this subsection (f), (ii) to subject
itself to taxation in any such jurisdiction or (iii) to consent
to general service of process in any such jurisdiction.
(g) use its reasonable best efforts to cause
all such Registrable Shares included in such registration statement
to be listed by the date of the first sale of Registrable Shares
pursuant to such registration statement on each securities
exchange on which securities issued by the Company are then
listed or proposed to be listed, if any.
(h) make available for inspection, during normal
business hours, by any holder on whose behalf Registrable Shares
are being registered under this Agreement, any underwriter
participating in any disposition pursuant to such registration
statement, and any attorney, accountant, or other agent retained
by any such holder or underwriter (collectively, the
"Inspectors"), all financial and other records, pertinent
corporate documents, and properties of the Company and its
Subsidiaries (collectively, the "Records") as shall be reasonably
necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors, and
employees to supply all information reasonably requested by any
such Inspector in connection with such registration statement.
Records which the Company determines, in good faith, to be
confidential shall not be disclosed by the Inspectors unless (i)
the disclosure of such Records is necessary to avoid or correct a
material misstatement or omission in the registration statement
or (ii) the release of such Records is ordered pursuant to a
subpoena or other order from a court of competent jurisdiction or
is otherwise required by law or regulation. The holder on whose
behalf Registrable Shares are being registered under this
Agreement agrees that it will, upon learning that disclosure of
such Records is sought in a court of competent jurisdiction, give
notice, to the extent practicable, to the Company and allow
the Company, at the Company's expense, to undertake appropriate
action to prevent disclosure of the Records deemed confidential.
(i) furnish, at the reasonable request of any
holder of Registrable Shares sold in such offering, on any date
that any Registrable Share is delivered to the underwriters for
sale pursuant to such registration: (i) an opinion dated such
date from counsel representing the Company for the purposes of
such registration, addressed to the underwriters and to such
holder, covering such matters with respect to the registration as
are customarily covered in the opinions of issuers' counsel
delivered to underwriters in connection with underwritten public
offerings of securities (including with respect to such
registration statement and the prospectus included therein), and
(ii) a letter dated such date from the independent public
accountants retained by the Company, addressed to such seller,
covering such matters (including information with respect to
events subsequent to the date of such financial statements) with
respect to the registration (including with respect to such
registration statement and the prospectus included therein) in
respect of which
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<PAGE>
such letter is being given as are customarily covered in
accountant's letters delivered to underwriters in connection with
underwritten public offerings of securities.
Each holder of Registrable Shares as to which
registration is being effected pursuant hereto shall use its best
efforts to cooperate with the Company, and the Company may
require each seller of Registrable Shares as to which any
registration is being effected to furnish to the Company such
information regarding the distribution of such securities as the
Company may from time to time reasonably request in writing.
5.4.2. Indemnification.
(a) Indemnification by Company. The Company
agrees to indemnify and to save and hold harmless each holder of
Registrable Shares and any underwriter, the officers, directors
and partners and partners of partners, and each person who
controls such holder or any such underwriter (within the meaning
of the Securities Act or the Exchange Act) from and against any
and all losses, claims, damages, liabilities, and expenses
(including reasonable attorneys fees and expenses and reasonable
costs of investigation) to which the holder or underwriter or any
such other person may be subject, under the Securities Act or
otherwise, arising out of or based on any untrue or alleged
untrue statement of a material fact contained in any registration
statement or prospectus relating to the Registrable Shares or in
any amendment or supplement thereto or in any preliminary
prospectus or any other document incident to the registration of
Registrable Shares under the Securities Act or the qualification
of the Registrable Shares under any state securities laws, or
arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or
arising out of or based upon any violation or alleged violation
by the Company of the Securities Act, the Exchange Act or any
other federal or state securities laws, rules or regulations
applicable to the Company and relating to action or inaction by
the Company in connection with any such registration or
qualification, except insofar as the same arise out of reliance
upon any untrue statement or omission furnished in writing to the
Company by such holder (or, if it is an underwritten offering, an
underwriter selected by such holders), expressly for use therein.
The Company will, pursuant to a separate agreement, agree to
indemnify the underwriters thereof, their officers, directors and
partners and partners of partners, and each person who
controls (within the meaning of the Securities Act) such
underwriters (collectively, "Securities Professionals") to the
same extent as provided above.
(b) Indemnification by Holder of Registrable
Shares. In connection with any registration statement in which a
holder of Registrable Shares is participating, each such holder
will furnish to the Company in writing such information and
affidavits with respect to such holder as the Company reasonably
requests for use in connection with any such registration
statement or prospectus and agrees to indemnify, to the extent
permitted by law, each of the Company's directors and officers,
and each Person who controls the Company (within the meaning of
the Securities Act) and, the underwriters, against any losses,
claims, damages, liabilities, and expenses arising out of or
based on any untrue statement of a material fact or any omission
of a material fact required to be stated in the registration
statement or prospectus or any amendment thereof or supplement
thereto or necessary to make the statements therein not
misleading, to the extent, but only to the extent, that such
untrue statement or omission is made in reliance upon and in
conformity with information with respect to such holder furnished
in writing to the Company by such holder
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specifically for use in such registration statement or prospectus
or amendment thereof or supplement thereto; provided, however,
that the liability of any such holder under this Section 5.4.2
(including, without limitation, subsection (c) below) shall in no
event exceed the net proceeds of the sale of Registrable Shares
being sold pursuant to said registration statement or prospectus
by such holder.
(c) Contribution. If the indemnification
provided for in this Section 5.4.2 is unavailable to an indemnified
under this Section 5.4.2 in respect of any losses, claims,
party damages, liabilities, expenses or judgments referred to herein,
then each such 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, expenses and judgements (i) as between the
Company and such holders on the one hand and the Securities
Professionals on the other, in such proportion as is appropriate
to reflect the relative benefits received by the Company and such
holders on the one hand and the Securities Professionals on the
other from the offering of the Registrable Shares, or if such
allocation is not permitted by applicable law, in such proportion
as is appropriate to reflect not only such relative benefits, but
also the relative fault of the Company and such holders on the
one hand and of the Securities Professionals on the other in
connection with the statements or omissions which result in such
losses, claims, damages, liabilities, expenses or judgements as
well as any other relevant equitable considerations and (ii) as
between the Company on the one hand and each such holder on the
other, in such proportion as is appropriate to reflect the
relative fault of the Company and of each such holder in
connection with such statements or omissions, as well as any
other relevant equitable considerations. The relative benefits
received by the Company and such holders on the one hand and the
Securities Professionals on the other shall be deemed to be in
the same proportion as the total proceeds from the offering (net
of underwriting discounts and commissions but before deducting
expenses) received by the Company and such holders bear to the
total underwriting discounts and commissions received by the
Securities Professionals, in each case as set forth in the table
on the cover page of the prospectus. The relative fault of the
Company, of each such holder and of the Securities Professionals
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 such party, and the party's relative
intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and
such holders agree that it would not be just and equitable if
contribution pursuant to this Section 5.4.2 were determined by
pro rata allocation (even if such 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 this paragraph. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages,
liabilities, expenses 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 such action or claim.
Notwithstanding the provisions of this Section 5.4.2(c), no
Securities Professional shall be required to contribute any
amount in excess of the amount by which the total price at which
the Registrable Shares of such holder were offered to the public
exceeds 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(1)
of the Securities Act) shall be entitled to contribution from any
Person who was not guilty of such fraudulent misrepresentation.
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6. Stock Certificate Legend. A copy of this Agreement
shall be filed with the Secretary of the Company and kept with
the records of the Company. Each certificate representing Shares
now held or hereafter acquired by any Stockholder shall, for as
long as this Agreement is effective, bear legends substantially
in the following forms:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS OR
PURSUANT TO A WRITTEN OPINION OF COUNSEL FOR THE COMPANY
THAT REGISTRATION IS NOT REQUIRED.
THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR
OTHER DISPOSITION (EACH A "TRANSFER") AND VOTING OF ANY OF
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
RESTRICTED BY THE TERMS OF THE STOCKHOLDERS AGREEMENT,
DATED AS OF APRIL 21, 1998 (THE "STOCKHOLDERS AGREEMENT"),
AMONG THE COMPANY AND THE STOCKHOLDERS NAMED THEREIN, A
COPY OF WHICH MAY BE INSPECTED AT THE COMPANY'S PRINCIPAL
OFFICE. THE COMPANY WILL NOT REGISTER THE TRANSFER OF SUCH
SECURITIES ON THE BOOKS OF THE COMPANY UNLESS AND UNTIL THE
TRANSFER HAS BEEN MADE IN COMPLIANCE WITH THE TERMS OF THE
STOCKHOLDERS AGREEMENT.
7. Miscellaneous.
7.1. Notices. All notices or other communication
required or permitted hereunder shall be in writing and shall be
delivered personally, telecopied or sent by certified, registered
or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telecopied or sent by
certified, registered or express mail or, if mailed, five days
after the date of deposit in the United States mail, as follows:
(a) if to the Company:
Diamond Brands Incorporated
1800 Cloquet Boulevard
Cloquet, Minnesota 55720
Attention: Chief Executive Officer
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<PAGE>
with a copy to:
McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60606
Attn: Helen R. Friedli, P.C.
Fax No.: (312) 984-3669
(b) if to the Rollover Stockholders:
Hunter Keith Industries, Inc.
5100 IDS Center
80 South Eighth Street
Attn: Andrew M. Hunter, III
Fax No.: (612) 338-7079
with a copy to:
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
(c) if to SKC:
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:
McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60606
Attn: Helen R. Friedli, P.C.
Fax No.: (312) 984-3669
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<PAGE>
(d) if to any other Stockholder, at its address
as it appears on the record books of the
Company.
Any party may by notice given in accordance with this Section 8.1
designate another address or person for receipt of notices
hereunder.
7.2. Amendment and Waiver.
(a) No failure or delay on the part of any party
hereto in exercising any right, power or remedy hereunder
shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy
preclude any other or further exercise thereof or the
exercise of any other right, power or remedy. The remedies
provided for herein are cumulative and are not exclusive of
any remedies that may be available to the parties hereto at
law, in equity or otherwise.
(b) Any amendment, supplement or modification of
or to any provision of this Agreement, any waiver of any
provision of this Agreement, and any consent to any
departure by any party from the terms of any provision of
this Agreement, shall be effective (i) only if it is made
or given in writing and signed by SKC and the parties
holding a majority of the remaining Shares hereunder and
(ii) only in the specific instance and for the specific
purpose for which made or given; provided, however, that
any such amendment, supplement or modification to this
Agreement shall not be effective to withdraw, deny or
adversely affect the rights of any Stockholder who has not
consented in writing to such amendment, supplement or
modification.
7.3. Specific Performance. The parties hereto intend
that each of the parties have the right to seek damages or
specific performance in the event that any other party hereto
fails to perform such party's obligations hereunder. Therefore,
if any party shall institute any action or proceeding to enforce
the provisions hereof, any party against whom such action or
proceeding is brought hereby waives any claim or defense therein
that the plaintiff party has an adequate remedy at law.
7.4. Headings. The headings in this Agreement are
for convenience of reference only and shall not limit or otherwise affect
the meaning hereof.
7.5. Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstance,
is held invalid, illegal or unenforceable in any respect for any reason,
the validity, legality and enforceability of any such provision in every
other respect and of the remaining provisions hereof shall not be in
any way impaired, unless the provisions held invalid, illegal or
unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
7.6. 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 and therein. There are no restrictions,
promises, warranties or undertakings, other than those set forth
or referred to herein or therein. This Agreement supersedes all
prior agreements and understandings between the parties with
respect to such subject matter; provided however that the
Existing Stockholders Agreement shall remain in full force and
effect except as specifically provided otherwise in this
Agreement.
-17-
<PAGE>
7.7. Term of Agreement. This Agreement shall become
effective upon the Closing of the transactions contemplated by
the Recapitalization Agreement among the Company, Seaver Kent -
TPG Partners, L.P., Seaver Kent I Parallel, L.P., and each of the
owners of equity interests or options to purchase equity
interests in the Company, dated March 3, 1998, and shall
terminate upon the date upon which the Commission declares
effective the Registration Statement relating to the Initial
Public Offering; provided, however, that the provisions of
Section 5 shall terminate on the second anniversary of the date
upon which the Commission declares effective the Registration
Statement relating to the Initial Public Offering and the
provisions of Section 5.4.2 shall not terminate.
7.8. Variations in Pronouns. All pronouns and any
variations thereof refer to the masculine, feminine or neuter, singular
or plural, as the context may require.
7.9. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
MINNESOTA APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF
CONFLICTS OF LAW THEREOF.
7.10. Further Assurances. Each of the parties shall,
and shall cause their respective Affiliates to, execute such
instruments and take such action as may be reasonably required or
desirable to carry out the provisions hereof and the transactions
contemplated hereby.
7.11. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their
respective successors, heirs, legatees and legal representatives.
7.12. Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, and
all of which taken together shall constitute one and the same instrument.
* * *
-18-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed, or have
cause to be executed, this Agreement on the date first written
above.
DIAMOND BRANDS INCORPORATED
By:___________________________________
Name:____________________________
Title:___________________________
SEAVER KENT - TPG PARTNERS, L.P.
By:___________________________________
Name:____________________________
Title:___________________________
SEAVER KENT I PARALLEL, L.P.
By:__________________________________
Name:____________________________
Title:___________________________
______________________________________
Naresh K. Nakra
-19-
<PAGE>
ROLLOVER STOCKHOLDERS:
Randall D. Barry
Stewart M. Barry
Walter R. Barry, Jr.
Walter R. Barry III
Andrew M. Hunter III
Ashley L. Hunter 1993 Trust, John L.
Morrison and Robert W. Horstman, Co-Trustees
Jocelyn W. Hunter 1997 Trust,
John L. Morrison and Robert W. Horstman,
Co-Trustees
Lacey M. Hunter 1995, Trust,
John L. Morrison and Robert W. Horstman,
Co-Trustees
Laura Elizabeth Keith
Michele R. Keith
Robert J. Keith, Jr.
Robert J. Keith, Jr. 1997 Irrevocable
Annuity Trust,
Robert J. Keith, Jr. and Robert W. Horstman,
Co-Trustees
Robert J. Keith III
Christopher A. Mathews
Alan S. McDowell
Jeffrey M. McDowell
Whitney W. McDowell
Dawn Ekstrom Michael
Edward A. Michael
John L. Morrison
John F. Young
Richard Campbell
Thomas Knuesel
John Beach
By:___________________________________
Andrew M. Hunter, III
as Shareholders Representative
-20-
<PAGE>
OTHER INVESTORS
NEW YORK LIFE INSURANCE COMPANY
BY:___________________________________
Its:__________________________________
MELLON BANK AS TRUSTEE FOR THE GENERAL
MOTORS EMPLOYES DOMESTIC GROUP PENSION
TRUST
BY:___________________________________
Its:__________________________________
______________________________________
Richard Campbell
______________________________________
Christopher Mathews
______________________________________
John Young
______________________________________
Thomas Knuesel
______________________________________
John Beach
-21-
<PAGE>
Exhibit A
---------
Rollover Stockholders:
Randall D. Barry
Stewart M. Barry
Walter R. Barry, Jr.
Walter R. Barry III
Andrew M. Hunter III
Ashley L. Hunter 1993 Trust, John L.
Morrison and Robert W. Horstman, Co-Trustees
Jocelyn W. Hunter 1997 Trust,
John L. Morrison and Robert W. Horstman, Co-Trustees
Lacey M. Hunter 1995, Trust,
John L. Morrison and Robert W. Horstman, Co-Trustees
Laura Elizabeth Keith
Michele R. Keith
Robert J. Keith, Jr.
Robert J. Keith, Jr. 1997 Irrevocable Annuity Trust,
Robert J. Keith, Jr. and Robert W. Horstman, Co-Trustees
Robert J. Keith III
Christopher A. Mathews
Alan S. McDowell
Jeffrey M. McDowell
Whitney W. McDowell
Dawn Ekstrom Michael
Edward A. Michael
John L. Morrison
John F. Young
Richard Campbell
Thomas Knuesel
John Beach
-22-
<PAGE>
Exhibit B
---------
Other Investors
---------------
New York Life Insurance Company
Mellon Bank as Trustee for the
General Motors Employes Domestic
Group Pension Trust
Richard Campbell
Christopher Mathews
John Young
Thomas Knuesel
John Beach
-23-
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
-----------------
<TABLE>
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PAGE
<S> <C>
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
</TABLE>
(i)
<PAGE>
<TABLE>
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<S> <C>
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
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
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
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
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
</TABLE>
(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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"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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"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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(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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<PAGE>
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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<PAGE>
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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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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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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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,
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<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
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<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.
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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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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
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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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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]
173
<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>
SCHEDULES
Schedules to the
Credit Agreement (the "Agreement")
Among
DIAMOND BRANDS OPERATING CORP., as Borrower
THE LENDERS LISTED THEREIN, 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
These are the Schedules referred to in the Agreement.
The schedule numbers herein set forth to the corresponding
schedule numbers in the Agreement. The inclusion of any item in a
section of this Agreement shall not constitute an admission that
a violation, right of termination, default, liability or other
obligation of any kind exists with respect to such item, but
rather is intended only to qualify certain rerpesentations and
warranties contained in the Agreement and to set forth other
information required by the Agreement. The headings with respect
to each item are included for convenience only, and are not a
party of the responses to requirements or a qualification of the
representations and warranties set forth in the Agreement.
Capitalized terms not otherwise defined herein shall have the
meanings assigned to them in the Agreement.
<PAGE>
Schedule 2.1
------------
LENDERS' COMMITMENTS AND PRO RATA SHARES
----------------------------------------
================================================================================
Lender Revolving Pro Rata Tranche A Loan Pro Rata Share
- ------ --------- -------- -------------- --------------
Loan Shares (re: Commitment (re: Tranche A
---- ----------- ---------- ---------------
Commitment Revolving Loans)
---------- --------- ------
Loan
----
Commitment)
-----------
- --------------------------------------------------------------------------------
Morgan Stanley $ 2,272,727.27 9.090909% $ 2,727,272.73 9.090909%
- --------------------------------------------------------------------------------
US Bancorp $ 2,272,727.27 9.090909% $ 2,727,272.73 9.090909%
- --------------------------------------------------------------------------------
Banque Paribas $ 2,727,272.73 10.90909% $ 3,272,727.27 10.90909%
- --------------------------------------------------------------------------------
BHF Bank $ 2,727,272.73 10.90909% $ 3,272,727.27 10.90909%
- --------------------------------------------------------------------------------
Bank of America $ 2,727,272.73 10.90909% $ 3,272,727.27 10.90909%
- --------------------------------------------------------------------------------
Credit Lyonnais $ 2,727,272.73 10.90909% $ 3,272,727.27 10.90909%
- --------------------------------------------------------------------------------
First Chicago $ 2,727,272.73 10.90909% $ 3,272,727.27 10.90909%
- --------------------------------------------------------------------------------
Wells Fargo $ 3,409,090.91 13.63640% $ 4,090,909.09 13.63636%
- --------------------------------------------------------------------------------
DLJ $ 3,409,090.90 13.63636% $ 4,090,909.10 13.63640%
- --------------------------------------------------------------------------------
TOTAL $25,000,000.0 100% $30,000,000.00 100%
- -----
0
================================================================================
Tranche B Pro Rata Shares Pro Rata Total
--------- --------------- -------- -----
Loan (re: Tranche B Shares Commitment
---- -------------- ------- ----------
Commitment Loans)
---------- ------
- --------------------------------------------------------------------------------
Morgan Stanley 0 0 4.7619047% $
5,000,000.00
- --------------------------------------------------------------------------------
US Bancorp 0 0 4.7619047% $
5,000,000.00
- --------------------------------------------------------------------------------
Banque Paribas 0 0 5.7142857% $
6,000,000.00
- --------------------------------------------------------------------------------
BHF Bank 0 0 5.7142857% $
6,000,000.00
- --------------------------------------------------------------------------------
Bank of America 0 0 5.7142857% $
6,000,000.00
- --------------------------------------------------------------------------------
Credit Lyonnais 0 0 5.7142857% $
6,000,000.00
- --------------------------------------------------------------------------------
First Chicago 0 0 5.7142857% $
6,000,000.00
- --------------------------------------------------------------------------------
Wells Fargo $ 40% 9.0476190% $
2,000,000.00 9,500,000.00
- --------------------------------------------------------------------------------
DLJ $48,000,000.0 96% 52.8571429 $
0 % 55,500,000.00
- --------------------------------------------------------------------------------
TOTAL $50,000,000.0 100% 100% $105,000,000.
- -----
0 00
================================================================================
<PAGE>
SCHEDULE 3.1
EXISTING LETTERS OF CREDIT
Issuing Lender: U.S. Bank National Association (formerly known as
First Bank National Association)
Standby Letters of Credit:
=======================================================================
L/C Number Beneficiary Amount
- ---------- ----------- ------
- -----------------------------------------------------------------------
75760 Central Maine Power Company $75,861.56
- -----------------------------------------------------------------------
75882 North River Insurance Company $690,000.00
=======================================================================
Commercial Letters of Credit:
=======================================================================
L/C Number Beneficiary Amount
- ---------- ----------- ------
- -----------------------------------------------------------------------
ILCMMSP00677 Associated Merchandise, Inc. $56,062.95
- -----------------------------------------------------------------------
ILCMMSP00669 DAFU Group Go. Zhejiang $30,000.00
- -----------------------------------------------------------------------
MSP000571 Associated Merchansie, Inc. $53,343.15
- -----------------------------------------------------------------------
MSP000563 D'Claribel Marketing Corp. $75,865.44
=======================================================================
<PAGE>
Schedule 4.1C
Closing Date Mortgaged Properties
---------------------------------
Maine
Forster Inc.
Depot Street
Strong, Maine 04983
Forster Inc.
Mill Street
East Wilton, Maine 04234
Forster Inc.
Munson Rd.
Wilton, Maine 04294
The parties to this Credit Agreement agree that the Maine
real estate properties set forth above secure $5,906,250 of the
Obligations.
Minnesota
Diamond Brands
1800 Cloquet Avenue
Cloquet, MN 55720
The parties to this Credit Agreement agree that the
Minnesota real estate properties set forth above secure
$2,312,500 of the Obligations.
Note
The properties set forth hereon are more particularly described
in the Mortgages to be delivered to the Agent pursuant to Section
4.1 of the Credit Agreement.
<PAGE>
Schedule 5.1
Subsidiaries
------------
- ----------------------------------------------------------------------------
Corporation Stock Issued Percentage of Common
Stock Owned by Company
- ----------------------------------------------------------------------------
Forster Inc., a Maine 100 shares of Common 100%
corporation Stock
- ----------------------------------------------------------------------------
Empire Candle, Inc., a 1,000 shares of Common 100%
Kansas corporation Stock
- ----------------------------------------------------------------------------
<PAGE>
Schedule 5.5
Real Estate
-----------
Maine
Forster Inc.
Depot Street
Strong, Maine 04983
Forster Inc.
Mill Street
East Wilton, Maine 04234
Forster Inc.
Munson Rd.
Wilton, Maine 04294
Minnesota
Diamond Brands
1800 Cloquet Avenue
Cloquet, MN 55720
Diamond Brands
1660 South Highway 100; Suite 590
Minneapolis, MN 55416
Kansas
Empire Candle, Inc.
2925 Fairfax Trafficway
Kansas City, KS 66115-1317
<PAGE>
Schedule 5.6
Litigation
----------
1. Consolidated Freightways Corporation has threatened to file
suit against Holdings for unpaid motor freight in an amount
totaling $100,043.07. Upon such a filing, Holdings has
contemplated counterclaiming in an amount totaling
$268,371. In addition, at least a portion of Consolidated
Freightways Corporation's claim may be barred by applicable
statutes of limitations.
2. Agnes Marie Simmons v. Diamond Brands Incorporated, Sixth
Judicial District, Carlton County, Minnesota. Simmons, a
former employee, alleges she was fired in retaliation for
seeking workers' compensation benefits.
3. Brad Engh, a former employee of Holdings, has filed an OSHA
retaliation claim against Holdings based on his dismissal
following a safety infraction which caused an injury to
another employee.
4. Holdings and its Subsidiaries incur claims in the ordinary
course related to products sold. These claims are covered
by insurance.
5. Holdings and its Subsidiaries incur workers compensation
claims in the ordinary course. These claims are covered by
insurance.
6. The Minnesota Pollution Control Agency (the "MPCA") has
cited Holdings for exceeding the opacity limits of its air
permit during the second and fourth quarters of 1996 and the
first and second quarters of 1997 and for excessive downtime
of its emissions monitoring equipment during the second and
fourth quarters of 1995. On February 19, 1998, the MPCA
proposed a penalty to be assessed for the violations in the
amount of $22,137. Holdings is presently negotiating the
resolution of these alleged violations with the MPCA.
Holdings also received letters of warning from the MPCA for
emissions in excess of its permit limits during the fourth
quarter of 1993 and for other minor violations of its air
permit in 1994 and second quarter 1995. These violations
were resolved without further action by the MPCA.
<PAGE>
Schedule 5.8
Material Contracts
------------------
1. Term Lease Master Agreement dated July 10, 1991 between
Holdings and IBM Credit Corporation, as supplemented and
amended.
2. Toyota Motor Credit Corporation Lease Agreement (Equipment)
dated January 20, 1995 between Empire Manufacturing Co.,
and Toyota Midamerica, Inc.
3. Memorandum of Agreement dated March 8, 1995 between Forster
Inc. and Solon Manufacturing Company, as amended October 7,
1997.
4. Lease dated March 17, 1995 between Holdings and MEPC
American Properties Inc.
5. Memorandum of Agreement dated August 29, 1995 between
Forster Inc. and Penly Corporation of W. Paris, Maine, as
amended November 11, 1996.
6. Master Equipment Lease Agreement dated December 7, 1995
between Forster Inc. and KeyCorp Leasing Ltd.
7. Purchase Order Agreement dated January 1, 1996 between
Holdings and Crow Rope Company.
8. Agreement dated April 3, 1996 between Empire Manufacturing
Company and Libbey Glass, Inc.
9. Supply Proposal dated October 1, 1996 from Huntsman
Corporation to Foster Inc.
10. Master Lease Agreement dated November 22, 1996 between
Holdings and Meridian Leasing Corporation.
11. U.S. Can Company Customer Supply Agreement dated September
19, 1996 between Empire Manufacturing Company and U.S. Can
Company.
12. Commercial and Industrial Lease Agreement dated June 23,
1997 between Empire Candle, Inc. and LNPJ, L.L.C. ("LNPJ").
Guaranty of Commercial and Industrial Lease Agreement dated
June 23, 1997 in favor of LNPJ.
13. Purchase Order Agreement between Holdings and D.D. Beans &
Sons Co., undated, unexecuted, as amended.
<PAGE>
Note
----
Holdings' rights under the contracts described in items 1, 4, 7,
10 and 13 of this Schedule 5.8 will be transferred to the Company
concurrently with the closing of the Credit Agreement, subject to
possible contractual restrictions upon the assignment, transfer
etc. of Holdings' contractual rights.
<PAGE>
Schedule 5.13
Environmental Matters
---------------------
All matters disclosed in any of the following documents:
1. Holdings (Cloquet).
A. Phase One Environmental Site Assessment dated February
28, 1995.
B. Phase I Environmental Assessment dated March 8, 1991.
C. Ash disposal area closure letter by Minnesota Pollution
Control Agency dated May 17, 1996.
D. Phase I Environmental Assessment dated February 3,
1998.
E. See item 6 of Schedule 5.6.
2. Empire Candle, Inc.
A. Phase I Environmental Site Assessment dated January 30,
1997 (Kansas City, Missouri).
B. Phase I Environmental Site Assessment dated January 31,
1997 (Kansas City, Kansas).
C. KDHE's Corrective Action Decision For Soil and Ground
Water Remediation dated February, 1996 (Draft).
3. Forster Inc.
A. Phase 1 - Environmental Compliance Audit dated August,
1992 (Wilton).
B. Phase 2 - Environmental Site Evaluation dated August,
1992 (Wilton).
C. Environmental Site Evaluation Update dated February,
1995 (Wilton).
D. Phase I Environmental Site Assessment/Environmental
Compliance Audit Update dated February 3, 1998 (Wilton
Plant, Wilton).
E. Phase I Environmental Site Assessment/Environmental
Compliance Audit Updated dated February 3, 1998
(Distribution Center, Wilton).
F. Phase I Environmental Site Evaluation /Evaluative
Compliance Audit dated August, 1998 (East Wilton).
<PAGE>
G. Phase 2 Environmental Site Evaluation dated August,
1992 (East Wilton).
H. Environmental Site Evaluation Update dated February,
1995 (East Wilton).
I. Notice of Landfill Closure dated August 28, 1997 (East
Wilton).
J. October 1997 Closed Landfills Inspection dated November
11, 1997 (East Wilton and Strong).
K. Post-Closure Water Quality Monitoring Report dated
November 25, 1997 (East Wilton).
L. Phase I Environmental Site Assessment/Environmental
Compliance Audit Updated dated February 3, 1998 (East
Wilton).
M. Phase I Environmental Site Evaluation Compliance Audit
dated August, 1992 (Strong).
N. Phase 2 Environmental Site Evaluation dated August,
1992 (Strong).
O. Environmental Site Evaluation Update dated February,
1995 (Strong).
P. Letter Reported by Sevee & Maher Engineers, Inc. dated
January 11, 1996 (Strong).
Q. Notice of Landfill Closure dated August 28, 1997
(Strong).
R. Post-Closure Water Quality Monitoring Reported dated
November 25, 1997 (Strong).
S. Phase I Environmental Site Assessment/Environmental
Compliance Audit Updated dated February 4, 1998
(strong).
T. Memorandum regarding review of Landfill Construction,
Maintenance and Monitoring Cost Estimates dated
February 24, 1995.
U. Revised Summary of Results Environmental Regulatory
Compliance Audits dated February 27, 1995.
V. Bark Pile Closure Plan dated February, 1994
(Mattawamkeag).
W. Closed Bark Pile Water Quality Monitoring Report dated
September 23, 1997 (Matawamkeag).
X. October 1997 Closed Landfill Inspection dated November
11, 1997 (Mattawamkeag).
<PAGE>
Y. Forester was alleged to have sent hazardous substances
to the Union Chemical, Superfund Site in South Hope,
Maine. Memorandum dated April, 1996, indicating that
Forster contributed $21,598.68 toward the remediation
costs at the site.
<PAGE>
Schedule 7.1
Indebtedness
------------
1. Any Indebtedness described in the financial statements
delivered to the Lenders pursuant to Section 5.3 of the Credit
Agreement, except for the existing indebtedness of Holdings and
its Subsidiaries satisfied concurrently with the closing of the
Credit Agreement.
<PAGE>
Schedule 7.2
Liens
-----
1. UCC-1 Financing Statements
--------------------------
MISSOURI
- --------
Debtor Secured Party Filing #/Date
- ------ ------------- -------------
Empire Candle, Inc. Business Credit Leasing 2817224
115 W. College Drive 08/04/97
Marshall, MN 56258
Refco Investments, Inc. 2839882
313 S. Rohlwing Rd. 10/10/97
Addison, IL 60101
MINNESOTA
- ---------
Debtor Secured Party Filing #/Date
- ------ ------------- -------------
Diamond Brands, Inc. IBM Credit Corp. 1630732 11/17/93
Debt C4E MS 222 1634479 12/06/93
250 Harbor Drive 1758492 05/04/95
Stamford, CT 06904 1758494 05/04/95
Meridian Leasing Corp. 1917012
570 Lake Cook Rd. #300 02/14/97
Deerfield, IL 60015
IBM Credit Corp. 1960403 07/24/97
1133 Westchester Ave. 1963013 08/04/97
White Plains, NY 10604
MAINE
- -----
Debtor Secured Party Filing #/Date
- ------ ------------- -------------
Forster, Inc. Keycorp Leasing, Ltd. 1950001154365
54 State Street 12/26/95
Albany, NY 12207
2. [Copy list of encumbrances set forth on Closing Date
Mortgage Policies to be delivered to the Agent pursuant to
Section 4.1C(iii).]
<PAGE>
Schedule 7.3
Investments
-----------
US Bank
Investment Services
P.O. Box 1674
Minneapolis, MN 55480-9815
Money Market Account - 13048194 (there are currently no
funds in this account)
<PAGE>
Schedule 7.4
Contingent Obligations
----------------------
1. Any Contingent Obligations set forth in the financial
statements delivered to the Lenders pursuant to Section 5.3
of the Credit Agreement, except for Contingent Obligations
terminated in connection with the satisfaction of the
existing indebtedness of Holdings and its Subsidiaries upon
the closing of the Credit Agreement.
<PAGE>
Schedule 7.12
Affiliate Transactions
----------------------
1. Employment (Change of Control) Agreement dated November 1,
1997 between Holdings and Thomas Kneusel, as amended on
February 27, 1998 to extend the term of the Agreement
through May 31, 1998.
2. Employment (Change of Control) Agreement dated November 1,
1997 between Holdings and John Young, as amended on
February 27, 1998 to extend the terms of the Agreement
through May 31, 1998.
3. Employment (Change of Control) Agreement dated November 1,
1997 between Holdings and Christopher Mathews, as amended
on February 27, 1998 to extend the term of the Agreement
through May 31, 1998.
4. Employment Agreement dated February 28, 1997 between Empire
Candle, Inc. and A. Drummon Crews. Letter Agreement between
Holding and A. Drummon Crews providing for a bonus of
$300,000, payable 50% at closing and 50% six months after
closing.
5. Employment, Non-Competition and Confidentiality Agreement
dated May 26, 1992 between Forster Mfg. Co., now known as
Forster Inc., and Richard S. Campbell, as amended April 27,
1994. Letter Agreement between Forster and Richard S.
Campbell, providing for a bonus of $175,000, payable 50% at
closing and 50% one year after closing.
6. Non-Qualified Stock Option Agreement dated January 1, 1997
between Holdings and John Beach.
7. Non-Qualified Stock Option Agreement dated January 1, 1997
between Holdings and Richard Campbell.
8. Non-Qualified Stock Option Agreement dated January 1, 1997
between Holdings and Thomas Kneusel.
9. Non-Qualified Stock Option Agreement dated January 1, 1997
between Holdings and Christopher Mathews.
10. Non-Qualified Stock Option Agreement dated January 1, 1997
between Holdings and John Young.
11. Holdings 1997 Non-Qualified Stock Option Plan.
<PAGE>
12. Holdings has a bonus program pursuant to which officers
participate at a 30% plus level and mid-management at a
6-20% range. Bonuses are paid based on achievement of
annual target goals.
Note
- ----
The obligations and rights of Holdings under the agreements
described in this Schedule 7.12 will be transferred to the
Company concurrently with the closing of the Credit Agreement.
<PAGE>
EXHIBIT I
[FORM OF NOTICE OF BORROWING]
NOTICE OF BORROWING
Pursuant to that certain Credit Agreement dated
as of April [___], 1998, as amended, supplemented or otherwise
modified to the date hereof (said Credit Agreement, as so
amended, supplemented or otherwise modified, being the "Credit
Agreement", the terms defined therein and not otherwise defined
herein being used herein as therein defined), by and among
DIAMOND BRANDS OPERATING CORP., a Delaware corporation
("Company"), the financial institutions listed therein as Lenders
("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, this
represents Company's request to borrow as follows:
1. Date of borrowing: ________, _________
2. Amount of borrowing: $___________________
3. Lenders: |_| a. Lenders, in accordance with
their applicable Pro Rata shares
|_| b. Swing Line Lender
4. Type of Loans: |_| a. Tranche A Term Loans
|_| b. Tranche B Term Loans
|_| c. Revolving Loans
|_| d. Swing Line Loan
5. Interest rate option: |_| a. Base Rate Loan(s)
|_| b. Eurodollar Rate Loans with
an initial Interest Period of
____________ month(s)
The proceeds of such Loans are to be deposited in Company's
account at Administrative Agent.
The undersigned officer, to the best of his or
her knowledge, and Company certify that:
(i) The representations and warranties
contained in the Credit Agreement and the other
Loan Documents are true, correct and complete
in all material respects on and as of the date
hereof to the same extent as though made on and
as of the date hereof, except to the extent
such representations and warranties
specifically relate to an earlier date, in
which case such representations and warranties
were true, correct and complete in all material
respects on and as of such earlier date;
<PAGE>
(ii) No event has occurred and is continuing or
would result from the consummation of the
borrowing contemplated hereby that would
constitute an Event of Default or a Potential
Event of Default;
(iii) Each Loan Party has performed in all
material respects all agreements and satisfied
all conditions which the Credit Agreement
provides shall be performed or satisfied by it
on or before the date hereof;
(iv) Each of the other conditions to funding
set forth in subsection 4.2B has been
satisfied; and
(v) After giving effect to the [Revolving/Swing
Line] Loans requested hereby, the Total
utilization of Revolving Loan Commitments does
not exceed the Revolving Loan Commitments.
DATED: ____________________ DIAMOND BRANDS OPERATING CORP.
By: __________________________
Title: ________________________
<PAGE>
EXHIBIT II
[FORM OF NOTICE OF CONVERSION/CONTINUATION]
NOTICE OF CONVERSION/CONTINUATION
Pursuant to that certain Credit Agreement dated as of
April [___], 1998, as amended, supplemented or otherwise modified
to the date hereof (said Credit Agreement, as so amended,
supplemented or otherwise modified, being the "Credit Agreement",
the terms defined therein and not otherwise defined herein being
used herein as therein defined), by and among DIAMOND BRANDS
OPERATING CORP., a Delaware corporation ("Company"), the
financial institutions listed therein 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, this represents Company's request to convert
or continue Loans as follows:
1. Date of conversion/continuation: __________________, _______
2. Amount of Loans being converted/continued: $__________________
_
3. Type of Loans being |_| a. Tranche A Term Loans
converted/continued |_| b. Tranche B:Term Loans
|_| c. Revolving Loans
4. Nature of conversion/continuation:
|_| a. Conversion of Base Rate Loans to
Eurodollar Rate Loans
|_| b. Conversion of Eurodollar Rate Loans
to Base Rate Loans
|_| c. Continuation of Eurodollar Rate
Loans as such
5. If Loans are being continued as or converted to
Eurodollar Rate Loans, the duration of the new Interest
Period that commences on the conversion/ continuation
date: |_______________ month(s)
In the case of a conversion to or continuation of
Eurodollar Rate Loans, the undersigned officer, to the best of
his or her knowledge, and Company certify that no Event of
Default or Potential Event of Default has occurred and is
continuing under the Credit Agreement.
DATED: _____________________ DIAMOND BRANDS OPERATING CORP.
By: __________________________
Title: ________________________
<PAGE>
EXHIBIT III
[FORM OF NOTICE OF ISSUANCE OF LETTER OF CREDIT]
DIAMOND BRANDS OPERATING CORP.
NOTICE OF ISSUANCE OF LETTER OF CREDIT
Pursuant to that certain Credit Agreement dated
as of April [___], 1998, as amended, supplemented or otherwise
modified to the date hereof (said Credit Agreement, as so
amended, supplemented or otherwise modified, being the "Credit
Agreement", the terms defined therein and not otherwise defined
herein being used herein as therein defined), by and among
DIAMOND BRANDS OPERATING CORP., a Delaware corporation, the
financial institutions listed therein 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, this represents the Company's request that
[Administrative Agent/_________________] issue a
[Commercial/Standby] Letter of Credit on __________, ____ in the
face amount of _________________ with an expiration date of
____________, ____. The beneficiary of such proposed Letter of
Credit shall be ______________________________________________
and such Person's address is
_____________________________________. Attached hereto is [the
verbatim text of such proposed Letter of Credit] [a description
of the proposed terms and conditions of such Letter of Credit,
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 such Letter of Credit, would require
the Issuing Lender to make payment under such Letter of Credit].
The undersigned officer, in his/her capacity as
an officer of Company and to the best of his/her knowledge, and
Company certify that:
(i) The representations and warranties
contained in the Credit Agreement and the other
Loan Documents are true, correct and complete
in all material respects on and as of the date
hereof to the same extent as though made on and
as of the date hereof, except to the extent
such representations and warranties
specifically relate to an earlier date, in
which case such representations and warranties
were true, correct and complete in all material
respects on and as of such earlier date;
(ii) No event has occurred and is continuing or
would result from the issuance of the Letter of
Credit contemplated hereby that would
constitute an Event of Default or a Potential
Event of Default;
(iii) Each Loan Party has performed in all
material respects all agreements and satisfied
all conditions which the Credit Agreement
provides shall be performed or satisfied by it
on or before the date hereof;
<PAGE>
(iv) Each of the other conditions to the
issuance of the Letter of Credit contemplated
hereby described in subsection 4.3C has been
satisfied; and
(v) After giving effect to the issuance of the
Letter of Credit requested hereby, (a) the
Total Utilization of Revolving Loan Commitments
does not exceed the Revolving Loan Commitments
and (b) the Letter of Credit Usage does not
exceed $10,000,000.
DATED: ____________________ DIAMOND BRANDS OPERATING CORP.
By: _________________________
Title: _______________________
<PAGE>
EXHIBIT IV
[FORM OF TRANCHE A TERM NOTE]
DIAMOND BRANDS OPERATING CORP.
PROMISSORY NOTE DUE APRIL [___], 2005
$_______________ 1
April [___], 1998
FOR VALUE RECEIVED, DIAMOND BRANDS OPERATING
CORP., a Delaware corporation ("Company"), promises to pay to 2
("Payee") or its registered assigns the principal amount of 3
($___________) on April [___], 2005 in the installments referred
to below.
Company also promises to pay interest on the
unpaid principal amount hereof, from the date hereof until paid
in full, at the rates and at the times which shall be determined
in accordance with the provisions of that certain Credit
Agreement dated as of April [___], 1998 by and among Company, the
financial institutions listed therein 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 (said Credit Agreement, as it may 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).
Company shall make principal payments on this
Note in consecutive quarterly installments, commencing on
____________, 1999 and ending on ____________, 2005. Each such
installment shall be due on the date specified in the Credit
Agreement and in an amount determined in accordance with the
provisions thereof; provided that the last such installment shall
be in an amount sufficient to repay the entire unpaid principal
balance of this Note, together with all accrued and unpaid
interest thereon.
This Note is one of Company's "Tranche A Term
Notes" in the aggregate principal amount of $30,000,000 and is
issued pursuant to and entitled to the benefits of the Credit
Agreement, to which reference is hereby made for a more complete
statement of the terms and conditions under which the Tranche A
Term Loan evidenced hereby was made and is to be repaid.
All payments of principal and interest in
respect of this Note shall be made in lawful money of the United
States of America in same day funds at the Funding and Payment
Office or at such other place as shall be designated in writing
for such purpose in accordance with the terms of the Credit
Agreement. Unless and until an Assignment Agreement
- --------
1 Insert place of delivery of Note.
2 Insert Lender's name in capital letters.
3 Insert amount of Lender's Term Loan in words.
<PAGE>
effecting the assignment or transfer of this Note shall have been
accepted by Administrative Agent as provided in subsection
10.1B(ii) of the Credit Agreement, Company and Administrative
Agent shall be entitled to deem and treat Payee as the owner and
holder of this Note and the Loan evidenced hereby. Payee hereby
agrees, by its acceptance hereof, that before disposing of this
Note or any part hereof it will make a notation hereon of all
principal payments previously made hereunder and of the date to
which interest hereon has been paid; provided, however, that the
failure to make a notation of any payment made on this Note shall
not limit or otherwise affect the obligations of Company
hereunder with respect to payments of principal of or interest on
this Note.
Whenever any payment on this Note shall be
stated to be due on a day which 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 on this Note.
This Note is subject to mandatory prepayment as
provided in subsection 2.4B(iii) of the Credit Agreement and to
prepayment at the option of Company as provided in subsection
2.4B(i) of the Credit Agreement.
THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF
COMPANY AND PAYEE 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.
Upon the occurrence of an Event of Default, the
unpaid balance of the principal amount of this Note, together
with all accrued and unpaid interest thereon, may become, or may
be declared to be, due and payable in the manner, upon the
conditions and with the effect provided in the Credit Agreement.
The terms of this Note are subject to amendment
only in the manner provided in the Credit Agreement.
This Note is subject to restrictions on
transfer or assignment as provided in subsections 10.1 and 10.16
of the Credit Agreement.
No reference herein to the Credit Agreement and
no provision of this Note or the Credit Agreement shall alter or
impair the obligations of Company, which are absolute and
unconditional, to pay the principal of and interest on this Note
at the place, at the respective times, and in the currency herein
prescribed.
Company promises to pay all reasonable
out-of-pocket costs and expenses, including reasonable attorneys'
fees, all as provided in subsection 10.2 of the Credit Agreement,
incurred in the collection and enforcement of this Note. Company
and any endorsers of this Note hereby consent to renewals and
extensions of time at or after the
<PAGE>
maturity hereof, without notice, and hereby waive diligence,
presentment, protest, demand and notice of every kind.
<PAGE>
IN WITNESS WHEREOF, Company has caused this
Note to be duly executed and delivered by its officer thereunto
duly authorized as of the date and at the place first written
above.
DIAMOND BRANDS OPERATING CORP.
By: __________________________
Title: ________________________
<PAGE>
EXHIBIT V
[FORM OF TRANCHE B TERM NOTE]
DIAMOND BRANDS OPERATING CORP.
PROMISSORY NOTE DUE APRIL [___], 2006
$_______________ 4
April [___], 1998
FOR VALUE RECEIVED, DIAMOND BRANDS OPERATING
CORP., a Delaware corporation ("Company"), promises to pay to 5
("Payee") or its registered assigns the principal amount of 6
($_____________) on April [___], 2006 in the installments
referred to below.
Company also promises to pay interest on the
unpaid principal amount hereof, from the date hereof until paid
in full, at the rates and at the times which shall be determined
in accordance with the provisions of that certain Credit
Agreement dated as of April [___], 1998 by and among Company, the
financial institutions listed therein 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 (said Credit Agreement, as it may 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).
Company shall make principal payments on this
Note in consecutive quarterly installments, commencing on
____________, 1998 and ending on ____________, 2006. Each such
installment shall be due on the date specified in the Credit
Agreement and in an amount determined in accordance with the
provisions thereof; provided that the last such installment shall
be in an amount sufficient to repay the entire unpaid principal
balance of this Note, together with all accrued and unpaid
interest thereon.
This Note is one of Company's "Tranche B Term
Notes" in the aggregate principal amount of $50,000,000 and is
issued pursuant to and entitled to the benefits of the Credit
Agreement, to which reference is hereby made for a more complete
statement of the terms and conditions under which the Term Loan
evidenced hereby was made and is to be repaid.
All payments of principal and interest in
respect of this Note shall be made in lawful money of the United
States of America in same day funds at the Funding and Payment
Office or at such other place as shall be designated in writing
for such purpose in accordance with the terms of the Credit
Agreement. Unless and until an Assignment Agreement
- --------
4 Insert place of delivery of Note.
5 Insert Lender's name in capital letters.
6 Insert amount of Lender's Term Loan in words.
<PAGE>
effecting the assignment or transfer of this Note shall have been
accepted by Administrative Agent as provided in subsection
10.1B(ii) of the Credit Agreement, Company and Administrative
Agent shall be entitled to deem and treat Payee as the owner and
holder of this Note and the Loan evidenced hereby. Payee hereby
agrees, by its acceptance hereof, that before disposing of this
Note or any part hereof it will make a notation hereon of all
principal payments previously made hereunder and of the date to
which interest hereon has been paid; provided, however, that the
failure to make a notation of any payment made on this Note shall
not limit or otherwise affect the obligations of Company
hereunder with respect to payments of principal of or interest on
this Note.
Whenever any payment on this Note shall be
stated to be due on a day which 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 on this Note.
This Note is subject to mandatory prepayment as
provided in subsection 2.4B(iii) of the Credit Agreement and to
prepayment at the option of Company as provided in subsection
2.4B(i) of the Credit Agreement.
THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF
COMPANY AND PAYEE 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.
Upon the occurrence of an Event of Default, the
unpaid balance of the principal amount of this Note, together
with all accrued and unpaid interest thereon, may become, or may
be declared to be, due and payable in the manner, upon the
conditions and with the effect provided in the Credit Agreement.
The terms of this Note are subject to amendment
only in the manner provided in the Credit Agreement.
This Note is subject to restrictions on
transfer or assignment as provided in subsections 10.1 and 10.16
of the Credit Agreement.
No reference herein to the Credit Agreement and
no provision of this Note or the Credit Agreement shall alter or
impair the obligations of Company, which are absolute and
unconditional, to pay the principal of and interest on this Note
at the place, at the respective times, and in the currency herein
prescribed.
Company promises to pay all reasonable
out-of-pocket costs and expenses, including reasonable attorneys'
fees, all as provided in subsection 10.2 of the Credit Agreement,
incurred in the collection and enforcement of this Note. Company
and any endorsers of this Note hereby consent to renewals and
extensions of time at or after the
<PAGE>
maturity hereof, without notice, and hereby waive diligence,
presentment, protest, demand and notice of every kind.
<PAGE>
IN WITNESS WHEREOF, Company has caused this
Note to be duly executed and delivered by its officer thereunto
duly authorized as of the date and at the place first written
above.
DIAMOND BRANDS OPERATING CORP.
By: __________________________
Title: ________________________
<PAGE>
EXHIBIT VI
[FORM OF REVOLVING NOTE]
DIAMOND BRANDS OPERATING CORP.
PROMISSORY NOTE DUE APRIL [___], 2004
7
$
8
April [___], 1998
FOR VALUE RECEIVED, DIAMOND BRANDS OPERATING
CORP., a Delaware corporation ("Company"), promises to pay to 9
("Payee") or its registered assigns, on or before April [___],
2004, the lesser of (x) 10 ($[1]) and (y) the unpaid principal
amount of all advances made by Payee to Company as Revolving
Loans under the Credit Agreement referred to below.
Company also promises to pay interest on the
unpaid principal amount hereof, from the date hereof until paid
in full, at the rates and at the times which shall be determined
in accordance with the provisions of that certain Credit
Agreement dated as of April [___], 1998 by and among Company, the
financial institutions listed therein 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 (said Credit Agreement, as it may 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).
This Note is one of Company's "Revolving Notes"
in the aggregate principal amount of $25,000,000 and is issued
pursuant to and entitled to the benefits of the Credit Agreement,
to which reference is hereby made for a more complete statement
of the terms and conditions under which the Revolving Loans
evidenced hereby were made and are to be repaid.
All payments of principal and interest in
respect of this Note shall be made in lawful money of the United
States of America in same day funds at the Funding and Payment
Office or at such other place as shall be designated in writing
for such purpose in accordance with the terms of the Credit
Agreement. Unless and until an Assignment Agreement effecting the
assignment or transfer of this Note shall have been accepted by
Administrative Agent as provided in subsection 10.1B(ii) of the
Credit Agreement, Company and Administrative Agent shall be
entitled to deem and treat Payee as the owner and holder of this
Note and the Loans evidenced hereby. Payee hereby agrees, by its
acceptance hereof, that before disposing of this Note or any part
hereof it will make a notation hereon of all principal
- --------
7 Insert amount of Lender's Revolving Loan Commitment in numbers.
8 Insert place of delivery of Note.
9 Insert Lender's name in capital letters.
10 Insert amount of Lender's Revolving Loan Commitment in words.
<PAGE>
payments previously made hereunder and of the date to which
interest hereon has been paid; provided, however, that the
failure to make a notation of any payment made on this Note shall
not limit or otherwise affect the obligations of Company
hereunder with respect to payments of principal of or interest on
this Note.
Whenever any payment on this Note shall be
stated to be due on a day which 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 on this Note.
This Note is subject to mandatory prepayment as
provided in subsection 2.4B(iii) of the Credit Agreement and to
prepayment at the option of Company as provided in subsection
2.4B(i) of the Credit Agreement.
THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF
COMPANY AND PAYEE 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.
Upon the occurrence of an Event of Default, the
unpaid balance of the principal amount of this Note, together
with all accrued and unpaid interest thereon, may become, or may
be declared to be, due and payable in the manner, upon the
conditions and with the effect provided in the Credit Agreement.
The terms of this Note are subject to amendment
only in the manner provided in the Credit Agreement.
This Note is subject to restrictions on
transfer or assignment as provided in subsections 10.1 and 10.16
of the Credit Agreement.
No reference herein to the Credit Agreement and
no provision of this Note or the Credit Agreement shall alter or
impair the obligations of Company, which are absolute and
unconditional, to pay the principal of and interest on this Note
at the place, at the respective times, and in the currency herein
prescribed.
Company promises to pay all reasonable
out-of-pocket costs and expenses, including reasonable attorneys'
fees, all as provided in subsection 10.2 of the Credit Agreement,
incurred in the collection and enforcement of this Note. Company
and any endorsers of this Note hereby consent to renewals and
extensions of time at or after the maturity hereof, without
notice, and hereby waive diligence, presentment, protest, demand
and notice of every kind.
<PAGE>
IN WITNESS WHEREOF, Company has caused this
Note to be duly executed and delivered by its officer thereunto
duly authorized as of the date and at the place first written
above.
DIAMOND BRANDS OPERATING CORP.
By: __________________________
Title: ________________________
<PAGE>
TRANSACTIONS
ON
REVOLVING NOTE
Outstanding
Type of Amount of Amount of Principal
Loan Made Loan Made Principal Paid Balance Notation
Date This Date This Date This Date This Date Made By
- ---- ---------- ------------- --------------- --------------- -------
<PAGE>
EXHIBIT VII
[FORM OF SWING LINE NOTE]
DIAMOND BRANDS OPERATING CORP.
PROMISSORY NOTE DUE APRIL [___], 2004
$5,000,000 Los Angeles, California
April [___], 1998
FOR VALUE RECEIVED, DIAMOND BRANDS OPERATING
CORP., a Delaware corporation ("Company"), promises to pay to
WELLS FARGO BANK, N.A. ("Payee"), on or before April [___], 2004,
the lesser of (x) FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00)
and (y) the unpaid principal amount of all advances made by Payee
to Company as Swing Line Loans under the Credit Agreement
referred to below.
Company also promises to pay interest on the
unpaid principal amount hereof, from the date hereof until paid
in full, at the rates and at the times which shall be determined
in accordance with the provisions of that certain Credit
Agreement dated as of April [___], 1998 by and among Company, the
financial institutions listed therein 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 (said Credit Agreement, as it may 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).
This Note is Company's "Swing Line Note" and is
issued pursuant to and entitled to the benefits of the Credit
Agreement, to which reference is hereby made for a more complete
statement of the terms and conditions under which the Swing Line
Loans evidenced hereby were made and are to be repaid.
All payments of principal and interest in
respect of this Note shall be made in lawful money of the United
States of America in same day funds at the Funding and Payment
Office or at such other place as shall be designated in writing
for such purpose in accordance with the terms of the Credit
Agreement.
Whenever any payment on this Note shall be
stated to be due on a day which 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 on this Note.
This Note is subject to mandatory prepayment as
provided in subsection 2.4B(iii) of the Credit Agreement and to
prepayment at the option of Company as provided in subsection
2.4B(i) of the Credit Agreement.
<PAGE>
THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF
COMPANY AND PAYEE 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.
Upon the occurrence of an Event of Default, the
unpaid balance of the principal amount of this Note, together
with all accrued and unpaid interest thereon, may become, or may
be declared to be, due and payable in the manner, upon the
conditions and with the effect provided in the Credit Agreement.
The terms of this Note are subject to amendment
only in the manner provided in the Credit Agreement.
This Note is subject to restrictions on
transfer or assignment as provided in subsections 10.1 and 10.16
of the Credit Agreement.
No reference herein to the Credit Agreement and
no provision of this Note or the Credit Agreement shall alter or
impair the obligations of Company, which are absolute and
unconditional, to pay the principal of and interest on this Note
at the place, at the respective times, and in the currency herein
prescribed.
Company promises to pay all reasonable
out-of-pocket costs and expenses, including reasonable attorneys'
fees, all as provided in subsection 10.2 of the Credit Agreement,
incurred in the collection and enforcement of this Note. Company
and any endorsers of this Note hereby consent to renewals and
extensions of time at or after the maturity hereof, without
notice, and hereby waive diligence, presentment, protest, demand
and notice of every kind.
<PAGE>
IN WITNESS WHEREOF, Company has caused this
Note to be duly executed and delivered by its officer thereunto
duly authorized as of the date and at the place first written
above.
DIAMOND BRANDS OPERATING CORP.
By: _________________________
Title: _______________________
<PAGE>
TRANSACTIONS
ON
SWING LINE NOTE
Outstanding
Amount of Amount of Principal
Loan Made Principal Paid Balance Notation
Date This Date This Date This Date Made By
- ---- --------- --------- --------- -------
<PAGE>
EXHIBIT VIII
[FORM OF COMPLIANCE CERTIFICATE]
COMPLIANCE CERTIFICATE
THE UNDERSIGNED HEREBY CERTIFY THAT:
(1) We are the duly elected [Title] and [Title]
of DIAMOND BRANDS OPERATING CORP., a Delaware
corporation ("Company");
(2) We have reviewed the terms of that certain
Credit Agreement dated as of April [___], 1998,
as amended, supplemented or otherwise modified
to the date hereof (said Credit Agreement, as
so amended, supplemented or otherwise modified,
being the "Credit Agreement", the terms defined
therein and not otherwise defined in this
Certificate (including Attachment No. 1 annexed
hereto and made a part hereof) being used in
this Certificate as therein defined), by and
among Company, the financial institutions
listed therein 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 and the terms of the other Loan
Documents, and we have made, or have caused to
be made under our supervision, a review in
reasonable detail of the transactions and
condition of Company and its Subsidiaries
during the accounting period covered by the
attached financial statements; and
(3) The examination described in paragraph (2)
above did not disclose, and we have no
knowledge of, the existence of any condition or
event which constitutes an Event of Default or
Potential Event of Default during or at the end
of the accounting period covered by the
attached financial statements or as of the date
of this Certificate[, except as set forth
below].
[Set forth [below] [in a separate attachment to
this Certificate] are all exceptions to paragraph (3) above
listing, in detail, the nature of the condition or event, the
period during which it has existed and the action which Company
has taken, is taking, or proposes to take with respect to each
such condition or event:
- -----------------------------------------------------------------
The foregoing certifications, together with the
computations set forth in Attachment No. 1 annexed hereto and
made a part hereof and the financial statements delivered with
this Certificate in support hereof, are made and delivered this
__________ day of _____________, ______ pursuant to subsection
6.1(iv) of the Credit Agreement.
DIAMOND BRANDS OPERATING CORP.
<PAGE>
By: __________________________
Title: ________________________
By: __________________________
Title: ________________________
<PAGE>
ATTACHMENT NO. 1
TO COMPLIANCE CERTIFICATE
This Attachment No. 1 is attached to and made a
part of a Compliance Certificate dated as of ____________, ______
and pertains to the period from ____________, ______ to
____________, ______. Subsection references herein relate to
subsections of the Credit Agreement.
A. Indebtedness
1. Indebtedness in respect of Capital Leases permitted
under subsection 7.1(iii): $_____________
2. Maximum permitted under subsection 7.1(iii): $5,000,000
3. Indebtedness of Subsidiaries acquired after the
the Closing Date permitted under subsection 7.1(vii): $_____________
4. Maximum permitted under subsection 7.1(vii): $17,000,000
5. Indebtedness permitted under subsection 7.1(ix):
$_____________
6. Maximum permitted under subsection 7.1(ix): $10,000,000
B. Liens
1. Indebtedness secured by Liens permitted under
subsection 7.2A(v): $_____________
2. Maximum permitted under subsection 7.2A(v): $ 1,000,000
C. Investments
1. Investments permitted under subsection 7.3(vi):
$_____________
2. Maximum permitted under subsection 7.3(vi): $ 8,000,000
D. Contingent Obligations
1. Contingent Obligations in respect of Letters of Credit
permitted under subsection 7.4(ii): $_____________
2. Contingent Obligations in respect of other letters of
credit permitted under subsection 7.4(ii): $_____________
<PAGE>
3. Maximum permitted under subsection 7.4(ii) with respect
to other letters of credit: $ 5,000,000
4. Contingent Obligations under guarantees of obligations
of suppliers, customers, franchisees and licensees
permitted under subsection 7.4(iv): $_____________
5. Maximum permitted under subsection 7.4(iv): $ 5,000,000
E. Minimum Interest Coverage Ratio (for the four-Fiscal Quarter
period ending _____________, ______)
1. Consolidated Net Income: $_____________
2. Consolidated Interest Expense: $_____________
3. Interest income included in Consolidated Net Income:
$_____________
4. Provisions for taxes based on income: $_____________
5. Total depreciation expense: $_____________
6. Total amortization expense: $_____________
7. Other non-cash items reducing Consolidated Net Income:
$_____________
8. Other non-cash items increasing Consolidated Net
Income: $_____________
9. Consolidated EBITDA (1+2-3+4+5+6+7-8): $_____________
10. Interest Coverage Ratio (9):(2): ____:1.00
11. Minimum ratio required under subsection 7.6C: ____:1.00
F. Minimum Fixed Charge Coverage Ratio (for the four-Fiscal
Quarter period ending _____________, ______)
1. Consolidated EBITDA (E.9 above): $_____________
2. Consolidated Interest Expense (E.2 above):
$_____________
3. Consolidated Capital Expenditures: $_____________
4. Scheduled principal payments in respect of Consolidated
Total Debt: $_____________
<PAGE>
5. Dividends made by Company to Holdings permitted under
subsection 7.5(ii): $_____________
6. Expenditures made at the time of the transaction
constituting Consolidated Capital Expenditures in
connections with any Permitted Acquisition permitted
under subsection 7.7(ii): $_____________
7. Consolidated Fixed Charges (2+3+4+5-6): $_____________
8. Fixed Charge Coverage Ratio (1):(7): ____:1.00
9. Minimum ratio required under subsection 7.6A: ____:1.00
G. Maximum Leverage Ratio (for the four-Fiscal Quarter
period ending _____________, ______)
1. Consolidated EBITDA (E.9 above): $_____________
2. Consolidated Interest Expense (E.2 above): $_____________
3. Consolidated Leverage Ratio (1):(2): ____:1.00
4. Maximum ratio permitted under subsection 7.6B: ____:1.00
H. Fundamental Changes
1. Cash consideration, Indebtedness and other liabilities
incurred or assumed in connection with Permitted
Acquisitions closed during the Fiscal Quarter pursuant
to subsection 7.7(ii) $_____________
2. Maximum amount of cash consideration, Indebtedness and
other liabilities for any single Permitted
Acquisition: $ 25,000,000
3. Cash capital contributions to Company used in
connection with Permitted Acquisition plus value of
Holdings equity issued as consideration in Permitted
Acquisition: $_____________
4. Maximum permitted cash capital contributions or
Holdings equity (H.1 above): $_____________
5. Cumulative amount of cash consideration, Indebtedness
and other liabilities incurred or assumed in connection
with all Permitted Acquisitions under
<PAGE>
subsection 7.7(ii): $_____________
6. Maximum cumulative amount of cash consideration,
Indebtedness and other liabilities for all Permitted
Acquisitions: $ 75,000,000
7. Cumulative capital contributions used in connection
with Permitted Acquisitions plus value of all Holdings
equity issued as consideration for Permitted
Acquisitions: $_____________
8. Maximum cumulative permitted cash capital contributions
or Holdings equity (H.5 above): $_____________
9. Aggregate fair market value of assets sold in any one
or more Asset Sales after Closing Date in one or more
transactions permitted under subsection 7.7(v): $_____________
10. Maximum permitted under subsection 7.7(v): $ 3,000,000
I. Consolidated Capital Expenditures
1. Consolidated Capital Expenditures for Fiscal
Year-to-date (excluding expenditures made in connection
with, and at time of, Permitted Acquisitions): $_____________
2. Net Sale Proceeds received in Fiscal Year-to-Date: $_____________
3. Amount of Net Sale Proceeds received in Fiscal Year
applied to mandatory prepayments: $_____________
4. Difference between Maximum Consolidated Capital
Expenditures for prior Fiscal Year and actual
Consolidated Capital Expenditures for prior Fiscal Year
(0 for Fiscal Years ending prior to the Closing Date
and not to exceed $2,500,000 in each Fiscal Year
thereafter): $_____________
5. Maximum amount of Consolidated Capital Expenditures
permitted under subsection 7.8 for Fiscal Year
($5,000,000+2-3+4): $_____________
J. Leases
1. Consolidated Rental Payments in
<PAGE>
effect during current Fiscal Year: $_____________
2. Maximum permitted under subsection 7.9: $ 3,000,000
<PAGE>
EXHIBIT IX
[FORM OF OPINION OF MCDERMOTT, WILL & EMERY]
We have acted as counsel to [Name of Company],
a Delaware corporation ("Company"), in connection with that
certain Credit Agreement dated as of April [___], 1998 (the
"Credit Agreement") among Company, the financial institutions
listed therein as Lenders ("Lenders"), DLJ Capital Funding, Inc.,
as Syndication Agent ("Syndication Agent"), Wells Fargo Bank,
N.A., as Administrative Agent ("Administrative Agent"), and
[__________________], as Documentation Agent ("Documentation
Agent"). This opinion is rendered to you in compliance with
subsection 4.1I of the Credit Agreement. Capitalized terms used
herein without definition have the same meanings as in the Credit
Agreement.
The Credit Agreement, the Notes, the
Guaranties, the Security Documents and the Intellectual Property
Security Agreements are referred to collectively herein as the
"Loan Documents."
In our examination, we have assumed the
genuineness of all signatures other than those of the Loan
Parties, the authenticity of all documents submitted to us as
originals and the conformity to authentic original documents of
all documents submitted to us as copies. We have been furnished
with, and with your consent have relied upon, certificates of
officers of certain Loan Parties with respect to certain factual
matters. In addition, we have obtained and relied upon such
certificates and assurances from public officials as we have
deemed necessary.
We have made such legal and factual inquiries
for the purpose of rendering this opinion as we have deemed
necessary. We are opining herein as to the effect on the subject
transaction of only United States Federal law, the laws of the
State of New York and the General Corporation Law of the State of
Delaware (the "Delaware GCL"), and we express no opinion with
respect to the applicability thereto, or the effect thereon, of
the laws of any other jurisdiction, or, in the case of Delaware,
any other laws, or as to any matters of municipal law or the laws
of any local agencies within any state. [Assume reliance
regarding local counsel opinions re: Minnesota, Maine and Kansas
law.]
On the basis of the foregoing, and in reliance
thereon, and subject to the limitations, qualifications,
assumptions, exceptions and other matters set forth herein, we
are of the opinion that, as of the date hereof:
1. Borrower (i) is a duly incorporated and
validly existing corporation in good standing under the Delaware
GCL and (ii) has the corporate power and authority to own and
operate its property, to lease the property it operates as lessee
and to carry on its businesses as now conducted.
<PAGE>
2. Each of the other Loan Parties (i) is duly
incorporated and validly existing corporation in good standing
under laws and statutes of their respective jurisdiction of
incorporation and (ii) has the corporate power and authority to
own and operate its property, to lease the property it operates
as lessee and to carry on its respective businesses as now
conducted.
3. Each of the Borrower and the other Loan
Parties has the corporate power and authority to execute and
deliver each of the Loan Documents to which it is a party and to
perform its respective obligations thereunder. Each of the
Borrower and the other Loan Parties has taken all necessary
corporate action to grant the security interests contemplated by
the Security Documents to which it is a party and to authorize
the execution, delivery and performance of the Loan Documents to
which it is a party.
4. Each of the Borrower and the other Loan
Parties has duly executed and delivered each Loan Document to
which it is a party. Each Loan Document constitutes the legally
valid and binding obligation of the Loan Parties party thereto,
as applicable, enforceable against such Loan Party in accordance
with its terms.
5. Neither the execution nor the delivery by
any Loan Party of any of the Loan Documents to which it is a
party, nor the performance by any Loan Party of its respective
obligations thereunder, nor the consummation of the transactions
provided for therein, violates any applicable provision of any
law, statute, rule or regulation to which any Loan Party or any
of its respective properties is subject of the United States of
America or the State of New York or any federal or New York state
governmental or regulatory body (including, without limitation,
Regulations T, U and X of the Board of Governors of the Federal
Reserve System) or of the Delaware GCL (except with respect to
any state securities or "blue sky" laws, as to which we express
no opinion), which violation would have a material adverse effect
on (i) the business or condition (financial or otherwise) of the
Borrower and the other Loan Parties, in each case taken as a
whole, (ii) the validity or enforceability of the Loan Documents
or (iii) the rights and remedies of the Administrative Agent, the
Syndication Agent and the Lenders thereunder. Neither the
execution nor the delivery by any Loan Party of any of the Loan
Documents to which it is a party, nor the performance by any Loan
Party of its respective obligations thereunder, nor the
consummation of the transactions provided for therein, violates
any provision of its Certificate of Incorporation or Bylaws.
6. No order, consent, approval, license,
authorization or validation of, or filing, recording or
registration with, or exemption by, any governmental or
regulatory authority pursuant to any law or regulation of the
United States of America or the State of New York or pursuant to
the Delaware GCL (except, in each case (i) as required to
perfect, or maintain the perfection of, security interests
created under the Security Documents or (ii) as have otherwise
been obtained or made) is required to be obtained or made by any
Loan Party in connection with any action to be taken pursuant to
any Loan Document by any Loan Party on or prior to the date
hereof.
<PAGE>
7. To the best of our knowledge, no litigation,
investigation or proceeding of or before any arbitrator or
Governmental Authority is pending or threatened by or against any
Loan Party or against any of their respective properties or
revenues with respect to the Credit Agreement or any of the other
Loan Documents.
8. The execution and delivery of the Credit
Agreement and the other Loan Documents to which any Loan Party is
a party, the performance by each Loan Party of its respective
obligations thereunder, the consummation of the transactions
provided for therein, the compliance by such Loan Party with any
of the provisions thereof, the borrowings under the Credit
Agreement and the use of proceeds thereof, all as provided
therein, (a) will not, to the best of our knowledge, violate, or
constitute a default under, any Contractual Obligations of any
Loan Party and (b) will not, to the best of our knowledge, result
in or require the creation or imposition of any Lien on any of
its respective properties or revenues, except the security
interests created pursuant to the Security Documents.
9. No Loan Party is an "investment company"
within the meaning of, nor is any Loan Party subject to
regulation under, the Investment Company Act of 1940, as amended.
10. The capital stock of each of Loan Party
(other than Holdings) (collectively, the "Subsidiaries") listed
on Schedule IV annexed hereto has been duly authorized and
validly issued, is fully paid and nonassessable and constitutes
all of the issued and outstanding shares of capital stock of the
Subsidiaries, and such capital stock is owned of record by the
Persons designated on Schedule IV hereto. To the best of our
knowledge, there are no outstanding subscriptions, options,
warrants, calls, rights (including preemptive rights) or any
other agreement or commitment of any nature with respect to the
capital stock of the Subsidiaries.
11. The provisions of the Pledge Agreements are
effective to create valid security interests for the benefit of
the Administrative Agent for the ratable benefit of the Lenders
in all of the rights of the Pledgors (as defined in the Pledge
Agreements) in the Pledged Shares and the proceeds (as such term
is defined in the Uniform Commercial Code as in effect in the
State of New York (the "NY UCC")) thereof. Assuming (a) the
repayment in full of all amounts owing under the Existing Credit
Agreement and the release of the liens created under the Existing
Loan Documents, (b) delivery to the Administrative Agent pursuant
to the respective Pledge Agreements of the certificates
representing the Pledged Shares referred to in each of the Pledge
Agreements, along with undated stock powers duly endorsed in
blank and (c) the Administrative Agent takes and continuously
holds the certificates representing the Pledged Shares in good
faith and without notice of any adverse claim, the security
interests created in favor of the Administrative Agent under each
of the Pledge Agreements in such Pledged Shares will constitute
valid and perfected security interests subject to no equal or
prior consensual security interest in favor of any other Person.
No filings or recordings are required in order to perfect the
security interests created under the Pledge Agreements in such
Pledged Shares.
<PAGE>
12. The provisions of the Company Security
Agreement and the Subsidiary Security Agreements are effective to
create in favor of the Administrative Agent valid security
interests in the Collateral (as defined in each such agreement)
to the extent security interests in such Collateral may be
created under the NY UCC. The Financing Statements, upon their
proper filing in the Filing Offices, are sufficient in form to
perfect such security interests to the extent security interests
in such Collateral may be perfected by filing a financing
statement under the NY UCC.
[13. The obligations of the Borrower under the
Credit Agreement and the Loan Documents constitute "Senior
Indebtedness" and "Designated Senior Indebtedness" as such terms
are defined in the Senior Subordinated Indenture, and the
obligations of the Borrower under the Senior Subordinated Notes
are subordinated in right of payment to all amounts payable by
the Borrower under the Credit Agreement and the Loan Documents
and under any refinancing of such amounts.] [Check Credit
Agreement]
This opinion is rendered only to the
Administrative Agent, the Syndication Agent and the Lenders and
is solely for their benefit in connection with the above
transactions. This opinion may not be relied upon by the
Administrative Agent, the Syndication Agent or the Lenders for
any other purpose, or relied upon by any other person, firm or
corporation for any purpose, without our prior written consent.
At your request, we hereby consent to reliance hereon by any
future participants or assigns of your interest in the Credit
Agreement.
Very truly yours,
<PAGE>
SCHEDULE A
[INSERT NAMES OF LENDERS]
<PAGE>
EXHIBIT X
[FORM OF OPINION OF O'MELVENY & MYERS LLP]
[O'M&M Letterhead]
April
[___]
1 9 9 8
[doc ID]
DLJ Capital Funding, Inc.
[Address
of Syndication Agent]
Wells Fargo Bank, N.A.
[Address
of Administrative Agent]
Morgan Stanley Senior Funding, Inc.
[Address
of Documentation Agent]
and
The Lenders Party to the Credit
Agreement Referenced Below
Re: Loans to Diamond Brands Operating Corp.
---------------------------------------
Ladies and Gentlemen:
We have acted as counsel to DLJ Capital
Funding, Inc., as Syndication Agent (in such capacity,
"Syndication Agent"), in connection with the preparation and
delivery of a Credit Agreement dated as of April [___], 1998
(the "Credit Agreement") among Diamond Brands Operating
Corp., a Delaware corporation ("Company"), the financial
institutions listed therein as lenders, Syndication Agent,
Wells Fargo Bank, N.A., as Administrative Agent, and Morgan
Stanley Senior Funding, Inc., as Documentation Agent and in
connection with the preparation and delivery of certain
related documents.
We have participated in various
conferences with representatives of Company, Holdings and
its Subsidiaries, Syndication Agent, Administrative Agent
and Documentation Agent, and conferences and telephone calls
with McDermott, Will & Emery, counsel to
<PAGE>
Company and with your representatives, during which the
Credit Agreement and related matters have been discussed,
and we have also participated in the meeting held on the
date hereof (the "Closing") incident to the funding of the
initial loans made under the Credit Agreement. We have
reviewed the forms of the Credit Agreement and the exhibits
thereto, including the forms of the promissory notes annexed
thereto (the "Notes"), and the opinions of McDermott, Will &
Emery and [LOCAL COUNSEL] (collectively, the "Opinions") and
the officers' certificates and other documents delivered at
the Closing. We have assumed the genuineness of all
signatures, the authenticity of all documents submitted to
us as originals or copies and the due authority of all
persons executing the same, and we have relied as to factual
matters on the documents that we have reviewed.
Although we have not independently
considered all of the matters covered by the Opinions to the
extent necessary to enable us to express the conclusions
therein stated, we believe that the Credit Agreement and the
exhibits thereto are in substantially acceptable legal form
and that the Opinions and the officers' certificates and
other documents delivered in connection with the execution
and delivery of, and as conditions to the making of the
initial loans under, the Credit Agreement and the Notes are
substantially responsive to the requirements of the Credit
Agreement.
Respectfully submitted,
<PAGE>
EXHIBIT XI
[FORM OF ASSIGNMENT AGREEMENT]
ASSIGNMENT AGREEMENT
This ASSIGNMENT AGREEMENT (this "Agreement") is
entered into by and between the parties designated as Assignor
("Assignor") and Assignee ("Assignee") above the signatures of
such parties on the Schedule of Terms attached hereto and hereby
made an integral part hereof (the "Schedule of Terms") and
relates to that certain Credit Agreement described in the
Schedule of Terms (said Credit Agreement, as amended,
supplemented or otherwise modified to the date hereof and 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).
IN CONSIDERATION of the agreements, provisions
and covenants herein contained, the parties hereto hereby agree
as follows:
SECTION 1. Assignment and Assumption.
-------------------------
(a) Effective upon the Settlement Date
specified in Item 4 of the Schedule of Terms (the "Settlement
Date"), Assignor hereby sells and assigns to Assignee, without
recourse, representation or warranty (except as expressly set
forth herein), and Assignee hereby purchases and assumes from
Assignor, that percentage interest in all of Assignor's rights
and obligations as a Lender arising under the Credit Agreement
and the other Loan Documents with respect to Assignor's
Commitments and outstanding Loans, if any, which represents, as
of the Settlement Date, the percentage interest specified in Item
3 of the Schedule of Terms of all rights and obligations of
Lenders arising under the Credit Agreement and the other Loan
Documents with respect to the Commitments and any outstanding
Loans (the "Assigned Share"). Without limiting the generality of
the foregoing, the parties hereto hereby expressly acknowledge
and agree that any assignment of all or any portion of Assignor's
rights and obligations relating to Assignor's Revolving Loan
Commitment shall include (i) in the event Assignor is an Issuing
Lender with respect to any outstanding Letters of Credit (any
such Letters of Credit being "Assignor Letters of Credit"), the
sale to Assignee of a participation in the Assignor Letters of
Credit and any drawings thereunder as contemplated by subsection
3.1C of the Credit Agreement and (ii) the sale to Assignee of a
ratable portion of any participations previously purchased by
Assignor pursuant to said subsection 3.1C with respect to any
Letters of Credit other than the Assignor Letters of Credit.
(b) In consideration of the assignment
described above, Assignee hereby agrees to pay to Assignor, on
the Settlement Date, the principal amount of any outstanding
Loans included within the Assigned Share, such payment to be made
by wire transfer of
<PAGE>
immediately available funds in accordance with the applicable
payment instructions set forth in Item 5 of the Schedule of
Terms.
(c) Assignor hereby represents and warrants
that Item 3 of the Schedule of Terms correctly sets forth the
amount of the Commitments, the outstanding Term Loans and the Pro
Rata Share corresponding to the Assigned Share.
(d) Assignor and Assignee hereby agree that,
upon giving effect to the assignment and assumption described
above, (i) Assignee shall be a party to the Credit Agreement and
shall have all of the rights and obligations under the Loan
Documents, and shall be deemed to have made all of the covenants
and agreements contained in the Loan Documents, arising out of or
otherwise related to the Assigned Share, and (ii) Assignor shall
be absolutely released from any of such obligations, covenants
and agreements assumed or made by Assignee in respect of the
Assigned Share. Assignee hereby acknowledges and agrees that the
agreement set forth in this Section 1(d) is expressly made for
the benefit of Company, Administrative Agent, Assignor and the
other Lenders and their respective successors and permitted
assigns.
(e) Assignor and Assignee hereby acknowledge
and confirm their understanding and intent that (i) this
Agreement shall effect the assignment by Assignor and the
assumption by Assignee of Assignor's rights and obligations with
respect to the Assigned Share, (ii) any other assignments by
Assignor of a portion of its rights and obligations with respect
to the Commitments and any outstanding Loans shall have no effect
on the Commitments, the outstanding Term Loans and the Pro Rata
Share corresponding to the Assigned Share as set forth in Item 3
of the Schedule of Terms or on the interest of Assignee in any
outstanding Revolving Loans corresponding thereto, and (iii) from
and after the Settlement Date, Administrative Agent shall make
all payments under the Credit Agreement in respect of the
Assigned Share (including all payments of principal and accrued
but unpaid interest and commitment fees with respect thereto) (A)
in the case of any such interest and fees that shall have accrued
prior to the Settlement Date, to Assignor, and (B) in all other
cases, to Assignee; provided that Assignor and Assignee shall
make payments directly to each other to the extent necessary to
effect any appropriate adjustments in any amounts distributed to
Assignor and/or Assignee by Administrative Agent under the Loan
Documents in respect of the Assigned Share in the event that, for
any reason whatsoever, the payment of consideration contemplated
by Section 1(b) occurs on a date other than the Settlement Date.
SECTION 2. Certain Representations, Warranties
and Agreements.
------------------------------------
(a) Assignor represents and warrants that it is
the legal and beneficial owner of the Assigned Share, free and
clear of any adverse claim.
(b) Assignor shall not be responsible to
Assignee for the execution, effectiveness, genuineness, validity,
enforceability, collectibility or sufficiency of any of the Loan
Documents or for any representations, warranties, recitals or
statements made therein or made in any written or oral statements
or in any financial or other statements, instruments,
<PAGE>
reports or certificates or any other documents furnished or made
by Assignor to Assignee or by or on behalf of Company or any of
its Subsidiaries to Assignor or Assignee 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
Assignor 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 as to
the existence or possible existence of any Event of Default or
Potential Event of Default.
(c) Assignee represents and warrants that it is
an Eligible Assignee; that it has experience and expertise in the
making of loans such as the Loans; that it has acquired the
Assigned Share for its own account in the ordinary course of its
business and without a view to distribution of the 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 subsection 10.1 of the Credit Agreement, the
disposition of the Assigned Share or any interests therein shall
at all times remain within its exclusive control); and that it
has received, reviewed and approved a copy of the Credit
Agreement (including all Exhibits and Schedules thereto).
(d) Assignee represents and warrants that it
has received from Assignor such financial information regarding
Company and its Subsidiaries as is available to Assignor and as
Assignee has requested, that it has made its own independent
investigation of the financial condition and affairs of Company
and its Subsidiaries in connection with the assignment evidenced
by this Agreement, and that it has made and shall continue to
make its own appraisal of the creditworthiness of Company and its
Subsidiaries. Assignor shall have no duty or responsibility,
either initially or on a continuing basis, to make any such
investigation or any such appraisal on behalf of Assignee or to
provide Assignee with any other credit or other information with
respect thereto, whether coming into its possession before the
making of the initial Loans or at any time or times thereafter,
and Assignor shall not have any responsibility with respect to
the accuracy of or the completeness of any information provided
to Assignee.
(e) Each of Assignor and Assignee represents
and warrants to the other party hereto that it has full power and
authority to enter into this Agreement and to perform its
obligations hereunder in accordance with the provisions hereof,
that this Agreement has been duly authorized, executed and
delivered by such party and that this Agreement constitutes a
legal, valid and binding obligation of such party, enforceable
against such party in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and by general principles
of equity.
SECTION 3. Miscellaneous.
-------------
(a) Each of Assignor and Assignee hereby agrees
from time to time, upon request of the other such party hereto,
to take such additional actions and to execute and deliver such
additional documents and instruments as such other party may
reasonably
<PAGE>
request to effect the transactions contemplated by,
and to carry out the intent of, this Agreement.
(b) Neither this Agreement nor any term hereof
may be changed, waived, discharged or terminated, except by an
instrument in writing signed by the party (including, if
applicable, any party required to evidence its consent to or
acceptance of this Agreement) against whom enforcement of such
change, waiver, discharge or termination is sought.
(c) Unless otherwise specifically provided
herein, any notice or other communication herein required or
permitted to be 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. For the purposes hereof, the notice address of each of
Assignor and Assignee shall be as set forth on the Schedule of
Terms or, as to either such party, such other address as shall be
designated by such party in a written notice delivered to the
other such party. In addition, the notice address of Assignee set
forth on the Schedule of Terms shall serve as the initial notice
address of Assignee for purposes of subsection 10.8 of the Credit
Agreement.
(d) 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.
(e) 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.
(f) This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their
respective successors and assigns.
(g) 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.
(h) This Agreement shall become effective upon
the date (the "Effective Date") upon which all of the following
conditions are satisfied: (i) the execution of a counterpart
hereof by each of Assignor and Assignee, (ii) the execution of a
counterpart
<PAGE>
hereof by Company as evidence of its consent hereto
to the extent required under subsection 10.1B(i) of the Credit
Agreement, (iii) the receipt by Administrative Agent of the
processing and recordation fee referred to in subsection 10.1B(i)
of the Credit Agreement, (iv) in the event Assignee is a Non-US
Lender (as defined in subsection 2.7B(iii)(a) of the Credit
Agreement), the delivery by Assignee to Administrative Agent of
such forms, certificates or other evidence with respect to United
States federal income tax withholding matters as Assignee may be
required to deliver to Administrative Agent pursuant to said
subsection 2.7B(iii)(a), (v) the execution of a counterpart
hereof by Administrative Agent as evidence of its acceptance
hereof in accordance with subsection 10.1B(ii) of the Credit
Agreement and (vi) the receipt by Administrative Agent of
originals or telefacsimiles of the counterparts described above
and authorization of delivery thereof.
IN WITNESS WHEREOF, the parties hereto have
caused this Agreement to be duly executed and delivered by their
respective officers thereunto duly authorized, such execution
being made as of the Effective Date in the applicable spaces
provided on the Schedule of Terms.
[Remainder of page intentionally left blank]
<PAGE>
SCHEDULE OF TERMS
1. Borrower: DIAMOND BRANDS OPERATING CORP.
2. Name and Date of Credit Agreement: Credit Agreement
dated as of April [___], 1998 by and among Diamond
Brands Operating Corp., the financial institutions
listed therein 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.
3. Amounts:
Re: Tranche A Re: Tranche B Re: Revolving
Term Loans Term Loans Loans
(a) Aggregate Commitments of $________ $________ $________
all Lenders:
(b) Assigned Share/Pro Rata _____% _____% _____%
Share;
(c) Amount of Assigned Share $________ $________ $________
of Commitments:
(d) Amount of Assigned Share $________ $________
of Term Loans:
4. Settlement Date: ____________, 199_
5. Payment Instructions:
ASSIGNOR: ASSIGNEE:
____________________________ ____________________________
____________________________ ____________________________
____________________________ ___________________________
Attention: __________________ Attention: __________________
Reference: _________________ Reference: _________________
6. Notice Addresses:
ASSIGNOR: ASSIGNEE:
____________________________ ____________________________
____________________________ ____________________________
____________________________ ____________________________
____________________________ ____________________________
7. Signatures:
__________
[NAME OF ASSIGNOR], [NAME OF ASSIGNEE],
as Assignor as Assignee
By:______________________ By:______________________
Title:___________________ Title:___________________
[Consented to in accordance with Accepted in accordance with subsection
subsection 10.1B(i) of the Credit 10.1B(ii) of the Credit Agreement
Agreement
DIAMOND BRANDS OPERATING CORP. WELLS FARGO BANK, N.A., as
Administrative Agent
<PAGE>
By:_____________________ By:______________________
Title:__________________] Title:___________________
<PAGE>
EXHIBIT XII
[FORM OF CERTIFICATE RE NON-BANK STATUS]
CERTIFICATE RE NON-BANK STATUS
Reference is hereby made to that certain Credit
Agreement dated as of April [___], 1998 (said Credit Agreement,
as amended, supplemented or otherwise modified to the date
hereof, being the "Credit Agreement") by and among DIAMOND BRANDS
OPERATING CORP., a Delaware corporation, the financial
institutions listed therein 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. Pursuant to subsection 2.7B(iii) of the
Credit Agreement, the undersigned hereby certifies that it is not
a "bank" or other Person described in Section 881(c)(3) of the
Internal Revenue Code of 1986, as amended.
[NAME OF LENDER]
By: ____________________
Title: __________________
<PAGE>
EXHIBIT XIII
[FORM OF COMPANY PLEDGE AGREEMENT]
COMPANY PLEDGE AGREEMENT
This COMPANY PLEDGE AGREEMENT (this "Agreement") is
dated as of April 21, 1998 and entered into by and between
DIAMOND BRANDS OPERATING CORP., a Delaware corporation ("Pledgor"
or "Company"), 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 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. 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"):
<PAGE>
(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 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
<PAGE>
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. ss. 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 Credit Agreement and the other Loan
Documents 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 (all such obligations and liabilities being the
"Underlying Debt"), and all obligations of every nature of
Pledgor now or hereafter existing under this Agreement (all such
obligations of Pledgor, together with the Underlying Debt, 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
continuance of an Event of Default, Secured Party shall have the
<PAGE>
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 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.
<PAGE>
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
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 upon 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
<PAGE>
(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 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 or any part thereof. 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
<PAGE>
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) above; 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;
<PAGE>
(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 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;
<PAGE>
(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 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
<PAGE>
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 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.
<PAGE>
(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
solely 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
<PAGE>
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 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
<PAGE>
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 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.
<PAGE>
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;
(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.
<PAGE>
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 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]
<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 OPERATING CORP.,
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:
<PAGE>
SCHEDULE I
Attached to and forming a part of the Pledge Agreement
dated as of April 21, 1998 between Diamond Brands Operating
Corp., 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 OPERATING CORP.
By:
___________________________
Title:
Class of Stock Certi- Par Number of
Stock Issuer Stock ficate Nos. Value Shares
- ------------ ----- ----------- ----- ------
Debt Issuer Amount of Indebtedness
- ----------- ----------------------
<PAGE>
EXHIBIT XIV
[FORM OF COMPANY SECURITY AGREEMENT]
COMPANY SECURITY AGREEMENT
This COMPANY SECURITY AGREEMENT (this "Agreement") is
dated as of April 21, 1998, and entered into by and between
DIAMOND BRANDS OPERATING CORP., a Delaware corporation ("Grantor"
or "Borrower"), 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 Grantor,
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. 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"):
(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
<PAGE>
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;
(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;
<PAGE>
(j) the shares of stock owned by Grantor as described
in Schedule I to the Company Pledge Agreement (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 Company Pledge Agreement (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 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,
<PAGE>
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 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
<PAGE>
(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. ss.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 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
<PAGE>
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 1800
Cloquet Avenue, Cloquet, MN 55720-2141. 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.
<PAGE>
(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 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.
<PAGE>
(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;
(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 other than
any obsolete or surplus Equipment or Equipment which is no longer
useful. 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)
<PAGE>
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 different from those being maintained by Grantor as of the
date hereof (as such manner may be revised in the good faith
business judgment 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.
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
<PAGE>
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 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
(b), 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
<PAGE>
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.
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.
<PAGE>
SECTION 14. 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, 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 deems
reasonably 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 of, such agreement, and
the expenses of Secured Party incurred in connection therewith
shall be payable by Grantor under Section 19.
<PAGE>
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,
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
<PAGE>
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, 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,
<PAGE>
(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 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
<PAGE>
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.
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.
<PAGE>
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 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
<PAGE>
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)
<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.
DIAMOND BRANDS OPERATING CORP.
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:
<PAGE>
SCHEDULE I
TO SECURITY AGREEMENT
Assigned Agreements
-------------------
<PAGE>
SCHEDULE II
TO SECURITY AGREEMENT
Deposit Accounts
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Bank Name Location Account Number
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SCHEDULE III
TO SECURITY AGREEMENT
Licenses
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[Please list all of Grantor's licenses]
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SCHEDULE IV
TO SECURITY AGREEMENT
Equipment and Inventory Location
--------------------------------
[Please list all locations where Grantor maintains equipment or
inventory]
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SCHEDULE V
TO SECURITY AGREEMENT
Tradenames
----------
[Please list all tradenames of Grantor]
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EXHIBIT XV
[FORM OF COMPANY COPYRIGHT SECURITY AGREEMENT]
COMPANY COPYRIGHT SECURITY AGREEMENT
THIS COMPANY COPYRIGHT SECURITY AGREEMENT dated as of
April 21, 1998 (this "Agreement") is made by DIAMOND BRANDS
OPERATING CORP., a Delaware 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. Grantor, Administrative Agent and Lenders have
entered into the Credit Agreement dated as of April 21, 1998 with
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. Grantor 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 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").
D. 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.
E. 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
<PAGE>
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.
F. 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 Lender 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 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;
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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 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. ss. 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 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,
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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
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.
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(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 Minnesota 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 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
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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.
(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
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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 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;
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(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,
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
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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 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
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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 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
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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 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
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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
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.
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(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
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
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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.
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
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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 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.
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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;
(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
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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.
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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.
DIAMOND BRANDS OPERATING CORP.,
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:
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SCHEDULE A
U.S. COPYRIGHTS
Date
Copyright Reg. No. Of Issue
- --------- -------- --------
19
<PAGE>
SCHEDULE A
FOREIGN COPYRIGHT REGISTRATIONS
Date
Country Copyright Registration No. Of Issue
------- --------- ---------------- --------
20
<PAGE>
SCHEDULE A
- ----------
PENDING U.S. COPYRIGHTS
Date Of
Copyright Ref. No. Application
--------- -------- -----------
21
<PAGE>
SCHEDULE A
- ----------
LICENSES
22
<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)
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EXHIBIT XVI
[FORM OF COMPANY TRADEMARK SECURITY AGREEMENT]
COMPANY TRADEMARK SECURITY AGREEMENT
This COMPANY TRADEMARK SECURITY AGREEMENT (this
"Agreement") is dated as of April 21, 1998 and entered into by
and between DIAMOND BRANDS OPERATING CORP., a Delaware
corporation ("Grantor" or "Company"), 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. Grantor 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 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").
D. 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 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.
<PAGE>
E. Pursuant to the Company 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 Company 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.
F. 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 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;
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(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 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
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(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. ss.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 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").
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)
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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 "Diamond Brands" or any other identifiers
or symbols derived from or associated with the name "Diamond
Brands" 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.
(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 1800
Cloquet Avenue, Cloquet, MN 55720. 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 Minnesota 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
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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 (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
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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 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;
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(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 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
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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.
(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,
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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 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;
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(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 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,
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(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 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
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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.
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.
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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 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.
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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.
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
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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 WAIVER
SPECIFICALLY REFERRING TO
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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]
17
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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.
DIAMOND BRANDS OPERATING CORP.,
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:
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<PAGE>
SCHEDULE A
TO
TRADEMARK SECURITY AGREEMENT
United States
Registered Trademark Registration Registration
Owner Description Number Date
- ---------- ------------- ------------ ------------
19
<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)
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EXHIBIT XVII
[FORM OF COMPANY PATENT COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT]
COMPANY PATENT COLLATERAL ASSIGNMENT
AND SECURITY AGREEMENT
This COMPANY PATENT COLLATERAL ASSIGNMENT AND SECURITY
AGREEMENT (this "Agreement") is dated as of April 21, 1998 and
entered into by and between DIAMOND BRANDS OPERATING CORP., a
Delaware 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 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) with Assignor ("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.
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 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).
D. 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.
E. 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:
<PAGE>
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. 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.
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<PAGE>
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. ss.362(a)), of
all obligations and liabilities of every nature of Company now or
hereafter existing under or arising out of or in connection with
the Credit Agreement, 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 Company, 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.
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.
3
(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 1800 Cloquet Avenue, Cloquet, MN 55720. 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 Minnesota 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.
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
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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,
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 Company 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:
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(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;
(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
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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 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.
7
<PAGE>
(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.
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
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<PAGE>
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;
(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
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<PAGE>
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 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
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<PAGE>
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 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.
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(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.
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).
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(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.
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
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<PAGE>
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 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
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<PAGE>
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.
DIAMOND BRANDS OPERATING CORP.,
as Assignor
By: __________________________
Name: __________________________
Title: __________________________
Notice Address:
1800 Cloquet Avenue
Cloquet, MN 55720
Attention: Tom Knuesel
WELLS FARGO BANK, N.A.,
as Administrative Agent
By: __________________________
Name: __________________________
Title: __________________________
Notice Address:
Attention:
16
<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
- --------- ------- ----------- --------- --------
17
<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)
18
<PAGE>
EXHIBIT XVIII
[FORM OF SUBSIDIARY GUARANTY]
(included as filed Exhibit 4.4)
<PAGE>
EXHIBIT XIX
[FORM OF SUBSIDIARY PLEDGE ASSIGNMENT]
(included as filed Exhibit 4.5)
<PAGE>
EXHIBIT XX
[FORM OF SUBSIDIARY SECURITY AGREEMENT]
(included as filed Exhibit 4.6)
<PAGE>
EXHIBIT XXI
[FORM OF SUBSIDIARY COPYRIGHT SECURITY AGREEMENT]
(included as filed Exhibit 4.7)
<PAGE>
EXHIBIT XXII
[FORM OF SUBSIDIARY TRADEMARK SECURITY AGREEMENT]
(included as filed Exhibit 4.8)
<PAGE>
EXHIBIT XXIII
[FORM OF SUBSIDIARY PATENT COLLATERAL
ASSIGNMENT AND SECURITY AGREEMENT]
(included as filed Exhibit 4.9)
<PAGE>
EXHIBIT XXIV
[FORM OF HOLDINGS PLEDGE AGREEMENT]
(included as filed Exhibit 4.10)
<PAGE>
EXHIBIT XXV
[FORM OF HOLDINGS GUARANTY]
(included as filed Exhibit 4.11)
<PAGE>
Exhibit XXVI
[Form of Deed of Trust]
MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF RENTS
AND LEASES AND FIXTURE FILING (MINNESOTA)
by and from
DIAMOND BRANDS OPERATING CORP., A DELAWARE CORPORATION, "Mortgagor"
to
WELLS FARGO BANK, N.A., A NATIONAL BANKING ASSOCIATION,
in its capacity as Agent, "Mortgagee"
Dated as of April 21, 1998
Location:
Municipality:
County:
State:
THE SECURED PARTY (MORTGAGEE) DESIRES THIS FIXTURE FILING
TO BE INDEXED AGAINST THE RECORD OWNER OF THE REAL ESTATE
DESCRIBED HEREIN
THIS MORTGAGE SECURES AN INDEBTEDNESS OF $2,312,500.00, PURSUANT TO THE TERMS
OF THAT CERTAIN CREDIT AGREEMENT DATED AS OF APRIL 21, 1998 AMONG MORTGAGOR,
MORTGAGEE AND OTHER LENDERS.
PREPARED BY, RECORDING REQUESTED BY,
AND WHEN RECORDED MAIL TO:
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, California 90071-2899
Attention: Melissa Joe, Esq.
File #218,107-012
<PAGE>
MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF RENTS
AND LEASES AND FIXTURE FILING (MINNESOTA)
THIS MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF RENTS
AND LEASES AND FIXTURE FILING (MINNESOTA) (this "Mortgage") is
dated as of April 21, 1998 by and from DIAMOND BRANDS OPERATING
CORP., a Delaware corporation ("Mortgagor"), whose address is
1800 Cloquet Avenue, Cloquet, Minnesota 55720 to WELLS FARGO
BANK, N.A., a national banking association, as agent (in such
capacity, "Agent") for the lenders party to the Credit Agreement
(defined below) (such lenders, together with their respective
successors and assigns, collectively, the "Lenders"), having an
address at 555 Montgomery Street, 17th Floor, San Francisco,
California 94111 (Agent, together with its successors and
assigns, "Mortgagee").
ARTICLE 1
DEFINITIONS
-----------
Section 1.1. Definitions. All capitalized terms used
herein without definition shall have the respective meanings
ascribed to them in that certain Credit Agreement dated as of
even date herewith (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement") among
Mortgagor, Mortgagee, the Lenders, DLJ Capital Funding, Inc., as
Syndication Agent, and Morgan Stanley Senior Funding, Inc., as
Documentation Agent. As used herein, the following terms shall
have the following meanings:
(a) "Indebtedness": (1) All indebtedness of Mortgagor
to Mortgagee and the Lenders, including, without limitation, the
sum of all (a) principal, interest and other amounts evidenced or
secured by the Loan Documents as advances in protection of the
Mortgaged Property, (b) principal, interest and other amounts
which may hereafter be loaned by Mortgagee or any of the Lenders
under or in connection with the Credit Agreement or any of the
other Loan Documents, whether evidenced by a promissory note or
other instrument which, by its terms, is secured hereby, and (2)
all other indebtedness, obligations and liabilities now or
hereafter existing of any kind of Mortgagor to Mortgagee or any
of the Lenders under documents which recite that they are
intended to be secured by this Mortgage.
(b) "Mortgaged Property": All of Mortgagor's interest
in (1) the fee interest in the real property described in Exhibit
A attached hereto and incorporated herein by this reference,
together with any greater estate therein as hereafter may be
acquired by Mortgagor (the "Land"), (2) all improvements now
owned or hereafter acquired by Mortgagor, now or at any time
situated, placed or constructed upon the Land (the
"Improvements"; the Land and Improvements are collectively
referred to as the "Premises"), (3) all materials, supplies,
equipment, apparatus and other items of personal property now
owned or hereafter acquired by Mortgagor and now or hereafter
attached to, installed in or used in connection with any of the
Improvements or the Land, and water, gas, electrical, telephone,
storm and sanitary sewer facilities and all other utilities
whether or not situated in easements (the "Fixtures"), (4) all
right, title and interest of Mortgagor in and to all goods,
accounts, general intangibles, instruments, documents, chattel
paper and all other personal property of any kind or character,
including such items of personal property as defined in the UCC
(defined below), now owned or hereafter acquired by Mortgagor and
now or hereafter affixed to, placed upon, used in connection
with, arising from or otherwise related to the Premises (the
"Personalty"), (5) all reserves, escrows or impounds required
under the Credit Agreement and all deposit accounts maintained by
Mortgagor with respect to the Mortgaged Property (the "Deposit
Accounts"), (6) all leases, licenses, concessions, occupancy
agreements or other agreements (written or oral, now or at any
time in effect) which grant to any Person a possessory interest
in, or the right to use, all or any part of the Mortgaged
Property, together with all related security and other deposits
(the "Leases"), (7) all of the rents, revenues, royalties,
income, proceeds, profits, security and
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other types of deposits, and other benefits paid or payable by
parties to the Leases for using, leasing, licensing possessing,
operating from, residing in, selling or otherwise enjoying the
Mortgaged Property (the "Rents"), (8) all other agreements, such
as construction contracts, architects' agreements, engineers'
contracts, utility contracts, maintenance agreements, management
agreements, service contracts, listing agreements, guaranties,
warranties, permits, licenses, certificates and entitlements in
any way relating to the construction, use, occupancy, operation,
maintenance, enjoyment or ownership of the Mortgaged Property
(the "Property Agreements"), (9) all rights, privileges,
tenements, hereditaments, rights-of-way, easements, appendages
and appurtenances appertaining to the foregoing, (10) all
property tax refunds (the "Tax Refunds"), (11) all accessions,
replacements and substitutions for any of the foregoing and all
proceeds thereof (the "Proceeds"), (12) all insurance policies,
unearned premiums therefor and proceeds from such policies
covering any of the above property now or hereafter acquired by
Mortgagor (the "Insurance"), and (13) all of Mortgagor's right,
title and interest in and to any awards, damages, remunerations,
reimbursements, settlements or compensation heretofore made or
hereafter to be made by any governmental authority pertaining to
the Land, Improvements, Fixtures or Personalty (the "Condemnation
Awards"). As used in this Mortgage, the term "Mortgaged Property"
shall mean all or, where the context permit or requires, any
portion of the above or any interest therein.
(c) "Obligations": All of the agreements, covenants,
conditions, warranties, representations and other obligations of
Mortgagor (including, without limitation, the obligation to repay
the Indebtedness) under the Credit Agreement and the other Loan
Documents. The final maturity date of all of the Obligations is
March 31, 2006.
(d) "UCC": The Uniform Commercial Code of Minnesota
or, if the creation, perfection and enforcement of any security
interest herein granted is governed by the laws of a state other
than Minnesota, then, as to the matter in question, the Uniform
Commercial Code in effect in that state.
ARTICLE 2
GRANT
-----
Section 2.1. Grant. To secure the full and timely
payment of the Indebtedness and the full and timely performance
of the Obligations, Mortgagor MORTGAGES, GRANTS, BARGAINS,
ASSIGNS, SELLS and CONVEYS, to Mortgagee the Mortgaged Property,
WITH POWER OF SALE, subject, however, to the Permitted
Encumbrances, TO HAVE AND TO HOLD the Mortgaged Property to
Mortgagee, and Mortgagor does hereby bind itself, its successors
and assigns to WARRANT AND FOREVER DEFEND the title to the
Mortgaged Property unto Mortgagee.
ARTICLE 3
WARRANTIES, REPRESENTATIONS AND COVENANTS
-----------------------------------------
Mortgagor warrants, represents and covenants to
Mortgagee as follows:
Section 3.1. Statutory Covenants. Mortgagor makes and
includes in this Mortgage the statutory covenants and other
provisions set forth in Minnesota Statutes " 507.15, or in any
future Minnesota Statute providing for a statutory form of real
estate mortgage and Mortgagor covenants with Mortgagee the
following statutory covenants:
(a) to warrant the title to the Mortgaged Property
subject only to the Permitted Encumbrances. Mortgagor is lawfully
seized of fee title to the Mortgaged Property and has good right
to convey the same;
(b) to pay the Indebtedness as evidenced by the Notes;
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<PAGE>
(c) to pay (or compel the payment of) all taxes and
assessments before penalty attaches for non-payment, and to pay
in a timely manner all insurance premiums for coverage required
pursuant to this Mortgage;
(d) to keep all buildings insured against fire for an
amount not less than the full replacement value but in any case
not less than the unpaid amount of the Notes secured by this
Mortgage and all prior, if any, mortgages and contract for deed
balances and against other hazards for the amounts specified by
Mortgagee for the protection of the Mortgagee, said other hazards
being lightning, hazards under the usual extended coverage
endorsement, and all other hazards and risks of direct physical
loss occasioned by any cause whatsoever, subject only to the
exception and exclusions, if any, agreed to by Mortgagee. All
such policies shall name Mortgagee as Loss Payee under the
so-called Standard Mortgage Clause, contain no pro rata reduction
provisions and provide for not less than thirty (30) days notice
to Mortgagee of cancellation or alteration of said policy;
(e) that the Mortgaged Property and any improvements
thereon shall be kept in repair and no waste shall be committed;
and
(f) that the whole of the principal sum evidenced by
the Notes shall become due after default in the payment of any
installment of principal or interest, or any tax, or in the
performance of any other covenant, at the option of the
Mortgagee.
Section 3.2. Title to Mortgaged Property and Lien of
this Instrument. Mortgagor owns the Mortgaged Property free and
clear of any liens, claims or interests, except the Permitted
Encumbrances. This Mortgage creates valid, enforceable first
priority liens and security interests against the Mortgaged
Property.
Section 3.3. First Lien Status. Mortgagor shall
preserve and protect the first lien and security interest status
of this Mortgage and the other Loan Documents. If any lien or
security interest other than the Permitted Encumbrances is
asserted against the Mortgaged Property, Mortgagor shall
promptly, and at its expense, (a) give Mortgagee a detailed
written notice of such lien or security interest (including
origin, amount and other terms), and (b) pay the underlying claim
in full or take such other action so as to cause it to be
released or contest the same in compliance with the requirements
of the Credit Agreement (including the requirement of providing a
bond or other security satisfactory to Mortgagee).
Section 3.4. Payment and Performance. Mortgagor shall
pay the Indebtedness when due under the Loan Documents and shall
perform the Obligations in full when they are required to be
performed.
Section 3.5. Replacement of Fixtures and Personalty.
Mortgagor shall not, without the prior written consent of
Mortgagee, permit any of the Fixtures or Personalty to be removed
at any time from the Land or Improvements, unless the removed
item is removed temporarily for maintenance and repair or, if
removed permanently, is obsolete and is replaced by an article of
equal or better suitability and value, owned by Mortgagor subject
to the liens and security interests of this Mortgage and the
other Loan Documents, and free and clear of any other lien or
security interest except such as may be permitted under the
Credit Agreement or first approved in writing by Mortgagee.
Section 3.6. Inspection. Mortgagor shall permit
Mortgagee and the Lenders, and their respective agents,
representatives and employees, upon reasonable prior notice to
Mortgagor, to inspect the Mortgaged Property and all books and
records of Mortgagor located thereon, and to conduct such
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<PAGE>
environmental and engineering studies as Mortgagee or the Lenders
may require, provided that such inspections and studies shall not
materially interfere with the use and operation of the Mortgaged
Property.
Section 3.7. Other Covenants. All of the covenants in
the Credit Agreement are incorporated herein by reference and,
together with covenants in this Article 3, shall be covenants
running with the land.
Section 3.8. Condemnation Awards and Insurance Proceeds.
(a) Condemnation Awards. Mortgagor assigns all awards
and compensation to which it is entitled for any condemnation or
other taking, or any purchase in lieu thereof, to Mortgagee and
authorizes Mortgagee to collect and receive such awards and
compensation and to give proper receipts and acquittances
therefor, subject to the terms of the Credit Agreement.
(b) Insurance Proceeds. Mortgagor assigns to Mortgagee
all proceeds of any insurance policies insuring against loss or
damage to the Mortgaged Property. Mortgagor authorizes Mortgagee
to collect and receive such proceeds and authorizes and directs
the issuer of each of such insurance policies to make payment for
all such losses directly to Mortgagee, instead of to Mortgagor
and Mortgagee jointly.
ARTICLE 4
[Intentionally Omitted]
ARTICLE 5
DEFAULT AND FORECLOSURE
-----------------------
Section 5.1. Remedies. If an Event of Default exists,
Mortgagee may, at Mortgagee's election, exercise any or all of
the following rights, remedies and recourses:
(a) Acceleration. Declare the Indebtedness to be
immediately due and payable, without further notice, presentment,
protest, notice of intent to accelerate, notice of acceleration,
demand or action of any nature whatsoever (each of which hereby
is expressly waived by Mortgagor), whereupon the same shall
become immediately due and payable.
(b) Entry on Mortgaged Property. Enter the Mortgaged
Property and take exclusive possession thereof and of all books,
records and accounts relating thereto or located thereon. If
Mortgagor remains in possession of the Mortgaged Property after
an Event of Default and without Mortgagee's prior written
consent, Mortgagee may invoke any legal remedies to dispossess
Mortgagor.
(c) Operation of Mortgaged Property. Hold, lease,
develop, manage, operate or otherwise use the Mortgaged Property
upon such terms and conditions as Mortgagee may deem reasonable
under the circumstances (making such repairs, alterations,
additions and improvements and taking other actions, from time to
time, as Mortgagee deems necessary or desirable), and apply all
Rents and other amounts collected by Mortgagee in connection
therewith in accordance with the provisions of Section 5.7.
(d) Foreclosure and Sale. Institute proceedings for
the complete foreclosure of this Mortgage, either by judicial
action or by power of sale, in which case the Mortgaged Property
may be sold for cash or credit in one or more parcels. At any
such sale by virtue of any judicial proceedings, power of sale,
or any other legal right, remedy or recourse, the title to and
right of possession of any such
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<PAGE>
property shall pass to the purchaser thereof, and to the fullest
extent permitted by law, Mortgagor shall be completely and
irrevocably divested of all of its right, title, interest, claim,
equity, equity of redemption, and demand whatsoever, either at
law or in equity, in and to the property sold and such sale shall
be a perpetual bar both at law and in equity against Mortgagor,
and against all other Persons claiming or to claim the property
sold or any part thereof, by, through or under Mortgagor.
Mortgagee or any of the Lenders may be a purchaser at such sale.
If Mortgagee or any of the Lenders is the highest bidder,
Mortgagee or any such Lender may credit the portion of the
purchase price that would be distributed to Mortgagee or any such
Lender against the Indebtedness in lieu of paying cash. In the
event this Mortgage is foreclosed by judicial action,
appraisement of the Mortgaged Property is waived.
At maturity, whether at the stated time or prior
thereof by the acceleration of maturity pursuant hereto,
including by reason of the occurrence of an Event of Default,
Mortgagee (in addition to any other remedies provided for herein
or which it may have at law or equity) shall have the statutory
power of sale and on foreclosure may retain statutory costs and
attorneys' fees. Mortgagee is hereby empowered to foreclose this
Mortgage by judicial proceedings or to sell the Mortgaged
Property at public auction and to convey the same to the
purchaser in fee simple absolute in accordance with the statute,
and out of the moneys arising from such sale to retain the sums
secured hereby.
MORTGAGOR HEREBY EXPRESSLY CONSENTS TO THE FORECLOSURE
AND SALE OF THE MORTGAGED PROPERTY BY ACTION PURSUANT TO
MINNESOTA STATUTES CHAPTER 581 OR BY ADVERTISEMENT PURSUANT TO
MINNESOTA STATUTES CHAPTER 580, WHICH PROVIDES FOR SALE AFTER
SERVICE OF NOTICE THEREOF UPON THE OCCUPANT OF THE MORTGAGED
PROPERTY AND PUBLICATION OF SAID NOTICE IN THE COUNTY IN
MINNESOTA WHERE THE MORTGAGED PROPERTY IS SITUATED; ACKNOWLEDGES
THAT SERVICE NEED NOT BE MADE UPON MORTGAGOR PERSONALLY (UNLESS
MORTGAGOR IS AN OCCUPANT) AND THAT NO HEARING OF ANY TYPE IS
REQUIRED IN CONNECTION WITH THE SALE; AND EXPRESSLY WAIVES ANY
AND ALL RIGHT TO PRIOR NOTICE OF SALE OF THE MORTGAGED PROPERTY
AND ANY AND ALL RIGHTS TO A PRIOR HEARING OF ANY TYPE IN
CONNECTION WITH THE SALE OF THE MORTGAGED PROPERTY
MORTGAGOR FURTHER UNDERSTANDS THAT UPON THE OCCURRENCE
OF AN EVENT OF DEFAULT MORTGAGEE MAY TAKE POSSESSION OF THE
PERSONAL PROPERTY INCLUDED IN THE MORTGAGED PROPERTY AND DISPOSE
OF THE SAME BY SALE OR OTHERWISE IN ONE OR MORE PARCELS PROVIDED
THAT AT LEAST TEN (10) DAYS PRIOR NOTICE OF SUCH DISPOSITION IS
GIVEN TO THE MORTGAGOR, ALL AS PROVIDED FOR BY THE MINNESOTA
UNIFORM COMMERCIAL CODE, AS THE SAME MAY HEREAFTER BE AMENDED, OR
BY ANY LAW OR STATUTE HEREAFTER ENACTED IN SUBSTITUTION THEREOF.
MORTGAGOR HEREBY RELINQUISHES, WAIVES ND GIVES UP ITS
RIGHTS, IF ANY, UNDER THE CONSTITUTION OF THE UNITED STATES (AND
ANY SIMILAR RIGHTS WHICH IT MAY HAVE UNDER THE CONSTITUTION OF
THE STATE OF MINNESOTA) TO NOTICE AND HEARING BEFORE SALE OF THE
MORTGAGED PROPERTY AND THE PERSONAL PROPERTY INCLUDED THEREIN,
AND EXPRESSLY CONSENTS AND AGREES THAT THE PERSONAL PROPERTY
INCLUDED THEREIN MAY BE DISPOSED OF PURSUANT TO THE UNIFORM
COMMERCIAL CODE, ALL AS DESCRIBED ABOVE.
(e) Receiver. Make application to a court of competent
jurisdiction for, and obtain from such court as a matter of
strict right and without notice to Mortgagor or regard to the
adequacy of the Mortgaged Property for the repayment of the
Indebtedness, the appointment of a receiver of the
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Mortgaged Property, and Mortgagor irrevocably consents to such
appointment. Any such receiver shall have all the usual powers
and duties of receivers in similar cases, including the full
power to rent, maintain and otherwise operate the Mortgaged
Property upon such terms as may be approved by the court, and
shall apply such Rents in accordance with the provisions of
Section 5.7.
(f) Other. Exercise all other rights, remedies and
recourses granted under the Loan Documents or otherwise available
at law or in equity.
Section 5.2. Separate Sales. The Mortgaged Property
may be sold in one or more parcels and in such manner and order
as Mortgagee in its sole discretion may elect. To the extent
permitted by applicable law, the right of sale arising out of any
Event of Default shall not be exhausted by any one or more sales.
Section 5.3. Remedies Cumulative, Concurrent and
Nonexclusive. Mortgagee and the Lenders shall have all rights,
remedies and recourses granted in the Loan Documents and
available at law or equity (including the UCC), which rights (a)
shall be cumulated and concurrent, (b) may be pursued separately,
successively or concurrently against Mortgagor or others
obligated under the Loan Documents, or against the Mortgaged
Property, or against any one or more of them, at the sole
discretion of Mortgagee or the Lenders, (c) may be exercised as
often as occasion therefor shall arise, and the exercise or
failure to exercise any of them shall not be construed as a
waiver or release thereof or of any other right, remedy or
recourse, and (d) are intended to be, and shall be, nonexclusive.
No action by Mortgagee or the Lenders in the enforcement of any
rights, remedies or recourses under the Loan Documents or
otherwise at law or equity shall be deemed to cure any Event of
Default.
Section 5.4. Release of and Resort to Collateral.
Mortgagee may, to the fullest extent permitted by applicable law,
release, regardless of consideration and without the necessity
for any notice to or consent by the holder of any subordinate
lien on the Mortgaged Property, any part of the Mortgaged
Property without, as to the remainder, in any way impairing,
affecting, subordinating or releasing the lien or security
interest created in or evidenced by the Loan Documents or their
status as a first and prior lien and security interest in and to
the Mortgaged Property. For payment of the Indebtedness,
Mortgagee may, to the fullest extent permitted by applicable law,
resort to any other security in such order and manner as
Mortgagee may elect.
Section 5.5. Waiver of Redemption, Notice and
Marshalling of Assets. To the fullest extent permitted by law,
Mortgagor hereby irrevocably and unconditionally waives and
releases (a) all benefit that might accrue to Mortgagor by virtue
of any present or future statute of limitations or law or
judicial decision exempting the Mortgaged Property from
attachment, levy or sale on execution or providing for any stay
of execution, exemption from civil process, redemption or
extension of time for payment, (b) all notices of any Event of
Default or of Mortgagee's election to exercise or the actual
exercise of any right, remedy or recourse provided for under the
Loan Documents, and (c) any right to a marshalling of assets or a
sale in inverse order of alienation.
Section 5.6. Discontinuance of Proceedings. If
Mortgagee or the Lenders shall have proceeded to invoke any
right, remedy or recourse permitted under the Loan Documents and
shall thereafter elect to discontinue or abandon it for any
reason, Mortgagee or the Lenders shall have the unqualified right
to do so and, in such an event, Mortgagor, Mortgagee and the
Lenders shall be restored to their former positions with respect
to the Indebtedness, the Obligations, the Loan Documents, the
Mortgaged Property and otherwise, and the rights, remedies,
recourses and powers of Mortgagee and the Lenders shall continue
as if the right, remedy or recourse had never been invoked, but
no such discontinuance or abandonment shall waive any Event of
Default which may then exist or the right of Mortgagee or the
Lenders thereafter to exercise any right, remedy or recourse
under the Loan Documents
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for such Event of Default.
Section 5.7. Application of Proceeds. The proceeds of
any sale of, and the Rents and other amounts generated by the
holding, leasing, management, operation or other use of the
Mortgaged Property, shall be applied by Mortgagee (or the
receiver, if one is appointed) in the following order unless
otherwise required by applicable law:
(a) to the payment of the costs and expenses of taking
possession of the Mortgaged Property and of holding, using,
leasing, repairing, improving and selling the same, including,
without limitation (1) receiver's fees and expenses, including
the repayment of the amounts evidenced by any receiver's
certificates, (2) court costs, (3) attorneys' and accountants'
fees and expenses, and (4) costs of advertisement;
(b) to the payment of the Indebtedness and performance
of the Obligations in such manner and order of preference as
Mortgagee in its sole discretion may determine; and
(c) the balance, if any, to the payment of the Persons
legally entitled thereto.
Section 5.8. Occupancy After Foreclosure. Any sale of
the Mortgaged Property or any part thereof in accordance with
Section 5.1(d) will divest all right, title and interest of
Mortgagor in and to the property sold. Subject to applicable law,
any purchaser at a foreclosure sale will receive immediate
possession of the property purchased. If Mortgagor retains
possession of such property or any part thereof subsequent to
such sale, Mortgagor will be considered a tenant at sufferance of
the purchaser, and will, if Mortgagor remains in possession after
demand to remove, be subject to eviction and removal, forcible or
otherwise, with or without process of law.
Section 5.9. Additional Advances and Disbursements;
Costs of Enforcement.
(a) If any Event of Default exists, Mortgagee and each
of the Lenders shall have the right, but not the obligation, to
cure such Event of Default in the name and on behalf of
Mortgagor. All sums advanced and expenses incurred at any time by
Mortgagee or any Lender under this Section 5.9, or otherwise
under this Mortgage or any of the other Loan Documents or
applicable law, shall bear interest from the date that such sum
is advanced or expense incurred, to and including the date of
reimbursement, computed at the rate or rates at which interest is
then computed on the Indebtedness, and all such sums, together
with interest thereon, shall be secured by this Mortgage as
advances in protection of the Mortgaged Property.
(b) Subject to the amount of attorneys' fees for which
Mortgagee may be entitled to receive reimbursement pursuant to
Minnesota Statutes " 582.01, Mortgagor shall pay all expenses
(including reasonable attorneys' fees and expenses) of or
incidental to the perfection and enforcement of this Mortgage and
the other Loan Documents, or the enforcement, compromise or
settlement of the Indebtedness or any claim under this Mortgage
and the other Loan Documents, and for the curing thereof, or for
defending or asserting the rights and claims of Mortgagee in
respect thereof, by litigation or otherwise.
Section 5.10. No Mortgagee in Possession. Neither the
enforcement of any of the remedies under this Article 5, the
assignment of the Rents and Leases under Article 6, the security
interests under Article 7, nor any other remedies afforded to
Mortgagee or any Lender under the Loan Documents, at law or in
equity shall cause Mortgagee or any Lender to be deemed or
construed to be a mortgagee in possession of the Mortgaged
Property, to obligate Mortgagee or any Lender to lease the
Mortgaged Property or attempt to do so, or to take any action,
incur any expense, or perform or discharge
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any obligation, duty or liability whatsoever under any of the
Leases or otherwise.
ARTICLE 6
ASSIGNMENT OF RENTS AND LEASES
------------------------------
Section 6.1. Assignment. To the extent permitted by
law, Mortgagor hereby assigns to Mortgagee all Leases now or
hereafter affecting the Mortgaged Property and all Rents and
profits due or to become due to Mortgagor with respect to the
Mortgaged Property, whether before or after foreclosure or during
any redemption period after sheriff's foreclosure sale, as
additional security for the repayment of the Notes and Mortgagor
hereby further agrees that Mortgagee shall have the power
pursuant to this Mortgage irrevocably to manage, control and
lease the Mortgaged Property. Upon the occurrence of an Event of
Default, and without regard to waste, adequacy of the security or
solvency of Mortgagor, Mortgagee may, at its option, either:
(a) apply to the Minnesota District Court for the
County wherein the Mortgaged Property hereunder are located for
the appointment of a receiver under Minnesota statutes " 559.17,
it being understood and agreed that Mortgagee shall be entitled
to the appointment of a receiver upon a showing that an Event of
Default has occurred under the terms of this Mortgage, a receiver
so appointed shall apply all Rents and profits collected first as
provided in Minnesota Statutes " 576.01, Subd. 2, and thereafter
shall apply the Rents to the payment of the following items in
the order first indicated: first, to the payment of principal and
interest on any prior mortgages; second, to the payment of any
other prior liens or encumbrances; and third, to the payment of
principal and interest on the Notes; or
(b) collect all Rents and profits from the occupiers
of the Mortgage Property upon the filing by Mortgagee, in (i) the
office of the County Recorder or (ii) in the case of registered
property in the office of the Registrar of Titles, for the county
in which the Mortgaged Property are located, of a notice of the
occurrence of an Event of Default in the terms and conditions of
this Mortgage and the service of said notice of default upon the
occupiers of the Mortgaged Property. Mortgagee shall apply all
Rents and profits so collected in the same manner as is provided
in Section 6.1(a) above where the Rents are collected pursuant to
the appointment of a receiver. In the event Mortgagee exercises
its rights under this Section 6.1(b), it shall not solely by
reason hereof, be deemed to be a mortgagee-in-possession of the
Mortgaged Property.
Section 6.2. Perfection Upon Recordation. Mortgagor
acknowledges that Mortgagee has taken all actions necessary to
obtain, and that upon recordation of this Mortgage Mortgagee
shall have, to the extent permitted under applicable law, a valid
and fully perfected, first priority, present assignment of the
Rents arising out of the Leases and all security for such Leases.
Mortgagor acknowledges and agrees that upon recordation of this
Mortgage Mortgagee's interest in the Rents shall be deemed to be
fully perfected, "choate" and enforced as to Mortgagor and all
third parties, including, without limitation, any subsequently
appointed trustee in any case under Title 11 of the United States
Code (the "Bankruptcy Code"), without the necessity of commencing
a foreclosure action with respect to this Mortgage, making formal
demand for the Rents, obtaining the appointment of a receiver or
taking any other affirmative action.
Section 6.3. Bankruptcy Provisions. Without limitation
of the absolute nature of the assignment of the Rents hereunder,
Mortgagor and Mortgagee agree that (a) this Mortgage shall
constitute a "security agreement" for purposes of Section 552(b)
of the Bankruptcy Code, (b) the security interest created by this
Mortgage extends to property of Mortgagor acquired before the
commencement of a case in bankruptcy and to all amounts paid as
Rents and (c) such security interest shall extend to all Rents
acquired by the estate after the commencement of any case in
bankruptcy.
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Section 6.4. No Merger of Estates. So long as part of
the Indebtedness and the Obligations secured hereby remain unpaid
and undischarged, the fee and leasehold estates to the Mortgaged
Property shall not merge, but shall remain separate and distinct,
notwithstanding the union of such estates either in Mortgagor,
Mortgagee, any tenant or any third party by purchase or
otherwise.
ARTICLE 7
SECURITY AGREEMENT
------------------
Section 7.1. Security Interest. This Mortgage
constitutes a "security agreement" on personal property within
the meaning of the UCC and other applicable law and with respect
to the Personalty, Fixtures, Leases, Rents, Deposit Accounts,
Property Agreements, Tax Refunds, Proceeds, Insurance and
Condemnation Awards. To this end, Mortgagor grants to Mortgagee a
first and prior security interest in the Personalty, Fixtures,
Leases, Rents, Deposit Accounts, Property Agreements, Tax
Refunds, Proceeds, Insurance, Condemnation Awards and all other
Mortgaged Property which is personal property to secure the
payment of the Indebtedness and performance of the Obligations,
and agrees that Mortgagee shall have all the rights and remedies
of a secured party under the UCC with respect to such property.
Any notice of sale, disposition or other intended action by
Mortgagee with respect to the Personalty, Fixtures, Leases,
Rents, Deposit Accounts, Property Agreements, Tax Refunds,
Proceeds, Insurance and Condemnation Awards sent to Mortgagor at
least five (5) days prior to any action under the UCC shall
constitute reasonable notice to Mortgagor.
Section 7.2. Financing Statements. Mortgagor shall
execute and deliver to Mortgagee, in form and substance
satisfactory to Mortgagee, such financing statements and such
further assurances as Mortgagee may, from time to time,
reasonably consider necessary to create, perfect and preserve
Mortgagee's security interest hereunder and Mortgagee may cause
such statements and assurances to be recorded and filed, at such
times and places as may be required or permitted by law to so
create, perfect and preserve such security interest. Mortgagor's
chief executive office is in the State of Minnesota at the
address set forth in the first paragraph of this Mortgage.
Section 7.3. Fixture Filing. This Mortgage shall also
constitute a "fixture filing" for the purposes of the UCC against
all of the Mortgaged Property which is or is to become fixtures.
Information concerning the security interest herein granted may
be obtained at the addresses of Debtor (Mortgagor) and Secured
Party (Mortgagee) as set forth in the first paragraph of this
Mortgage.
ARTICLE 8
[Intentionally Omitted]
ARTICLE 9
MISCELLANEOUS
-------------
Section 9.1. Notices. Any notice required or permitted
to be given under this Mortgage shall be given in accordance with
Section 10.8 of the Credit Agreement.
Section 9.2. Covenants Running with the Land. All
Obligations contained in this Mortgage are intended by Mortgagor
and Mortgagee to be, and shall be construed as, covenants running
with the Mortgaged Property. As used herein, "Mortgagor" shall
refer to the party named in the first paragraph of this Mortgage
and to any subsequent owner of all or any portion of the
Mortgaged Property. All Persons who may have or acquire an
interest in the Mortgaged Property shall be deemed to have notice
of, and be bound by, the terms of the Credit Agreement and the
other Loan Documents; however, no such party shall be entitled to
any rights thereunder without the prior written consent of
Mortgagee.
9
<PAGE>
Section 9.3. Attorney-in-Fact. Mortgagor hereby
irrevocably appoints Mortgagee and its successors and assigns, as
its attorney-in-fact, which agency is coupled with an interest
and with full power of substitution, (a) to execute and/or record
any notices of completion, cessation of labor or any other
notices that Mortgagee deems appropriate to protect Mortgagee's
interest, if Mortgagor shall fail to do so within ten (10) days
after written request by Mortgagee, (b) upon the issuance of a
deed pursuant to the foreclosure of this Mortgage or the delivery
of a deed in lieu of foreclosure, to execute all instruments of
assignment, conveyance or further assurance with respect to the
Leases, Rents, Deposit Accounts, Property Agreements, Tax
Refunds, Proceeds, Insurance and Condemnation Awards in favor of
the grantee of any such deed and as may be necessary or desirable
for such purpose, (c) to prepare, execute and file or record
financing statements, continuation statements, applications for
registration and like papers necessary to create, perfect or
preserve Mortgagee's security interests and rights in or to any
of the Mortgaged Property, and (d) while any Event of Default
exists, to perform any obligation of Mortgagor hereunder,
however: (1) Mortgagee shall not under any circumstances be
obligated to perform any obligation of Mortgagor; (2) any sums
advanced by Mortgagee in such performance shall be added to and
included in the Indebtedness and shall bear interest at the rate
or rates at which interest is then computed on the Indebtedness;
(3) Mortgagee as such attorney-in-fact shall only be accountable
for such funds as are actually received by Mortgagee; and (4)
Mortgagee shall not be liable to Mortgagor or any other person or
entity for any failure to take any action which it is empowered
to take under this Section 9.3.
Section 9.4. Successors and Assigns. This Mortgage
shall be binding upon and inure to the benefit of Mortgagee, the
Lenders, and Mortgagor and their respective successors and
assigns. Mortgagor shall not, without the prior written consent
of Mortgagee, assign any rights, duties or obligations hereunder.
Section 9.5. No Waiver. Any failure by Mortgagee to
insist upon strict performance of any of the terms, provisions or
conditions of the Loan Documents shall not be deemed to be a
waiver of same, and Mortgagee or the Lenders shall have the right
at any time to insist upon strict performance of all of such
terms, provisions and conditions.
Section 9.6. Credit Agreement. If any conflict or
inconsistency exists between this Mortgage and the Credit
Agreement, the Credit Agreement shall govern.
Section 9.7. Release or Reconveyance. Upon payment in
full of the Indebtedness and performance in full of the
Obligations, Mortgagee, at Mortgagor's expense, shall release the
liens and security interests created by this Mortgage or reconvey
the Mortgaged Property to Mortgagor.
Section 9.8. Waiver of Stay, Moratorium and Similar
Rights. Mortgagor agrees, to the full extent that it may lawfully
do so, that it will not at any time insist upon or plead or in
any way take advantage of any stay, marshalling of assets,
extension, redemption or moratorium law now or hereafter in force
and effect so as to prevent or hinder the enforcement of the
provisions of this Mortgage or the Indebtedness secured hereby,
or any agreement between Mortgagor and Mortgagee or any rights or
remedies of Mortgagee or the Lenders.
Section 9.9. Applicable Law. The provisions of this
Mortgage regarding the creation, perfection and enforcement of
the liens and security interests herein granted shall be governed
by and construed under the laws of the state in which the
Mortgaged Property is located. All other provisions of this
Mortgage shall be governed by the 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.
10
<PAGE>
Section 9.10. Headings. The Article, Section and
Subsection titles hereof are inserted for convenience of
reference only and shall in no way alter, modify or define, or be
used in construing, the text of such Articles, Sections or
Subsections.
Section 9.11. Entire Agreement. This Mortgage and the
other Loan Documents embody the entire agreement and
understanding between Mortgagee and Mortgagor and supersede all
prior agreements and understandings between such parties relating
to the subject matter hereof and thereof. Accordingly, the Loan
Documents may not be contradicted by evidence of prior,
contemporaneous or subsequent oral agreements of the parties.
There are no unwritten oral agreements between the parties.
Section 9.12. Mortgagee as Agent; Successor Agents.
(a) Agent has been appointed to act as Agent hereunder
by the Lenders. Agent 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, without limitation, the release or substitution of
the Mortgaged Property) in accordance with the terms of the
Credit Agreement, any related agency agreement among Agent and
the Lenders (collectively, as amended, supplemented or otherwise
modified or replaced from time to time, the "Agency Documents")
and this Mortgage. Mortgagor and all other persons shall be
entitled to rely on releases, waivers, consents, approvals,
notifications and other acts of Agent, without inquiry into the
existence of required consents or approvals of the Lenders
therefor.
(b) Mortgagee shall at all times be the same Person
that is Agent under the Agency Documents. Written notice of
resignation by Agent pursuant to the Agency Documents shall also
constitute notice of resignation as Agent under this Mortgage.
Removal of Agent pursuant to any provision of the Agency
Documents shall also constitute removal as Agent under this
Mortgage. Appointment of a successor Agent pursuant to the Agency
Documents shall also constitute appointment of a successor Agent
under this Mortgage. Upon the acceptance of any appointment as
Agent by a successor Agent under the Agency Documents, that
successor Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring or
removed Agent as the Mortgagee under this Mortgage, and the
retiring or removed Agent shall promptly (i) assign and transfer
to such successor Agent all of its right, title and interest in
and to this Mortgage and the Mortgaged Property, and (ii) execute
and deliver to such successor Agent such assignments and
amendments and take such other actions, as may be necessary or
appropriate in connection with the assignment to such successor
Agent of the liens and security interests created hereunder,
whereupon such retiring or removed Agent shall be discharged from
its duties and obligations under this Mortgage. After any
retiring or removed Agent's resignation or removal hereunder as
Agent, the provisions of this Mortgage and the Agency Documents
shall inure to its benefit as to any actions taken or omitted to
be taken by it under this Mortgage while it was the Agent
hereunder.
[The remainder of this page has been intentionally left blank]
11
<PAGE>
IN WITNESS WHEREOF, Mortgagor has on the date set forth in
the acknowledgement hereto, effective as of the date first above
written, caused this instrument to be duly EXECUTED AND DELIVERED
by authority duly given.
DIAMOND BRANDS OPERATING CORP.,
a Delaware corporation
By:____________________________
Name:
Title:
S-1
<PAGE>
ACKNOWLEDGEMENT
STATE OF ILLINOIS )
) SS.:
COUNTY OF __________ )
THE FOREGOING INSTRUMENT WAS ACKNOWLEDGED BEFORE ME THIS _____
DAY OF APRIL, 1998, BY ___________________________________, THE
_____________________________, OF DIAMOND BRANDS OPERATING CORP.,
A DELAWARE CORPORATION, ON BEHALF OF THE CORPORATION.
___________________________________________
(SIGNATURE AND OFFICE OF INDIVIDUAL TAKING ACKNOWLEDGEMENT)
MY COMMISSION EXPIRES: __________________________
(NOTARIAL SEAL)
N-1
<PAGE>
EXHIBIT A
Mortgaged Property
[See Attached]
Exh. A-1
<PAGE>
[a]
MORTGAGOR: [FULL NAME OF MORTGAGOR],
a [Mortgagor's state of organization]
[Mortgagor's entity type]
By:__________________________
Name:
Title:
<PAGE>
[b]
MORTGAGOR: [FULL NAME OF MORTGAGOR],
a [Mortgagor's state of organization]
[Mortgagor's entity type]
By: [17],
a [18] [19]
its General Partner
By:________________________
Name:
Title:
<PAGE>
[c]
MORTGAGOR: [FULL NAME OF MORTGAGOR],
a [Mortgagor's state of organization]
[Mortgagor's entity type]
By:___________________________
Name:
Title: General Partner
<PAGE>
[d]
MORTGAGOR: [FULL NAME OF MORTGAGOR],
a [Mortgagor's state of organization]
[Mortgagor's entity type]
By: [20],
a [21][22]
its Managing Member
By:_______________________
Name:
Title:
<PAGE>
[e]
MORTGAGOR: [FULL NAME OF MORTGAGOR],
a [Mortgagor's state of organization]
[Mortgagor's entity type]
By:____________________________
Name:
Title: Managing Member
<PAGE>
[f]
MORTGAGOR: ________________________
[FULL NAME OF MORTGAGOR]
<PAGE>
FORM OF MORTGAGE WITH AGENT PROVISIONS
The following information will be requested in completing this
form:
[1] State in which Property is Located
[2] Full Name of Mortgagor (In capital letters)
[3] Full Name of Mortgagee (In capital letters)
[4] "As of" Date of Mortgage (document assumes same date as
Credit Agreement
[5] O'Melveny & Myers Attorney Name
[6] O'Melveny & Myers File Number
[7] Mortgagor's State of Organization
[8] Mortgagor Entity Type (corporation, individual, etc.)
(If Mortgagor's entity type is a corporation, then [a])
(If Mortgagor's entity type is either a partnership or a
limited partnership, then ask:)
Is its general partner a corporation?
(If yes, then [b])
(If no, then [c])
(If Mortgagor's entity type is a limited liability
company, then ask:)
Is its Managing member a corporation?
(If yes, then [d])
(If no, then [e])
(If Mortgagor is an individual, then [f])
[9] Mortgagor's Address
[10] Mortgagee's State of Organization
[11] Mortgagee's Entity Type (national association, corporation,
etc.)
[12] Mortgagee's Address
[13] Title of Credit Agreement
[14] Are there parties to the Credit Agreement other than Agent,
Lenders, Mortgagor and Mortgagee?
If no, skip. (Insert "between Mortgagor, Mortgagee and the
Lenders")
If yes, is there more than one party?
If no, provide the full name of the other party.
(Insert into "among Mortgagor, Mortgagee, the
Lenders and _______________")
If yes, provide the full names of all other parties.
(Insert into "among Mortgagor, Mortgagee, the
Lenders, __________ and __________")(Add additional
________," as necessary before "and".)
[15] State in which Mortgagor's Chief Executive Office is located
<PAGE>
[16] Section of Credit Agreement on Notices
[17] Full Name of General Partner
[18] General Partner's State of Organization
[19] General Partner's Entity Type
[20] Full Name of Managing Member
[21] Managing Member's State of Organization
[22] Managing Member's Entity Type
[23] Full Address of Property
[A1] Full name of Agent
[A2] Agent's State of Organization
[A3] Agent's Entity Type (corporation, individual, etc.)
[A4] Agent's Address
<PAGE>
[a] Corporation (without a seal)
[b] Partnership or Limited Partnership with Corporate General
Partner
[c] Partnership or Limited Partnership with Individual General
Partner
[d] Limited Liability Company with Corporate Managing Member
[e] Limited Liability Company with Individual Managing Member
[f] Individual
<PAGE>
DRAFT
8/07/98
FORM OF LEASEHOLD MORTGAGE, SECURITY AGREEMENT,
ASSIGNMENT OF RENTS AND LEASES AND FIXTURE FILING (KANSAS)
by and from
[EMPIRE CANDLE, INC.], "Mortgagor"
to
WELLS FARGO BANK, N.A.,
in its capacity as Agent, "Mortgagee"
Dated as of April ___, 1998
Location:
Municipality:
County:
State:
THE SECURED PARTY (MORTGAGEE) DESIRES THIS FIXTURE FILING
TO BE INDEXED AGAINST THE RECORD OWNER OF THE REAL ESTATE
DESCRIBED HEREIN
PREPARED BY, RECORDING REQUESTED BY,
AND WHEN RECORDED MAIL TO:
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, California 90071-2899
Attention: Melissa Joe, Esq.
File #218,107-012
<PAGE>
LEASEHOLD MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF RENTS
AND LEASES AND FIXTURE FILING (KANSAS)
THIS LEASEHOLD MORTGAGE, SECURITY AGREEMENT,
ASSIGNMENT OF RENTS AND LEASES AND FIXTURE FILING (KANSAS) (this
"Mortgage") is dated as of April ___, 1998 by and from [EMPIRE
CANDLE, INC.], a [Missouri corporation] ("Mortgagor"), whose
address is [2925 Fairfax Trafficway, Kansas City, Kansas 66115]
to WELLS FARGO BANK, N.A., a national banking association, as
agent (in such capacity, "Agent") for the lenders party to the
Credit Agreement (defined below) (such lenders, together with
their respective successors and assigns, collectively, the
"Lenders"), having an address at [Agent's address] (Agent,
together with its successors and assigns, "Mortgagee").
ARTICLE 1
DEFINITIONS
-----------
Section 1.1. Definitions. All capitalized terms used
herein without definition shall have the respective meanings
ascribed to them in that certain Credit Agreement dated as of
even date herewith (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement") among
Mortgagor, Mortgagee, the Lenders, DLJ Capital Funding, Inc., as
Syndication Agent, and Morgan Stanley Senior Funding, Inc., as
Documentation Agent. As used herein, the following terms shall
have the following meanings:
(a) "Indebtedness": (1) All indebtedness of Mortgagor
to Mortgagee and the Lenders, including, without limitation, all
of the following (but subject, however, to the provisions of
Section 10.2 below with respect to the maximum principal amount
secured by this Mortgage): (a) principal, interest and other
amounts evidenced or secured by the Loan Documents, including
without limitation the Tranche A Term Notes, Tranche B Term
Notes, Revolving Notes and Swing Line Notes, and (b) principal,
interest and other amounts which may hereafter be loaned by
Mortgagee or any of the Lenders under or in connection with the
Credit Agreement or any of the other Loan Documents, whether
evidenced by a promissory note or other instrument which, by its
terms, is secured hereby; (2) all other indebtedness, obligations
and liabilities now or hereafter existing of any kind of
Mortgagor to Mortgagee or any of the Lenders under documents
which recite that they are intended to be secured by this
Mortgage; and (3) any and all judgments enforcing all such
amounts and liabilities described in items (1) and (2)
immediately above. The interest rate on the Indebtedness is a
variable rate as more particularly provided in the Credit
Agreement.
(b) "Mortgaged Property": All of Mortgagor's interest
in (1) the leasehold interest in the real property described in
Exhibit A created by the Subject Lease (defined below), together
with any greater estate therein as hereafter may be acquired by
Mortgagor (the "Land"), (2) all improvements now owned or
hereafter acquired by Mortgagor, now or at any time situated,
placed or constructed upon the Land (the "Improvements"; the Land
and Improvements are collectively referred to as the "Premises"),
(3) all materials, supplies, equipment, apparatus and other items
of personal property now owned or hereafter acquired by Mortgagor
and now or hereafter attached to, installed in or used in
connection with any of the Improvements or the Land, and water,
gas, electrical, telephone, storm and sanitary sewer facilities
and all other utilities whether or not situated in easements (the
"Fixtures"), (4) all right, title and interest of Mortgagor in
and to all goods, accounts, general intangibles, instruments,
documents, chattel paper and all other personal property of any
kind or character, including such items of personal property as
defined in the UCC (defined below), now owned or hereafter
acquired by Mortgagor and now or hereafter affixed to, placed
upon, used in connection with, arising from or otherwise related
to
<PAGE>
the Premises (the "Personalty"), (5) all reserves, escrows or
impounds required under the Credit Agreement and all deposit
accounts maintained by Mortgagor with respect to the Mortgaged
Property (the "Deposit Accounts"), (6) all leases, licenses,
concessions, occupancy agreements or other agreements (written or
oral, now or at any time in effect) which grant to any Person a
possessory interest in, or the right to use, all or any part of
the Mortgaged Property, together with all related security and
other deposits (the "Leases"), (7) all of the rents, revenues,
royalties, income, proceeds, profits, security and other types of
deposits, and other benefits paid or payable by parties to the
Leases for using, leasing, licensing possessing, operating from,
residing in, selling or otherwise enjoying the Mortgaged Property
(the "Rents"), (8) all other agreements, such as construction
contracts, architects' agreements, engineers' contracts, utility
contracts, maintenance agreements, management agreements, service
contracts, listing agreements, guaranties, warranties, permits,
licenses, certificates and entitlements in any way relating to
the construction, use, occupancy, operation, maintenance,
enjoyment or ownership of the Mortgaged Property (the "Property
Agreements"), (9) all rights, privileges, tenements,
hereditaments, rights-of-way, easements, appendages and
appurtenances appertaining to the foregoing, (10) all property
tax refunds (the "Tax Refunds"), (11) all accessions,
replacements and substitutions for any of the foregoing and all
proceeds thereof (the "Proceeds"), (12) all insurance policies,
unearned premiums therefor and proceeds from such policies
covering any of the above property now or hereafter acquired by
Mortgagor (the "Insurance"), and (13) all of Mortgagor's right,
title and interest in and to any awards, damages, remunerations,
reimbursements, settlements or compensation heretofore made or
hereafter to be made by any governmental authority pertaining to
the Land, Improvements, Fixtures or Personalty (the "Condemnation
Awards"). As used in this Mortgage, the term "Mortgaged Property"
shall mean all or, where the context permit or requires, any
portion of the above or any interest therein.
(c) "Obligations": All of the agreements, covenants,
conditions, warranties, representations and other obligations of
Mortgagor (including, without limitation, the obligation to repay
the Indebtedness) under the Credit Agreement and the other Loan
Documents.
(d) "Subject Lease": That certain Commercial and
Industrial Lease Agreement dated June 23, 1997, pursuant to which
Mortgagor leases all or a portion of the Land from LNPJ, L.L.C.,
a memorandum of which was recorded with the County Clerk of
[county and state in which the memorandum was recorded], in
[Book/Libor/Reel] [Book/Libor/Reel number], Page [page number of
Book/Libor/Reel on which the memorandum was recorded].
(e) "UCC": The Uniform Commercial Code of Kansas or,
if the creation, perfection and enforcement of any security
interest herein granted is governed by the laws of a state other
than Kansas, then, as to the matter in question, the Uniform
Commercial Code in effect in that state.
ARTICLE 2
GRANT
-----
Section 2.1. Grant. To secure the full and timely
payment of the Indebtedness and the full and timely performance
of the Obligations, Mortgagor MORTGAGES AND WARRANTS, GRANTS,
BARGAINS, ASSIGNS, SELLS and CONVEYS, to Mortgagee the Mortgaged
Property, subject, however, to the Permitted Encumbrances, TO
HAVE AND TO HOLD the Mortgaged Property to Mortgagee, and
Mortgagor does hereby bind itself, its successors and assigns to
WARRANT AND FOREVER DEFEND the title to the Mortgaged Property
unto Mortgagee.
ARTICLE 3
WARRANTIES, REPRESENTATIONS AND COVENANTS
-----------------------------------------
Mortgagor warrants, represents and covenants to
Mortgagee as follows:
2
<PAGE>
Section 3.1. Title to Mortgaged Property and Lien of
this Instrument. Mortgagor owns the Mortgaged Property free and
clear of any liens, claims or interests, except the Permitted
Encumbrances. This Mortgage creates valid, enforceable first
priority liens and security interests against the Mortgaged
Property.
Section 3.2. First Lien Status. Mortgagor shall
preserve and protect the first lien and security interest status
of this Mortgage and the other Loan Documents. If any lien or
security interest other than the Permitted Encumbrances is
asserted against the Mortgaged Property, Mortgagor shall
promptly, and at its expense, (a) give Mortgagee a detailed
written notice of such lien or security interest (including
origin, amount and other terms), and (b) pay the underlying claim
in full or take such other action so as to cause it to be
released or contest the same in compliance with the requirements
of the Credit Agreement (including the requirement of providing a
bond or other security satisfactory to Mortgagee).
Section 3.3. Payment and Performance. Mortgagor shall
pay the Indebtedness when due under the Loan Documents and shall
perform the Obligations in full when they are required to be
performed.
Section 3.4. Replacement of Fixtures and Personalty.
Mortgagor shall not, without the prior written consent of
Mortgagee, permit any of the Fixtures or Personalty to be removed
at any time from the Land or Improvements, unless the removed
item is removed temporarily for maintenance and repair or, if
removed permanently, is obsolete and is replaced by an article of
equal or better suitability and value, owned by Mortgagor subject
to the liens and security interests of this Mortgage and the
other Loan Documents, and free and clear of any other lien or
security interest except such as may be permitted under the
Credit Agreement or first approved in writing by Mortgagee.
Section 3.5. Inspection. Mortgagor shall permit
Mortgagee and the Lenders, and their respective agents,
representatives and employees, upon reasonable prior notice to
Mortgagor, and in compliance with the Subject Lease, to inspect
the Mortgaged Property and all books and records of Mortgagor
located thereon, and to conduct such environmental and
engineering studies as Mortgagee or the Lenders may require,
provided that such inspections and studies shall not materially
interfere with the use and operation of the Mortgaged Property.
Section 3.6. Other Covenants. All of the covenants in
the Credit Agreement are incorporated herein by reference and,
together with covenants in this Article 3, shall be covenants
running with the land.
Section 3.7. Condemnation Awards and Insurance Proceeds.
(a) Condemnation Awards. Mortgagor assigns all awards
and compensation to which it is entitled for any condemnation or
other taking, or any purchase in lieu thereof, to Mortgagee and
authorizes Mortgagee to collect and receive such awards and
compensation and to give proper receipts and acquittances
therefor, subject to the terms of the Credit Agreement.
(b) Insurance Proceeds. Mortgagor assigns to Mortgagee
all proceeds of any insurance policies insuring against loss or
damage to the Mortgaged Property. Mortgagor authorizes Mortgagee
to collect and receive such proceeds and authorizes and directs
the issuer of each of such insurance policies to make payment for
all such losses directly to Mortgagee, instead of to Mortgagor
and Mortgagee jointly.
3
<PAGE>
ARTICLE 4
LEASEHOLD MORTGAGE PROVISIONS
-----------------------------
Section 4.1. Representations; Warranties; Covenants.
Mortgagor hereby represents, warrants and covenants to Mortgagee
and to the Lenders, with respect to the Subject Lease, that:
(a) (1) Such Subject Lease is unmodified and in full
force and effect, (2) all rent and other charges therein have
been paid to the extent they are payable to the date hereof, (3)
Mortgagor enjoys the quiet and peaceful possession of the
property demised thereby, (4) to the best of its knowledge,
Mortgagor is not in default under any of the terms thereof and
there are no circumstances which, with the passage of time or the
giving of notice or both, would constitute an event of default
thereunder, (5) to the best of Mortgagor's knowledge, the lessor
thereunder is not in default under any of the terms or provisions
thereof on the part of the lessor to be observed or performed;
(b) Mortgagor shall promptly pay, when due and
payable, the rent and other charges payable pursuant to such
Subject Lease, and will timely perform and observe all of the
other terms, covenants and conditions required to be performed
and observed by Mortgagor as lessee under such Subject Lease;
(c) Mortgagor shall notify Mortgagee and the Lenders
in writing of any default by Mortgagor in the performance or
observance of any terms, covenants or conditions on the part of
Mortgagor to be performed or observed under such Subject Lease
within three (3) days after Mortgagor knows of such default;
(d) Mortgagor shall, immediately upon receipt thereof,
deliver a copy of each notice given to Mortgagor by the lessor
pursuant to such Subject Lease and promptly notify Mortgagee and
the Lenders in writing of any default by the lessor in the
performance or observance of any of the terms, covenants or
conditions on the part of the lessor to be performed or observed
thereunder;
(e) Unless required under the terms of such Subject
Lease, Mortgagor shall not, without the prior written consent of
Mortgagee and the Lenders (which may be granted or withheld in
Mortgagee's and the Lenders' sole and absolute discretion)
terminate, modify or surrender such Subject Lease, and any such
attempted termination, modification or surrender without
Mortgagee's and the Lenders' written consent shall be void; and
(f) Mortgagor shall, within twenty (20) days after
written request from Mortgagee, use its best efforts to obtain
from the lessor and deliver to Mortgagee a certificate setting
forth the name of the tenant thereunder and stating that such
Subject Lease is in full force and effect, is unmodified or, if
the Subject Lease has been modified, the date of each
modification (together with copies of each such modification),
that no notice of termination thereon has been served on
Mortgagor, stating that no default or event which with notice or
lapse of time (or both) would become a default is existing under
the Subject Lease, stating the date to which rent has been paid,
and specifying the nature of any defaults, if any, and containing
such other statements and representations as may be requested by
Mortgagee.
Section 4.2. No Merger. So long as any of the
Indebtedness or the Obligations remain unpaid or unperformed, the
fee title to and the leasehold estate in the premises subject to
each Subject Lease shall not merge but shall always be kept
separate and distinct notwithstanding the union of such estates
in the lessor or Mortgagor, or in a third party, by purchase or
otherwise. If Mortgagor acquires the fee title or any other
estate, title or interest in the property demised by the Subject
Lease, or any part thereof, the lien of this Mortgage shall
attach to, cover and be a lien upon such acquired estate, title
or
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interest and the same shall thereupon be and become a part of the
Mortgaged Property with the same force and effect as if
specifically encumbered herein. Mortgagor agrees to execute all
instruments and documents that Mortgagee may reasonably require
to ratify, confirm and further evidence the lien of this Mortgage
on the acquired estate, title or interest. Furthermore, Mortgagor
hereby appoints Mortgagee as its true and lawful attorney-in-fact
to execute and deliver, following an Event of Default, all such
instruments and documents in the name and on behalf of Mortgagor.
This power, being coupled with an interest, shall be irrevocable
as long as any portion of the Indebtedness remains unpaid.
Section 4.3. Mortgagee or the Lenders as Lessee. If
the Subject Lease shall be terminated prior to the natural
expiration of its term due to default by Mortgagor or any tenant
thereunder, and if, pursuant to the provisions of such Subject
Lease, Mortgagee or the Lenders, or their respective designees,
shall acquire from the lessor a new lease of the premises subject
to the Subject Lease, Mortgagor shall have no right, title or
interest in or to such new lease or the leasehold estate created
thereby, or renewal privileges therein contained.
Section 4.4. No Assignment. Notwithstanding anything
to the contrary contained herein, this Mortgage shall not
constitute an assignment of any Subject Lease within the meaning
of any provision thereof prohibiting its assignment and Mortgagee
and the Lenders shall have no liability or obligation thereunder
by reason of their acceptance of this Mortgage. Mortgagee and the
Lenders shall be liable for the obligations of the tenant arising
out of any Subject Lease for only that period of time for which
Mortgagee and the Lenders are in possession of the premises
demised thereunder or has acquired, by foreclosure or otherwise,
and are holding all of Mortgagor's right, title and interest
therein.
ARTICLE 5
DEFAULT AND FORECLOSURE
-----------------------
Section 5.1. Remedies. If an Event of Default exists,
Mortgagee, or a judicially appointed receiver, may, at
Mortgagee's election, exercise any or all of the following
rights, remedies and recourses:
(a) Acceleration. Declare the Indebtedness to be
immediately due and payable, without further notice, presentment,
protest, notice of intent to accelerate, notice of acceleration,
demand or action of any nature whatsoever (each of which hereby
is expressly waived by Mortgagor), whereupon the same shall
become immediately due and payable.
(b) Entry on Mortgaged Property. Enter the Mortgaged
Property and take exclusive possession thereof and of all books,
records and accounts relating thereto or located thereon. If
Mortgagor remains in possession of the Mortgaged Property after
an Event of Default and without Mortgagee's prior written
consent, Mortgagee may invoke any legal remedies to dispossess
Mortgagor.
(c) Operation of Mortgaged Property. Hold, lease,
develop, manage, operate or otherwise use the Mortgaged Property
upon such terms and conditions as Mortgagee may deem reasonable
under the circumstances (making such repairs, alterations,
additions and improvements and taking other actions, from time to
time, as Mortgagee deems necessary or desirable), and apply all
Rents and other amounts collected by Mortgagee in connection
therewith in accordance with the provisions of Section 5.7.
(d) Foreclosure and Sale. Foreclose this Mortgage and,
subject to the limitations of this Mortgage with respect to the
aggregate principal amount of the Obligations and interest
thereon secured by this Mortgage, obtain a judgment in the amount
of the Obligations, including all sums advanced, paid, or
expended pursuant to this Mortgage and, to the extent permitted
by applicable law, attorneys' fees and
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expenses and all costs and expenses of enforcing this Mortgage
and such judgment, and Mortgagee shall be entitled to a decree
for the sale of the Mortgaged Property in satisfaction of the
judgment foreclosing all rights and equities of Mortgagor in and
to the Mortgaged Property as well as all persons claiming under
Mortgagor. In addition, Mortgagee shall be entitled to collect
from Mortgagor the deficiency, if any, between the amount of the
judgment and all sums owing thereunder and the amount of the
proceeds of the foreclosure sale of the Mortgaged Property after
deducting all fees, costs and expenses of such sale.
With respect to any notices required or permitted under the UCC,
Mortgagor agrees that ten (10) days' prior written notice shall
be deemed commercially reasonable. At any such sale by virtue of
any judicial proceedings, power of sale, or any other legal
right, remedy or recourse, the title to and right of possession
of any such property shall pass to the purchaser thereof, and to
the fullest extent permitted by law, Mortgagor shall be
completely and irrevocably divested of all of its right, title,
interest, claim, equity, equity of redemption, and demand
whatsoever, either at law or in equity, in and to the property
sold and such sale shall be a perpetual bar both at law and in
equity against Mortgagor, and against all other Persons claiming
or to claim the property sold or any part thereof, by, through or
under Mortgagor.
Mortgagee or any of the Lenders may be a purchaser at such sale
and if Mortgagee or any of the Lenders is the highest bidder,
Mortgagee or any such Lender may credit the portion of the
purchase price that would be distributed to Mortgagee or any such
Lender against the Indebtedness in lieu of paying cash. In the
event this Mortgage is foreclosed by judicial action,
appraisement of the Mortgaged Property is waived.
(e) Receiver. Make application to a court of competent
jurisdiction for, and obtain from such court as a matter of
strict right and without notice to Mortgagor or regard to the
adequacy of the Mortgaged Property for the repayment of the
Indebtedness, the appointment of a receiver of the Mortgaged
Property, and Mortgagor irrevocably consents to such appointment.
Any such receiver shall have all the usual powers and duties of
receivers in similar cases, including the full power to rent,
maintain and otherwise operate the Mortgaged Property upon such
terms as may be approved by the court, and shall apply such Rents
in accordance with the provisions of Section 5.7.
(f) Other. Exercise all other rights, remedies and
recourses granted under the Loan Documents or otherwise available
at law or in equity.
Section 5.2. Separate Sales. The Mortgaged Property
may be sold in one or more parcels and in such manner and order
as Mortgagee in its sole discretion may elect; the right of sale
arising out of any Event of Default shall not be exhausted by any
one or more sales.
Section 5.3. Remedies Cumulative, Concurrent and
Nonexclusive. Mortgagee and the Lenders shall have all rights,
remedies and recourses granted in the Loan Documents and
available at law or equity (including the UCC), which rights (a)
shall be cumulated and concurrent, (b) may be pursued separately,
successively or concurrently against Mortgagor or others
obligated under the Loan Documents, or against the Mortgaged
Property, or against any one or more of them, at the sole
discretion of Mortgagee or the Lenders, (c) may be exercised as
often as occasion therefor shall arise, and the exercise or
failure to exercise any of them shall not be construed as a
waiver or release thereof or of any other right, remedy or
recourse, and (d) are intended to be, and shall be, nonexclusive.
No action by Mortgagee or the Lenders in the enforcement of any
rights, remedies or recourses under the Loan Documents or
otherwise at law or equity shall be deemed to cure any Event of
Default.
Section 5.4. Release of and Resort to Collateral.
Mortgagee may release, regardless of consideration and without
the necessity for any notice to or consent by the holder of any
subordinate lien on the Mortgaged Property, any part of the
Mortgaged Property without, as to the remainder, in any way
impairing, affecting, subordinating or releasing the lien or
security interest created in or evidenced by the Loan Documents
or their status as a first and prior lien and security interest
in and to the Mortgaged
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Property. For payment of the Indebtedness, Mortgagee may resort
to any other security in such order and manner as Mortgagee may
elect.
Section 5.5. Waiver of Redemption, Notice and
Marshalling of Assets. To the fullest extent permitted by law,
Mortgagor hereby irrevocably and unconditionally waives and
releases (a) all benefit that might accrue to Mortgagor by virtue
of any present or future statute of limitations or law or
judicial decision exempting the Mortgaged Property from
attachment, levy or sale on execution or providing for any stay
of execution, exemption from civil process, period of redemption
or redemption rights, or extension of time for payment, (b) all
notices of any Event of Default or of Mortgagee's election to
exercise or the actual exercise of any right, remedy or recourse
provided for under the Loan Documents, and (c) any right to a
marshalling of assets or a sale in inverse order of alienation.
Section 5.6. Discontinuance of Proceedings. If
Mortgagee or the Lenders shall have proceeded to invoke any
right, remedy or recourse permitted under the Loan Documents and
shall thereafter elect to discontinue or abandon it for any
reason, Mortgagee or the Lenders shall have the unqualified right
to do so and, in such an event, Mortgagor and Mortgagee and the
Lenders shall be restored to their former positions with respect
to the Indebtedness, the Obligations, the Loan Documents, the
Mortgaged Property and otherwise, and the rights, remedies,
recourses and powers of Mortgagee and the Lenders shall continue
as if the right, remedy or recourse had never been invoked, but
no such discontinuance or abandonment shall waive any Event of
Default which may then exist or the right of Mortgagee or the
Lenders thereafter to exercise any right, remedy or recourse
under the Loan Documents for such Event of Default.
Section 5.7. Application of Proceeds. The proceeds of
any sale of, and the Rents and other amounts generated by the
holding, leasing, management, operation or other use of the
Mortgaged Property, shall be applied by Mortgagee (or the
receiver, if one is appointed) in the following order unless
otherwise required by applicable law:
(a) to the payment of the costs and expenses of taking
possession of the Mortgaged Property and of holding, using,
leasing, repairing, improving and selling the same, including,
without limitation (1) receiver's fees and expenses, including
the repayment of the amounts evidenced by any receiver's
certificates, (2) court costs, (3) reasonable attorneys' and
accountants' fees and expenses, (4) costs of advertisement, (5)
the payment of all rent and other charges under the Subject
Lease, (6) statutory foreclosure costs, and (7) costs of title
evidence, appraisals and environmental reports;
(b) to the payment of the Indebtedness and performance
of the Obligations in such manner and order of preference as
Mortgagee in its sole discretion may determine; and
(c) the balance, if any, to the payment of the Persons
legally entitled thereto.
Section 5.8. Occupancy After Foreclosure. Any sale of
the Mortgaged Property or any part thereof in accordance with
Section 5.1(d) will divest all right, title and interest of
Mortgagor in and to the property sold. Subject to applicable law,
any purchaser at a foreclosure sale will receive immediate
possession of the property purchased. If Mortgagor retains
possession of such property or any part thereof subsequent to
such sale, Mortgagor will be considered a tenant at sufferance of
the purchaser, and will, if Mortgagor remains in possession after
demand to remove, be subject to eviction and removal, forcible or
otherwise, with or without process of law.
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Section 5.9. Additional Advances and Disbursements;
Costs of Enforcement.
(a) If any Event of Default exists, Mortgagee and each
of the Lenders shall have the right, but not the obligation, to
cure such Event of Default in the name and on behalf of
Mortgagor. All sums advanced and expenses incurred at any time by
Mortgagee or any Lender under this Section 5.9, or otherwise
under this Mortgage or any of the other Loan Documents or
applicable law, shall bear interest from the date that such sum
is advanced or expense incurred, to and including the date of
reimbursement, computed at the rate or rates at which interest is
then computed on the Indebtedness, and all such sums, together
with interest thereon, shall be secured by this Mortgage.
(b) Mortgagor shall pay all expenses (including
reasonable attorneys' fees and expenses) of or incidental to the
perfection and enforcement of this Mortgage and the other Loan
Documents, or the enforcement, compromise or settlement of the
Indebtedness or any claim under this Mortgage and the other Loan
Documents, and for the curing thereof, or for defending or
asserting the rights and claims of Mortgagee in respect thereof,
by litigation or otherwise.
Section 5.10. No Mortgagee in Possession. Neither the
enforcement of any of the remedies under this Article 5, the
assignment of the Rents and Leases under Article 6, the security
interests under Article 7, nor any other remedies afforded to
Mortgagee or any Lender under the Loan Documents, at law or in
equity shall cause Mortgagee or any Lender to be deemed or
construed to be a mortgagee in possession of the Mortgaged
Property, to obligate Mortgagee or any Lender to lease the
Mortgaged Property or attempt to do so, or to take any action,
incur any expense, or perform or discharge any obligation, duty
or liability whatsoever under any of the Leases or otherwise.
ARTICLE 6
ASSIGNMENT OF RENTS AND LEASES
------------------------------
Section 6.1. Assignment. In furtherance of and in
addition to the assignment made by Mortgagor in Section 2.1 of
this Mortgage, Mortgagor hereby absolutely and unconditionally
assigns, sells, transfers and conveys to Mortgagee all of its
right, title and interest in and to all Leases, whether now
existing or hereafter entered into, and all of its right, title
and interest in and to all Rents. This assignment is an absolute
assignment and not an assignment for additional security only. So
long as no Event of Default shall have occurred and be
continuing, Mortgagor shall have a revocable license from
Mortgagee to exercise all rights extended to the landlord under
the Leases, including the right to receive and collect all Rents
and to hold the Rents in trust for use in the payment and
performance of the Obligations and to otherwise use the same. The
foregoing license is granted subject to the conditional
limitation that no Event of Default shall have occurred and be
continuing. Upon the occurrence and during the continuance of an
Event of Default, whether or not legal proceedings have
commenced, and without regard to waste, adequacy of security for
the Obligations or solvency of Mortgagor, the license herein
granted shall automatically expire and terminate, without notice
by Mortgagee (any such notice being hereby expressly waived by
Mortgagor).
Section 6.2. Perfection Upon Recordation. Mortgagor
acknowledges that Mortgagee has taken all actions necessary to
obtain, and that upon recordation of this Mortgage Mortgagee
shall have, to the extent permitted under applicable law, a valid
and fully perfected, first priority, present assignment of the
Rents arising out of the Leases and all security for such Leases.
Mortgagor acknowledges and agrees that upon recordation of this
Mortgage Mortgagee's interest in the Rents shall be deemed to be
fully perfected, "choate" and enforced as to Mortgagor and all
third parties, including, without limitation, any subsequently
appointed trustee in any case under Title 11 of the United States
Code (the "Bankruptcy Code"), without the necessity of commencing
a foreclosure action with respect to this Mortgage, making formal
demand for the Rents, obtaining the appointment of a receiver or
taking any
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other affirmative action.
Section 6.3. Bankruptcy Provisions. Without limitation
of the absolute nature of the assignment of the Rents hereunder,
Mortgagor and Mortgagee agree that (a) this Mortgage shall
constitute a "security agreement" for purposes of Section 552(b)
of the Bankruptcy Code, (b) the security interest created by this
Mortgage extends to property of Mortgagor acquired before the
commencement of a case in bankruptcy and to all amounts paid as
Rents and (c) such security interest shall extend to all Rents
acquired by the estate after the commencement of any case in
bankruptcy.
Section 6.4. No Merger of Estates. So long as part of
the Indebtedness and the Obligations secured hereby remain unpaid
and undischarged, the fee and leasehold estates to the Mortgaged
Property shall not merge, but shall remain separate and distinct,
notwithstanding the union of such estates either in Mortgagor,
Mortgagee, any tenant or any third party by purchase or
otherwise.
ARTICLE 7
SECURITY AGREEMENT
------------------
Section 7.1. Security Interest. This Mortgage
constitutes a "security agreement" on personal property within
the meaning of the UCC and other applicable law and with respect
to the leasehold interest created by the Subject Lease, the
Personalty, Fixtures, Leases, Rents, Deposit Accounts, Property
Agreements, Tax Refunds, Proceeds, Insurance and Condemnation
Awards. To this end, Mortgagor grants to Mortgagee a first and
prior security interest in the leasehold interest created by the
Subject Lease, the Personalty, Fixtures, Leases, Rents, Deposit
Accounts, Property Agreements, Tax Refunds, Proceeds, Insurance,
Condemnation Awards and all other Mortgaged Property which is
personal property to secure the payment of the Indebtedness and
performance of the Obligations, and agrees that Mortgagee shall
have all the rights and remedies of a secured party under the UCC
with respect to such property. Any notice of sale, disposition or
other intended action by Mortgagee with respect to the leasehold
interest created by the Subject Lease, the Personalty, Fixtures,
Leases, Rents, Deposit Accounts, Property Agreements, Tax
Refunds, Proceeds, Insurance and Condemnation Awards sent to
Mortgagor at least five (5) days prior to any action under the
UCC shall constitute reasonable notice to Mortgagor.
Section 7.2. Financing Statements. Mortgagor shall
execute and deliver to Mortgagee, in form and substance
satisfactory to Mortgagee, such financing statements and such
further assurances as Mortgagee may, from time to time,
reasonably consider necessary to create, perfect and preserve
Mortgagee's security interest hereunder and Mortgagee may cause
such statements and assurances to be recorded and filed, at such
times and places as may be required or permitted by law to so
create, perfect and preserve such security interest. Mortgagor's
chief executive office is in the State of [state in which
Mortgagor's Chief Executive Office is located] at the address set
forth in the first paragraph of this Mortgage.
Section 7.3. Fixture Filing. This Mortgage shall also
constitute a "fixture filing" for the purposes of the UCC against
all of the Mortgaged Property which is or is to become fixtures.
Information concerning the security interest herein granted may
be obtained at the addresses of Debtor (Mortgagor) and Secured
Party (Mortgagee) as set forth in the first paragraph of this
Mortgage.
ARTICLE 8
[Intentionally Omitted]
ARTICLE 9
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MISCELLANEOUS
-------------
Section 9.1. Notices. Any notice required or permitted
to be given under this Mortgage shall be given in accordance with
Section [10.8] of the Credit Agreement.
Section 9.2. Covenants Running with the Land. All
Obligations contained in this Mortgage are intended by Mortgagor
and Mortgagee to be, and shall be construed as, covenants running
with the Mortgaged Property. As used herein, "Mortgagor" shall
refer to the party named in the first paragraph of this Mortgage
and to any subsequent owner of all or any portion of the
Mortgaged Property.
All Persons who may have or acquire an interest in the Mortgaged
Property shall be deemed to have notice of, and be bound by, the
terms of the Credit Agreement and the other Loan Documents;
however, no such party shall be entitled to any rights thereunder
without the prior written consent of Mortgagee.
Section 9.3. Attorney-in-Fact. Mortgagor hereby
irrevocably appoints Mortgagee and its successors and assigns, as
its attorney-in-fact, which agency is coupled with an interest
and with full power of substitution, (a) to execute and/or record
any notices of completion, cessation of labor or any other
notices that Mortgagee deems appropriate to protect Mortgagee's
interest, if Mortgagor shall fail to do so within ten (10) days
after written request by Mortgagee, (b) upon the issuance of a
deed pursuant to the foreclosure of this Mortgage or the delivery
of a deed in lieu of foreclosure, to execute all instruments of
assignment, conveyance or further assurance with respect to the
Leases, Rents, Deposit Accounts, Property Agreements, Tax
Refunds, Proceeds, Insurance and Condemnation Awards in favor of
the grantee of any such deed and as may be necessary or desirable
for such purpose, (c) to prepare, execute and file or record
financing statements, continuation statements, applications for
registration and like papers necessary to create, perfect or
preserve Mortgagee's security interests and rights in or to any
of the Mortgaged Property, and (d) while any Event of Default
exists, to perform any obligation of Mortgagor hereunder,
however: (1) Mortgagee shall not under any circumstances be
obligated to perform any obligation of Mortgagor; (2) any sums
advanced by Mortgagee in such performance shall be added to and
included in the Indebtedness and shall bear interest at the rate
or rates at which interest is then computed on the Indebtedness;
(3) Mortgagee as such attorney-in-fact shall only be accountable
for such funds as are actually received by Mortgagee; and (4)
Mortgagee shall not be liable to Mortgagor or any other person or
entity for any failure to take any action which it is empowered
to take under this Section 9.3.
Section 9.4. Successors and Assigns. This Mortgage
shall be binding upon and inure to the benefit of Mortgagee, the
Lenders, and Mortgagor and their respective successors and
assigns. Mortgagor shall not, without the prior written consent
of Mortgagee, assign any rights, duties or obligations hereunder.
Section 9.5. No Waiver. Any failure by Mortgagee to
insist upon strict performance of any of the terms, provisions or
conditions of the Loan Documents shall not be deemed to be a
waiver of same, and Mortgagee or the Lenders shall have the right
at any time to insist upon strict performance of all of such
terms, provisions and conditions.
Section 9.6. Credit Agreement. If any conflict or
inconsistency exists between this Mortgage and the Credit
Agreement, the Credit Agreement shall govern.
Section 9.7. Release or Reconveyance. Upon payment in
full of the Indebtedness and performance in full of the
Obligations, Mortgagee, at Mortgagor's expense, shall release the
liens and security interests created by this Mortgage or reconvey
the Mortgaged Property to Mortgagor.
Section 9.8. Waiver of Stay, Moratorium and Similar
Rights. Mortgagor agrees, to the full extent that it may lawfully
do so, that it will not at any time insist upon or plead or in
any way take
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advantage of any stay, marshalling of assets, extension,
redemption or moratorium law now or hereafter in force and effect
so as to prevent or hinder the enforcement of the provisions of
this Mortgage or the Indebtedness secured hereby, or any
agreement between Mortgagor and Mortgagee or any rights or
remedies of Mortgagee or the Lenders.
Section 9.9. Applicable Law. The provisions of this
Mortgage regarding the creation, perfection and enforcement of
the liens and security interests herein granted shall be governed
by and construed under the laws of the state in which the
Mortgaged Property is located. All other provisions of this
Mortgage shall be governed by the 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.
Section 9.10. Headings. The Article, Section and
Subsection titles hereof are inserted for convenience of
reference only and shall in no way alter, modify or define, or be
used in construing, the text of such Articles, Sections or
Subsections.
Section 9.11. Entire Agreement. This Mortgage and the
other Loan Documents embody the entire agreement and
understanding between Mortgagee and Mortgagor and supersede all
prior agreements and understandings between such parties relating
to the subject matter hereof and thereof. Accordingly, the Loan
Documents may not be contradicted by evidence of prior,
contemporaneous or subsequent oral agreements of the parties.
There are no unwritten oral agreements between the parties.
Section 9.12. Mortgagee as Agent; Successor Agents.
(a) Agent has been appointed to act as Agent hereunder
by the Lenders. Agent 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, without limitation, the release or substitution of
the Mortgaged Property) in accordance with the terms of the
Credit Agreement, any related agency agreement among Agent and
the Lenders (collectively, as amended, supplemented or otherwise
modified or replaced from time to time, the "Agency Documents")
and this Mortgage. Mortgagor and all other persons shall be
entitled to rely on releases, waivers, consents, approvals,
notifications and other acts of Agent, without inquiry into the
existence of required consents or approvals of the Lenders
therefor; except as required in Section 4.1 herein.
(b) Mortgagee shall at all times be the same Person
that is Agent under the Agency Documents. Written notice of
resignation by Agent pursuant to the Agency Documents shall also
constitute notice of resignation as Agent under this Mortgage.
Removal of Agent pursuant to any provision of the Agency
Documents shall also constitute removal as Agent under this
Mortgage. Appointment of a successor Agent pursuant to the Agency
Documents shall also constitute appointment of a successor Agent
under this Mortgage. Upon the acceptance of any appointment as
Agent by a successor Agent under the Agency Documents, that
successor Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring or
removed Agent as the Mortgagee under this Mortgage, and the
retiring or removed Agent shall promptly (i) assign and transfer
to such successor Agent all of its right, title and interest in
and to this Mortgage and the Mortgaged Property, and (ii) execute
and deliver to such successor Agent such assignments and
amendments and take such other actions, as may be necessary or
appropriate in connection with the assignment to such successor
Agent of the liens and security interests created hereunder,
whereupon such retiring or removed Agent shall be discharged from
its duties and obligations under this Mortgage. After any
retiring or removed Agent's resignation or removal hereunder as
Agent, the provisions of this Mortgage and the Agency Documents
shall inure to its benefit as to any actions taken or omitted to
be taken by it under this Mortgage while it
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was the Agent hereunder.
ARTICLE 10
LOCAL LAW PROVISIONS
Section 10.1. Limitation on Maximum Principal Amount
of Obligations Secured. Anything in this Mortgage to the contrary
notwithstanding, this Mortgage is made upon the condition that
this Mortgage and the lien granted and created hereby shall not
secure the entire amount of the Obligations, but shall only
secure (a) the aggregate principal amount of $_______________,
such aggregate principal amount being the last such principal
amount constituting the Indebtedness, and (b) interest on such
aggregate principal amount, together with all sums expended or
incurred for the reasonable protection of the security created in
the Mortgaged Property and the enforcement of the terms of this
Mortgage, the Credit Agreement or any of the other Loan
Documents, as applicable.
Section 10.2. Priority of Future Advances. This
Mortgage and the lien granted and created hereby secures all
future advances and re-advances under the Credit Agreement (and
guarantied by Mortgagor) or otherwise and future advances and
re-advances under this Mortgage, all of such future advances and
re-advances shall have the same priority as all advances made
pursuant to this Mortgage and in accordance with K.S.A.? 58-2336;
provided, however, that as provided in Section 10.1 above, the
entire amount of the Obligations is not secured by this Mortgage,
but this Mortgage only secures (a) the aggregate principal amount
of $_______________, such aggregate principal amount being the
last such principal amount constituting the Indebtedness, and (b)
interest on such aggregate principal amount, together with all
sums expended or incurred for the reasonable protection of the
security of the Mortgaged Property and the enforcement of the
terms of this Mortgage, the Credit Agreement or any of the other
Loan Documents, as applicable.
[The remainder of this page has been intentionally left blank]
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IN WITNESS WHEREOF, Mortgagor has on the date set forth in
the acknowledgement hereto, effective as of the date first above
written, caused this instrument to be duly EXECUTED AND DELIVERED
by authority duly given.
[EMPIRE CANDLE, INC.],
a [Missouri corporation]
By:______________________
Name:
Title:
<PAGE>
ACKNOWLEDGEMENT
STATE OF ILLINOIS )
) SS.:
COUNTY OF __________ )
THE FOREGOING INSTRUMENT WAS ACKNOWLEDGED BEFORE ME THIS _____
DAY OF APRIL, 1998, BY ___________________________________, THE
_____________________________, OF [EMPIRE CANDLE INC., A MISSOURI
CORPORATION], ON BEHALF OF THE CORPORATION.
__________________________________________________
(SIGNATURE AND OFFICE OF INDIVIDUAL TAKING ACKNOWLEDGEMENT)
MY COMMISSION EXPIRES: __________________________
(NOTARIAL SEAL)
<PAGE>
EXHIBIT A
Legal Description of premises located at [full address of
property]:
<PAGE>
[a]
MORTGAGOR: [2],
a [7] [8]
By:________________________________
Name:
Title:
<PAGE>
[b]
MORTGAGOR: [2],
a [7] [8]
By: [17],
a [18] [19]
its General Partner
By:_______________________
Name:
Title:
<PAGE>
[c]
MORTGAGOR: [2],
a [7] [8]
By:______________________
Name:
Title: General Partner
<PAGE>
[d]
MORTGAGOR: [2],
a [7] [8]
By: [20],
a [21] [22]
its Managing Member
By:_______________________
Name:
Title:
<PAGE>
[e]
MORTGAGOR: [2],
a [7] [8]
By:_________________________
Name:
Title: Managing Member
<PAGE>
[f]
MORTGAGOR: ________________________
[2]
<PAGE>
FORM OF MORTGAGE WITH LEASEHOLD PROVISIONS
The following information will be requested in completing this
form:
[1] State in which Property is Located
[2] Full Name of Mortgagor (In capital letters)
[3] Full Name of Mortgagee (In capital letters)
[4] "As of" Date of Mortgage (document assumes same date as
Credit Agreement
[5] O'Melveny & Myers Attorney Name
[6] O'Melveny & Myers File Number
[7] Mortgagor's State of Organization
[8] Mortgagor Entity Type (corporation, individual, etc.) (If
Mortgagor's entity type is a corporation, then [a])
(If Mortgagor's entity type is either a partnership or a
limited partnership, then ask:) Is its general partner
a corporation?
(If yes, then [b])
(If no, then [c])
(If Mortgagor's entity type is a limited liability
company, then ask:) Is its Managing member a
corporation?
(If yes, then [d])
(If no, then [e])
(If Mortgagor is an individual, then [f])
[9] Mortgagor's Address
[10] Mortgagee's State of Organization
[11] Mortgagee's Entity Type (national association, corporation,
etc.)
[12] Mortgagee's Address
[13] Title of Credit Agreement
[14] Are there parties to the Credit Agreement other than
Mortgagor and Mortgagee? If no, skip. (Insert "between
Mortgagor and Mortgagee") If yes, is there more than one
party?
If no, provide the full name of the other party.
(Insert into "among Mortgagor, Mortgagee and
_______________") If yes, provide the full names of
all other parties. (Insert into "among Mortgagor,
Mortgagee, __________ and __________")(Add additional
________," as necessary before "and".)
[15] State in which Mortgagor's Chief Executive Office is located
<PAGE>
[16] Section of Credit Agreement on Notices
[17] Full Name of General Partner
[18] General Partner's State of Organization
[19] General Partner's Entity Type
[20] Full Name of Managing Member
[21] Managing Member's State of Organization
[22] Managing Member's Entity Type
[23] Full Address of Property
[L1] Title of Lease
[L2] Date of Lease
[L3] Full Name of Lessor
[L4] County and State in which the memorandum was recorded
[L5] The memorandum of lease was recorded in which one of the following?
a) Book
b) Libor
c) Reel
[L6] Book/Libor/Reel number
[L7] Page number of the Book/Libor/Reel on which the memorandum was recorded
<PAGE>
[a] Corporation (without a seal)
[b] Partnership or Limited Partnership with Corporate General Partner
[c] Partnership or Limited Partnership with Individual General Partner
[d] Limited Liability Company with Corporate Managing Member
[e] Limited Liability Company with Individual Managing Member
[f] Individual
<PAGE>
MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF RENTS
AND LEASES AND FIXTURE FILING (MAINE)
by and from
FORSTER, INC., "Mortgagor"
to
WELLS FARGO BANK, N.A.,
in its capacity as Agent, "Mortgagee"
Dated as of April 21, 1998
Location:
Municipality:
County:
State:
THE SECURED PARTY (MORTGAGEE) DESIRES THIS FIXTURE FILING
TO BE INDEXED AGAINST THE RECORD OWNER OF THE REAL ESTATE
DESCRIBED HEREIN
PREPARED BY, RECORDING REQUESTED BY,
AND WHEN RECORDED MAIL TO:
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, California 90071-2899
Attention: Melissa Joe, Esq.
File #218,107-012
<PAGE>
MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF RENTS
AND LEASES AND FIXTURE FILING (MAINE)
THIS MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF RENTS
AND LEASES AND FIXTURE FILING (MAINE) (this "Mortgage") is dated
as of April 21, 1998 by and from FORSTER, INC., a Maine
corporation ("Mortgagor"), whose address is Mill Street, East
Wilton, Maine 04234 to WELLS FARGO BANK, N.A., a national banking
association, as agent (in such capacity, "Agent") for the lenders
party to the Credit Agreement (defined below) (such lenders,
together with their respective successors and assigns,
collectively, the "Lenders"), having an address at 555 Montgomery
Street, 17th Floor, San Francisco, California 94111 (Agent,
together with its successors and assigns, "Mortgagee").
ARTICLE 1
DEFINITIONS
-----------
Section 1.1. Definitions. All capitalized terms used
herein without definition shall have the respective meanings
ascribed to them in that certain Credit Agreement dated as of
even date herewith (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement") among
Mortgagor, Mortgagee, the Lenders, DLJ Capital Funding, Inc., as
Syndication Agent, and Morgan Stanley Senior Funding, Inc., as
Documentation Agent. As used herein, the following terms shall
have the following meanings:
(a) "Indebtedness": (1) All indebtedness of Mortgagor
to Mortgagee and the Lenders, including, without limitation, the
sum of all (a) principal, interest and other amounts evidenced or
secured by the Loan Documents, including a Subsidiary Guaranty of
even date herewith given by Mortgagor to Mortgagee which
guarantees an original principal indebtedness as set forth in the
Loan Documents of $105,000,000.00, and (b) principal, interest
and other amounts which may hereafter be loaned by Mortgagee or
any of the Lenders under or in connection with the Credit
Agreement or any of the other Loan Documents, whether evidenced
by a promissory note or other instrument which, by its terms, is
secured hereby, and (2) all other indebtedness, obligations and
liabilities now or hereafter existing of any kind of Mortgagor to
Mortgagee or any of the Lenders under documents which recite that
they are intended to be secured by this Mortgage. Notwithstanding
anything to the contrary herein, the maximum Indebtedness shall
not exceed $105,000,000.00, subject to all other provisions of
this Mortgage and the Credit Agreement.
(b) "Mortgaged Property": All of Mortgagor's interest
in (1) the fee interest in the real property described in Exhibit
A attached hereto and incorporated herein by this reference,
together with any greater estate therein as hereafter may be
acquired by Mortgagor (the "Land"), (2) all improvements now
owned or hereafter acquired by Mortgagor, now or at any time
situated, placed or constructed upon the Land (the
"Improvements"; the Land and Improvements are collectively
referred to as the "Premises"), (3) all materials, supplies,
equipment, apparatus and other items of personal property now
owned or hereafter acquired by Mortgagor and now or hereafter
attached to, installed in or used in connection with any of the
Improvements or the Land, and water, gas, electrical, telephone,
storm and sanitary sewer facilities and all other utilities
whether or not situated in easements (the "Fixtures"), (4) all
right, title and interest of Mortgagor in and to all goods,
accounts, general intangibles, instruments, documents, chattel
paper and all other personal property of any kind or character,
including such items of personal property as defined in the UCC
(defined below), now owned or hereafter acquired by Mortgagor and
now or hereafter affixed to, placed upon, used in connection
with, arising from or otherwise related to the Premises (the
"Personalty"), (5) all reserves, escrows or impounds required
under the Credit Agreement and all deposit accounts maintained by
Mortgagor with respect to the Mortgaged Property (the
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"Deposit Accounts"), (6) all leases, licenses, concessions,
occupancy agreements or other agreements (written or oral, now or
at any time in effect) which grant to any Person a possessory
interest in, or the right to use, all or any part of the
Mortgaged Property, together with all related security and other
deposits (the "Leases"), (7) all of the rents, revenues,
royalties, income, proceeds, profits, security and other types of
deposits, and other benefits paid or payable by parties to the
Leases for using, leasing, licensing possessing, operating from,
residing in, selling or otherwise enjoying the Mortgaged Property
(the "Rents"), (8) all other agreements, such as construction
contracts, architects' agreements, engineers' contracts, utility
contracts, maintenance agreements, management agreements, service
contracts, listing agreements, guaranties, warranties, permits,
licenses, certificates and entitlements in any way relating to
the construction, use, occupancy, operation, maintenance,
enjoyment or ownership of the Mortgaged Property (the "Property
Agreements"), (9) all rights, privileges, tenements,
hereditaments, rights-of-way, easements, appendages and
appurtenances appertaining to the foregoing, (10) all property
tax refunds (the "Tax Refunds"), (11) all accessions,
replacements and substitutions for any of the foregoing and all
proceeds thereof (the "Proceeds"), (12) all insurance policies,
unearned premiums therefor and proceeds from such policies
covering any of the above property now or hereafter acquired by
Mortgagor (the "Insurance"), and (13) all of Mortgagor's right,
title and interest in and to any awards, damages, remunerations,
reimbursements, settlements or compensation heretofore made or
hereafter to be made by any governmental authority pertaining to
the Land, Improvements, Fixtures or Personalty (the "Condemnation
Awards"). As used in this Mortgage, the term "Mortgaged Property"
shall mean all or, where the context permit or requires, any
portion of the above or any interest therein.
(c) "Obligations": All of the agreements, covenants,
conditions, warranties, representations and other obligations of
Mortgagor (including, without limitation, the obligation to repay
the Indebtedness) under the Credit Agreement and the other Loan
Documents.
(d) "UCC": The Uniform Commercial Code of Maine or, if
the creation, perfection and enforcement of any security interest
herein granted is governed by the laws of a state other than
Maine, then, as to the matter in question, the Uniform Commercial
Code in effect in that state.
(e) "Event of Default": Any one or more of the
following conditions or events:
(1) Failure by Company or Mortgagor to pay as and
when due and payable any sums to be paid by Company or Mortgagor
under this Mortgage and continuance of such failure following any
and all notice and cure periods contained in the Credit
Agreement; or
(2) Failure by Company or Mortgagor to duly
observe or perform any other term, covenant, condition or
agreement of this Mortgage and continuance of such failure
following any and all notice and cure periods contained in the
Credit Agreement; or
(3) Any representation or warranty of Company or
Mortgagor contained in this Mortgage shall prove to have been
false or incorrect in any material respect upon the date when
made; or
(4) The filing by Company or Mortgagor or any
guarantor of a voluntary petition in bankruptcy under Title 11 of
the United States Code, or the issuing of an order for relief
against Company or Mortgagor or any guarantor in any involuntary
petition in bankruptcy under Title 11 of the United States Code,
or the filing by Company or Mortgagor or any guarantor of any
petition or answer seeking or acquiescing in any reorganization,
arrangement, composition, readjustment, liquidation, dissolution
or similar relief for itself under any present or future federal,
state or other law or regulation relating to bankruptcy,
insolvency or other relief for debtors, or Company's or
Mortgagor's or any guarantor's seeking or consenting to or
acquiescing in the appointment of any custodian, trustee,
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receiver, conservator or liquidator of Company or Mortgagor or
such guarantor, respectively, or of all or any substantial part
of its respective property, or the making by Company or Mortgagor
or any guarantor of any assignment for the benefit of creditors,
or Company's or Mortgagor's or any guarantor's failure generally
to pay its debts, as such debts become due, or Company's or
Mortgagor's or any guarantor's giving of notice to any
governmental authority or body of insolvency or pending
insolvency or suspension of operations; or
(5) The entry by a court of competent
jurisdiction of any order, judgment or decree approving a
petition filed against Company or Mortgagor or any guarantor
seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under
any present or future federal, state or other law or regulation
relating to bankruptcy, insolvency or other relief for debtors,
or appointing any custodian, trustee, receiver, conservator or
liquidator of all or any substantial part of Company's or
Mortgagor's or any guarantor's property; or
(6) The occurrence of any "Event of Default" as
defined in any of the other Loan Documents, including without
limitation the Credit Agreement.
ARTICLE 2
GRANT
-----
Section 2.1. Grant. To secure the full and timely
payment of the Indebtedness and the full and timely performance
of the Obligations, Mortgagor MORTGAGES, GRANTS, BARGAINS,
ASSIGNS, SELLS and CONVEYS, to Mortgagee the Mortgaged Property,
subject, however, to the Permitted Encumbrances, TO HAVE AND TO
HOLD the Mortgaged Property to Mortgagee, and Mortgagor does
hereby bind itself, its successors and assigns to WARRANT AND
FOREVER DEFEND the title to the Mortgaged Property unto
Mortgagee.
ARTICLE 3
WARRANTIES, REPRESENTATIONS AND COVENANTS
-----------------------------------------
Mortgagor warrants, represents and covenants to
Mortgagee as follows:
Section 3.1. Title to Mortgaged Property and Lien of
this Instrument. Mortgagor owns the Mortgaged Property free and
clear of any liens, claims or interests, except the Permitted
Encumbrances. This Mortgage creates valid, enforceable first
priority liens and security interests against the Mortgaged
Property.
Section 3.2. First Lien Status. Mortgagor shall
preserve and protect the first lien and security interest status
of this Mortgage and the other Loan Documents. If any lien or
security interest other than the Permitted Encumbrances is
asserted against the Mortgaged Property, Mortgagor shall
promptly, and at its expense, (a) give Mortgagee a detailed
written notice of such lien or security interest (including
origin, amount and other terms), and (b) pay the underlying claim
in full or take such other action so as to cause it to be
released or contest the same in compliance with the requirements
of the Credit Agreement (including the requirement of providing a
bond or other security satisfactory to Mortgagee).
Section 3.3. Payment and Performance. Mortgagor shall
pay the Indebtedness when due under the Loan Documents and shall
perform the Obligations in full when they are required to be
performed.
Section 3.4. Replacement of Fixtures and Personalty.
Mortgagor shall not, without
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<PAGE>
the prior written consent of Mortgagee, permit any of the
Fixtures or Personalty to be removed at any time from the Land or
Improvements, unless the removed item is removed temporarily for
maintenance and repair or, if removed permanently, is obsolete
and is replaced by an article of equal or better suitability and
value, owned by Mortgagor subject to the liens and security
interests of this Mortgage and the other Loan Documents, and free
and clear of any other lien or security interest except such as
may be permitted under the Credit Agreement or first approved in
writing by Mortgagee.
Section 3.5. Inspection. Mortgagor shall permit
Mortgagee and the Lenders, and their respective agents,
representatives and employees, upon reasonable prior notice to
Mortgagor, to inspect the Mortgaged Property and all books and
records of Mortgagor located thereon, and to conduct such
environmental and engineering studies as Mortgagee or the Lenders
may require, provided that such inspections and studies shall not
materially interfere with the use and operation of the Mortgaged
Property.
Section 3.6. Other Covenants. All of the covenants in
the Credit Agreement are incorporated herein by reference and,
together with covenants in this Article 3, shall be covenants
running with the land.
Section 3.7. Condemnation Awards and Insurance
Proceeds.
(a) Condemnation Awards. Mortgagor assigns all awards
and compensation to which it is entitled for any condemnation or
other taking, or any purchase in lieu thereof, to Mortgagee and
authorizes Mortgagee to collect and receive such awards and
compensation and to give proper receipts and acquittances
therefor, subject to the terms of the Credit Agreement.
(b) Insurance Proceeds. Mortgagor assigns to Mortgagee
all proceeds of any insurance policies insuring against loss or
damage to the Mortgaged Property. Mortgagor authorizes Mortgagee
to collect and receive such proceeds and authorizes and directs
the issuer of each of such insurance policies to make payment for
all such losses directly to Mortgagee, instead of to Mortgagor
and Mortgagee jointly.
ARTICLE 4
[Intentionally Omitted]
ARTICLE 5
DEFAULT AND FORECLOSURE
-----------------------
Section 5.1. Remedies. If an Event of Default exists,
Mortgagee may, at Mortgagee's election, exercise any or all of
the following rights, remedies and recourses:
(a) Acceleration. Declare the Indebtedness to be
immediately due and payable, without further notice, presentment,
protest, notice of intent to accelerate, notice of acceleration,
demand or action of any nature whatsoever (each of which hereby
is expressly waived by Mortgagor), whereupon the same shall
become immediately due and payable.
(b) Entry on Mortgaged Property. Enter the Mortgaged
Property and take exclusive possession thereof and of all books,
records and accounts relating thereto or located thereon. If
Mortgagor remains in possession of the Mortgaged Property after
an Event of Default and without Mortgagee's prior written
consent, Mortgagee may invoke any legal remedies to dispossess
Mortgagor.
(c) Operation of Mortgaged Property. Hold, lease,
develop, manage, operate or
4
<PAGE>
otherwise use the Mortgaged Property upon such terms and
conditions as Mortgagee may deem reasonable under the
circumstances (making such repairs, alterations, additions and
improvements and taking other actions, from time to time, as
Mortgagee deems necessary or desirable), and apply all Rents and
other amounts collected by Mortgagee in connection therewith in
accordance with the provisions of Section 5.7.
(d) Foreclosure and Sale. Institute proceedings for
the complete foreclosure of this Mortgage, either by judicial
action or by power of sale, in which case the Mortgaged Property
may be sold for cash or credit in one or more parcels. Mortgagee
shall have the authority to foreclose this Mortgage by any legal
or equitable method of foreclosure existing at the time of
execution of this Mortgage or thereafter, including without
limitation the Statutory Power of Sale as provided in 33 M.R.S.A.
? 501. With respect to any notices required or permitted under
the UCC, Mortgagor agrees that five (5) days' prior written
notice shall be deemed commercially reasonable. At any such sale
by virtue of any judicial proceedings, power of sale, or any
other legal right, remedy or recourse, the title to and right of
possession of any such property shall pass to the purchaser
thereof, and to the fullest extent permitted by law, Mortgagor
shall be completely and irrevocably divested of all of its right,
title, interest, claim, equity, equity of redemption, and demand
whatsoever, either at law or in equity, in and to the property
sold and such sale shall be a perpetual bar both at law and in
equity against Mortgagor, and against all other Persons claiming
or to claim the property sold or any part thereof, by, through or
under Mortgagor. Mortgagee or any of the Lenders may be a
purchaser at such sale. If Mortgagee or any of the Lenders is the
highest bidder, Mortgagee or any such Lender may credit the
portion of the purchase price that would be distributed to
Mortgagee or any such Lender against the Indebtedness in lieu of
paying cash. In the event this Mortgage is foreclosed by judicial
action, appraisement of the Mortgaged Property is waived.
(e) Receiver. Make application to a court of competent
jurisdiction for, and obtain from such court as a matter of
strict right and without notice to Mortgagor or regard to the
adequacy of the Mortgaged Property for the repayment of the
Indebtedness, the appointment of a receiver of the Mortgaged
Property, and Mortgagor irrevocably consents to such appointment.
Any such receiver shall have all the usual powers and duties of
receivers in similar cases, including the full power to rent,
maintain and otherwise operate the Mortgaged Property upon such
terms as may be approved by the court, and shall apply such Rents
in accordance with the provisions of Section 5.7.
(f) Other. Exercise all other rights, remedies and
recourses granted under the Loan Documents or otherwise available
at law or in equity.
Section 5.2. Separate Sales. The Mortgaged Property
may be sold in one or more parcels and in such manner and order
as Mortgagee in its sole discretion may elect; the right of sale
arising out of any Event of Default shall not be exhausted by any
one or more sales.
Section 5.3. Remedies Cumulative, Concurrent and
Nonexclusive. Mortgagee and the Lenders shall have all rights,
remedies and recourses granted in the Loan Documents and
available at law or equity (including the UCC), which rights (a)
shall be cumulated and concurrent, (b) may be pursued separately,
successively or concurrently against Mortgagor or others
obligated under the Loan Documents, or against the Mortgaged
Property, or against any one or more of them, at the sole
discretion of Mortgagee or the Lenders, (c) may be exercised as
often as occasion therefor shall arise, and the exercise or
failure to exercise any of them shall not be construed as a
waiver or release thereof or of any other right, remedy or
recourse, and (d) are intended to be, and shall be, nonexclusive.
No action by Mortgagee or the Lenders in the enforcement of any
rights, remedies or recourses under the Loan Documents or
otherwise at law or equity shall be deemed to cure any Event of
Default. Additionally, Mortgagor agrees for itself, its
successors and assigns, that the acceptance, before the
expiration of any
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right of redemption and after the commencement of foreclosure
proceedings of this Mortgage, of insurance proceeds, eminent
domain awards, Rents or anything else of value to be applied on
or to the Indebtedness by Mortgagee or any person or party
holding under it shall not constitute a waiver of any right of
foreclosure, and this agreement by Mortgagor shall be that
agreement referred to in 14 M.R.S.A. " 6204, as the same may be
amended or replaced, as necessary to prevent such waiver of
foreclosure. This agreement by Mortgagor is intended to apply to
the acceptance and such application of any such proceeds, awards,
rents and other sums or anything else of value whether the same
shall be accepted from, or for the account of, Mortgagor or from
any other source whatsoever by Mortgagee or by any person or
party holding under Mortgagee at any time or times in the future
while any of the Indebtedness or other Obligations secured hereby
shall remain outstanding.
Section 5.4. Release of and Resort to Collateral.
Mortgagee may release, regardless of consideration and without
the necessity for any notice to or consent by the holder of any
subordinate lien on the Mortgaged Property, any part of the
Mortgaged Property without, as to the remainder, in any way
impairing, affecting, subordinating or releasing the lien or
security interest created in or evidenced by the Loan Documents
or their status as a first and prior lien and security interest
in and to the Mortgaged Property. For payment of the
Indebtedness, Mortgagee may resort to any other security in such
order and manner as Mortgagee may elect.
Section 5.5. Waiver of Redemption, Notice and
Marshalling of Assets. To the fullest extent permitted by law,
Mortgagor hereby irrevocably and unconditionally waives and
releases (a) all benefit that might accrue to Mortgagor by virtue
of any present or future statute of limitations or law or
judicial decision exempting the Mortgaged Property from
attachment, levy or sale on execution or providing for any stay
of execution, exemption from civil process, redemption or
extension of time for payment, (b) all notices of any Event of
Default or of Mortgagee's election to exercise or the actual
exercise of any right, remedy or recourse provided for under the
Loan Documents, and (c) any right to a marshalling of assets or a
sale in inverse order of alienation.
Section 5.6. Discontinuance of Proceedings. If
Mortgagee or the Lenders shall have proceeded to invoke any
right, remedy or recourse permitted under the Loan Documents and
shall thereafter elect to discontinue or abandon it for any
reason, Mortgagee or the Lenders shall have the unqualified right
to do so and, in such an event, Mortgagor, Mortgagee and the
Lenders shall be restored to their former positions with respect
to the Indebtedness, the Obligations, the Loan Documents, the
Mortgaged Property and otherwise, and the rights, remedies,
recourses and powers of Mortgagee and the Lenders shall continue
as if the right, remedy or recourse had never been invoked, but
no such discontinuance or abandonment shall waive any Event of
Default which may then exist or the right of Mortgagee or the
Lenders thereafter to exercise any right, remedy or recourse
under the Loan Documents for such Event of Default.
Section 5.7. Application of Proceeds. The proceeds of
any sale of, and the Rents and other amounts generated by the
holding, leasing, management, operation or other use of the
Mortgaged Property, shall be applied by Mortgagee (or the
receiver, if one is appointed) in the following order unless
otherwise required by applicable law:
(a) to the payment of the costs and expenses of taking
possession of the Mortgaged Property and of holding, using,
leasing, repairing, improving and selling the same, including,
without limitation (1) receiver's fees and expenses, including
the repayment of the amounts evidenced by any receiver's
certificates, (2) court costs, (3) attorneys' and accountants'
fees and expenses, and (4) costs of advertisement;
(b) to the payment of the Indebtedness and performance
of the Obligations in such
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manner and order of preference as Mortgagee in its sole
discretion may determine; and
(c) the balance, if any, to the payment of the Persons
legally entitled thereto.
Section 5.8. Occupancy After Foreclosure. Any sale of
the Mortgaged Property or any part thereof in accordance with
Section 5.1(d) will divest all right, title and interest of
Mortgagor in and to the property sold. Subject to applicable law,
any purchaser at a foreclosure sale will receive immediate
possession of the property purchased. If Mortgagor retains
possession of such property or any part thereof subsequent to
such sale, Mortgagor will be considered a tenant at sufferance of
the purchaser, and will, if Mortgagor remains in possession after
demand to remove, be subject to eviction and removal, forcible or
otherwise, with or without process of law.
Section 5.9. Additional Advances and Disbursements;
Costs of Enforcement.
(a) If any Event of Default exists, Mortgagee and each
of the Lenders shall have the right, but not the obligation, to
cure such Event of Default in the name and on behalf of
Mortgagor. All sums advanced and expenses incurred at any time by
Mortgagee or any Lender under this Section 5.9, or otherwise
under this Mortgage or any of the other Loan Documents or
applicable law, shall bear interest from the date that such sum
is advanced or expense incurred, to and including the date of
reimbursement, computed at the rate or rates at which interest is
then computed on the Indebtedness, and all such sums, together
with interest thereon, shall be secured by this Mortgage.
(b) Mortgagor shall pay all expenses (including
reasonable attorneys' fees and expenses) of or incidental to the
perfection and enforcement of this Mortgage and the other Loan
Documents, or the enforcement, compromise or settlement of the
Indebtedness or any claim under this Mortgage and the other Loan
Documents, and for the curing thereof, or for defending or
asserting the rights and claims of Mortgagee in respect thereof,
by litigation or otherwise.
(c) Upon request of Mortgagor, however subject to the
terms, conditions and limitations under the Credit Agreement,
Mortgagee may, at its sole option, from time to time make Future
Advances (as defined below) to Mortgagor, in such amounts as are
permitted under the terms of the Credit Agreement. This Mortgage
shall also secure Contingent Obligations (as defined below) in
such amounts as are permitted under the terms of the Credit
Agreement. Future Advances, Contingent Obligations and Protective
Advances (as referenced below) shall have the meanings given them
in 33 M.R.S.A. ? 505, as the same may be amended or replaced form
time to time. At Mortgagee's request, Mortgagor shall execute and
deliver to Mortgagee promissory notes or other agreements or
documents evidencing each and every Future Advance which
Mortgagee may make, which promissory notes or other agreements or
documents shall contain such terms and conditions as Mortgagee
may require. Mortgagor shall pay when due all Future Advances
with interest and other charges thereon, as applicable, and the
same, and each promissory note and agreement or document
evidencing the same, shall be secured hereby. All provisions of
this Mortgage shall apply to each Future Advance as well as to
all other Indebtedness secured hereby. Nothing herein contained,
however, shall limit the amount secured by this Mortgage if such
amount is increased by Protective Advances made by Mortgagee, as
herein elsewhere provided.
Section 5.10. No Mortgagee in Possession. Neither the
enforcement of any of the remedies under this Article 5, the
assignment of the Rents and Leases under Article 6, the security
interests under Article 7, nor any other remedies afforded to
Mortgagee or any Lender under the Loan Documents, at law or in
equity shall cause Mortgagee or any Lender to be deemed or
construed to be a mortgagee in possession of the Mortgaged
Property, to obligate Mortgagee or any Lender to lease the
Mortgaged Property or attempt to do so, or to take any action,
incur any expense, or perform or discharge
7
<PAGE>
any obligation, duty or liability whatsoever under any of the
Leases or otherwise.
ARTICLE 6
ASSIGNMENT OF RENTS AND LEASES
------------------------------
Section 6.1. Assignment. In furtherance of and in
addition to the assignment made by Mortgagor in Section 2.1 of
this Mortgage, Mortgagor hereby absolutely and unconditionally
assigns, sells, transfers and conveys to Mortgagee all of its
right, title and interest in and to all Leases, whether now
existing or hereafter entered into, and all of its right, title
and interest in and to all Rents. This assignment is an absolute
assignment and not an assignment for additional security only. So
long as no Event of Default shall have occurred and be
continuing, Mortgagor shall have a revocable license from
Mortgagee to exercise all rights extended to the landlord under
the Leases, including the right to receive and collect all Rents
and to hold the Rents in trust for use in the payment and
performance of the Obligations and to otherwise use the same. The
foregoing license is granted subject to the conditional
limitation that no Event of Default shall have occurred and be
continuing. Upon the occurrence and during the continuance of an
Event of Default, whether or not legal proceedings have
commenced, and without regard to waste, adequacy of security for
the Obligations or solvency of Mortgagor, the license herein
granted shall automatically expire and terminate, without notice
by Mortgagee (any such notice being hereby expressly waived by
Mortgagor).
Section 6.2. Perfection Upon Recordation. Mortgagor
acknowledges that Mortgagee has taken all actions necessary to
obtain, and that upon recordation of this Mortgage Mortgagee
shall have, to the extent permitted under applicable law, a valid
and fully perfected, first priority, present assignment of the
Rents arising out of the Leases and all security for such Leases.
Mortgagor acknowledges and agrees that upon recordation of this
Mortgage Mortgagee's interest in the Rents shall be deemed to be
fully perfected, "choate" and enforced as to Mortgagor and all
third parties, including, without limitation, any subsequently
appointed trustee in any case under Title 11 of the United States
Code (the "Bankruptcy Code"), without the necessity of commencing
a foreclosure action with respect to this Mortgage, making formal
demand for the Rents, obtaining the appointment of a receiver or
taking any other affirmative action.
Section 6.3. Bankruptcy Provisions. Without limitation
of the absolute nature of the assignment of the Rents hereunder,
Mortgagor and Mortgagee agree that (a) this Mortgage shall
constitute a "security agreement" for purposes of Section 552(b)
of the Bankruptcy Code, (b) the security interest created by this
Mortgage extends to property of Mortgagor acquired before the
commencement of a case in bankruptcy and to all amounts paid as
Rents and (c) such security interest shall extend to all Rents
acquired by the estate after the commencement of any case in
bankruptcy.
Section 6.4. No Merger of Estates. So long as part of
the Indebtedness and the Obligations secured hereby remain unpaid
and undischarged, the fee and leasehold estates to the Mortgaged
Property shall not merge, but shall remain separate and distinct,
notwithstanding the union of such estates either in Mortgagor,
Mortgagee, any tenant or any third party by purchase or
otherwise.
8
<PAGE>
ARTICLE 7
SECURITY AGREEMENT
------------------
Section 7.1. Security Interest. This Mortgage
constitutes a "security agreement" on personal property within
the meaning of the UCC and other applicable law and with respect
to the Personalty, Fixtures, Leases, Rents, Deposit Accounts,
Property Agreements, Tax Refunds, Proceeds, Insurance and
Condemnation Awards. To this end, Mortgagor grants to Mortgagee a
first and prior security interest in the Personalty, Fixtures,
Leases, Rents, Deposit Accounts, Property Agreements, Tax
Refunds, Proceeds, Insurance, Condemnation Awards and all other
Mortgaged Property which is personal property to secure the
payment of the Indebtedness and performance of the Obligations,
and agrees that Mortgagee shall have all the rights and remedies
of a secured party under the UCC with respect to such property.
Any notice of sale, disposition or other intended action by
Mortgagee with respect to the Personalty, Fixtures, Leases,
Rents, Deposit Accounts, Property Agreements, Tax Refunds,
Proceeds, Insurance and Condemnation Awards sent to Mortgagor at
least five (5) days prior to any action under the UCC shall
constitute reasonable notice to Mortgagor.
Section 7.2. Financing Statements. Mortgagor shall
execute and deliver to Mortgagee, in form and substance
satisfactory to Mortgagee, such financing statements and such
further assurances as Mortgagee may, from time to time,
reasonably consider necessary to create, perfect and preserve
Mortgagee's security interest hereunder and Mortgagee may cause
such statements and assurances to be recorded and filed, at such
times and places as may be required or permitted by law to so
create, perfect and preserve such security interest. Mortgagor's
chief executive office is in the State of Maine at the address
set forth in the first paragraph of this Mortgage.
Section 7.3. Fixture Filing. This Mortgage shall also
constitute a "fixture filing" for the purposes of the UCC against
all of the Mortgaged Property which is or is to become fixtures.
Information concerning the security interest herein granted may
be obtained at the addresses of Debtor (Mortgagor) and Secured
Party (Mortgagee) as set forth in the first paragraph of this
Mortgage.
ARTICLE 8
[Intentionally Omitted]
ARTICLE 9
MISCELLANEOUS
-------------
Section 9.1. Notices. Any notice required or permitted
to be given under this Mortgage shall be given in accordance with
Section 10.8 of the Credit Agreement.
Section 9.2. Covenants Running with the Land. All
Obligations contained in this Mortgage are intended by Mortgagor
and Mortgagee to be, and shall be construed as, covenants running
with the Mortgaged Property. As used herein, "Mortgagor" shall
refer to the party named in the first paragraph of this Mortgage
and to any subsequent owner of all or any portion of the
Mortgaged Property. All Persons who may have or acquire an
interest in the Mortgaged Property shall be deemed to have notice
of, and be bound by, the terms of the Credit Agreement and the
other Loan Documents; however, no such party shall be entitled to
any rights thereunder without the prior written consent of
Mortgagee.
Section 9.3. Attorney-in-Fact. Mortgagor hereby
irrevocably appoints Mortgagee and its successors and assigns, as
its attorney-in-fact, which agency is coupled with an interest
and with full power of substitution, (a) to execute and/or record
any notices of completion, cessation of labor or any
9
<PAGE>
other notices that Mortgagee deems appropriate to protect
Mortgagee's interest, if Mortgagor shall fail to do so within ten
(10) days after written request by Mortgagee, (b) upon the
issuance of a deed pursuant to the foreclosure of this Mortgage
or the delivery of a deed in lieu of foreclosure, to execute all
instruments of assignment, conveyance or further assurance with
respect to the Leases, Rents, Deposit Accounts, Property
Agreements, Tax Refunds, Proceeds, Insurance and Condemnation
Awards in favor of the grantee of any such deed and as may be
necessary or desirable for such purpose, (c) to prepare, execute
and file or record financing statements, continuation statements,
applications for registration and like papers necessary to
create, perfect or preserve Mortgagee's security interests and
rights in or to any of the Mortgaged Property, and (d) while any
Event of Default exists, to perform any obligation of Mortgagor
hereunder, however: (1) Mortgagee shall not under any
circumstances be obligated to perform any obligation of
Mortgagor; (2) any sums advanced by Mortgagee in such performance
shall be added to and included in the Indebtedness and shall bear
interest at the rate or rates at which interest is then computed
on the Indebtedness; (3) Mortgagee as such attorney-in-fact shall
only be accountable for such funds as are actually received by
Mortgagee; and (4) Mortgagee shall not be liable to Mortgagor or
any other person or entity for any failure to take any action
which it is empowered to take under this Section 9.3.
Section 9.4. Successors and Assigns. This Mortgage
shall be binding upon and inure to the benefit of Mortgagee, the
Lenders, and Mortgagor and their respective successors and
assigns. Mortgagor shall not, without the prior written consent
of Mortgagee, assign any rights, duties or obligations hereunder.
Section 9.5. No Waiver. Any failure by Mortgagee to
insist upon strict performance of any of the terms, provisions or
conditions of the Loan Documents shall not be deemed to be a
waiver of same, and Mortgagee or the Lenders shall have the right
at any time to insist upon strict performance of all of such
terms, provisions and conditions.
Section 9.6. Credit Agreement. If any conflict or
inconsistency exists between this Mortgage and the Credit
Agreement, the Credit Agreement shall govern.
Section 9.7. Release or Reconveyance. Upon payment in
full of the Indebtedness and performance in full of the
Obligations, Mortgagee, at Mortgagor's expense, shall release the
liens and security interests created by this Mortgage or reconvey
the Mortgaged Property to Mortgagor.
Section 9.8. Waiver of Stay, Moratorium and Similar
Rights. Mortgagor agrees, to the full extent that it may lawfully
do so, that it will not at any time insist upon or plead or in
any way take advantage of any stay, marshalling of assets,
extension, redemption or moratorium law now or hereafter in force
and effect so as to prevent or hinder the enforcement of the
provisions of this Mortgage or the Indebtedness secured hereby,
or any agreement between Mortgagor and Mortgagee or any rights or
remedies of Mortgagee or the Lenders.
Section 9.9. Applicable Law. The provisions of this
Mortgage regarding the creation, perfection and enforcement of
the liens and security interests herein granted shall be governed
by and construed under the laws of the state in which the
Mortgaged Property is located. All other provisions of this
Mortgage shall be governed by the 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.
Section 9.10. Headings. The Article, Section and
Subsection titles hereof are inserted for convenience of
reference only and shall in no way alter, modify or define, or be
used in construing, the text of such Articles, Sections or
Subsections.
10
<PAGE>
Section 9.11. Entire Agreement. This Mortgage and the
other Loan Documents embody the entire agreement and
understanding between Mortgagee and Mortgagor and supersede all
prior agreements and understandings between such parties relating
to the subject matter hereof and thereof. Accordingly, the Loan
Documents may not be contradicted by evidence of prior,
contemporaneous or subsequent oral agreements of the parties.
There are no unwritten oral agreements between the parties.
Section 9.12. Mortgagee as Agent; Successor Agents.
(a) Agent has been appointed to act as Agent hereunder
by the Lenders. Agent 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, without limitation, the release or substitution of
the Mortgaged Property) in accordance with the terms of the
Credit Agreement, any related agency agreement among Agent and
the Lenders (collectively, as amended, supplemented or otherwise
modified or replaced from time to time, the "Agency Documents")
and this Mortgage. Mortgagor and all other persons shall be
entitled to rely on releases, waivers, consents, approvals,
notifications and other acts of Agent, without inquiry into the
existence of required consents or approvals of the Lenders
therefor.
(b) Mortgagee shall at all times be the same Person
that is Agent under the Agency Documents. Written notice of
resignation by Agent pursuant to the Agency Documents shall also
constitute notice of resignation as Agent under this Mortgage.
Removal of Agent pursuant to any provision of the Agency
Documents shall also constitute removal as Agent under this
Mortgage. Appointment of a successor Agent pursuant to the Agency
Documents shall also constitute appointment of a successor Agent
under this Mortgage. Upon the acceptance of any appointment as
Agent by a successor Agent under the Agency Documents, that
successor Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring or
removed Agent as the Mortgagee under this Mortgage, and the
retiring or removed Agent shall promptly (i) assign and transfer
to such successor Agent all of its right, title and interest in
and to this Mortgage and the Mortgaged Property, and (ii) execute
and deliver to such successor Agent such assignments and
amendments and take such other actions, as may be necessary or
appropriate in connection with the assignment to such successor
Agent of the liens and security interests created hereunder,
whereupon such retiring or removed Agent shall be discharged from
its duties and obligations under this Mortgage. After any
retiring or removed Agent's resignation or removal hereunder as
Agent, the provisions of this Mortgage and the Agency Documents
shall inure to its benefit as to any actions taken or omitted to
be taken by it under this Mortgage while it was the Agent
hereunder.
Section 9.13. Variable Rate Notice. Under the terms
and provisions of the Notes which this Mortgage secures and under
the terms and provisions of any future or further advances
secured hereby, the interest rate payable thereunder, and the
amount of each principal payment, may be variable. THE PURPOSE OF
THIS PARAGRAPH IS TO PROVIDE RECORD NOTICE OF THE RIGHT OF AGENT
ON BEHALF OF THE LENDERS UNDER THE TERMS OF THE CREDIT AGREEMENT,
ITS SUCCESSORS AND ASSIGNS, TO INCREASE OR DECREASE THE INTEREST
RATE ON ANY OBLIGATION SECURED HEREBY, AND THE AMOUNT OF EACH
PRINCIPAL PAYMENT, WHERE THE TERMS AND PROVISIONS OF SUCH
OBLIGATION PROVIDE FOR A VARIABLE INTEREST RATE.
Section 9.14. Commercial Purpose. Company and
Mortgagor warrant and represent to Agent that the proceeds of the
Notes will be used solely for business or commercial purposes,
and in no way will the proceeds be used for personal, family or
household purposes.
11
<PAGE>
IN WITNESS WHEREOF, Mortgagor has on the date set forth in
the acknowledgement hereto, effective as of the date first above
written, caused this instrument to be duly EXECUTED AND DELIVERED
by authority duly given.
WITNESS: FORSTER, INC.,
a Maine corporation
____________________
Name:
By:____________________
Name:
Title:
S-1
<PAGE>
ACKNOWLEDGEMENT
STATE OF ILLINOIS )
) SS.:
COUNTY OF __________ )
THE FOREGOING INSTRUMENT WAS ACKNOWLEDGED BEFORE ME THIS _____
DAY OF APRIL, 1998, BY ___________________________________, THE
_____________________________, OF FORSTER, INC., A MAINE
CORPORATION, ON BEHALF OF THE CORPORATION.
__________________________________________________
(SIGNATURE AND OFFICE OF INDIVIDUAL TAKING ACKNOWLEDGEMENT)
MY COMMISSION EXPIRES: __________________________
(NOTARIAL SEAL)
N-1
<PAGE>
EXHIBIT A
Mortgaged Property
[See Attached]
Exh. A-1
<PAGE>
[a]
MORTGAGOR: [FULL NAME OF MORTGAGOR],
a [Mortgagor's state of organization]
[Mortgagor's entity type]
By:______________________________
Name:
Title:
<PAGE>
[b]
MORTGAGOR: [FULL NAME OF MORTGAGOR],
a [Mortgagor's state of organization]
[Mortgagor's entity type]
By: [17],
a [18] [19]
its General Partner
By:___________________________
Name:
Title:
<PAGE>
[c]
MORTGAGOR: [FULL NAME OF MORTGAGOR],
a [Mortgagor's state of organization]
[Mortgagor's entity type]
By:______________________________
Name:
Title: General Partner
<PAGE>
[d]
MORTGAGOR: [FULL NAME OF MORTGAGOR],
a [Mortgagor's state of organization]
[Mortgagor's entity type]
By: [20],
a [21] [22]
its Managing Member
By:_________________________
Name:
Title:
<PAGE>
[e]
MORTGAGOR: [FULL NAME OF MORTGAGOR],
a [Mortgagor's state of organization]
[Mortgagor's entity type]
By:_________________________
Name:
Title: Managing Member
<PAGE>
[f]
MORTGAGOR: _________________________
[FULL NAME OF MORTGAGOR]
<PAGE>
FORM OF MORTGAGE WITH AGENT PROVISIONS
The following information will be requested in completing this
form:
[1] State in which Property is Located
[2] Full Name of Mortgagor (In capital letters)
[3] Full Name of Mortgagee (In capital letters)
[4] "As of" Date of Mortgage (document assumes same date as
Credit Agreement
[5] O'Melveny & Myers Attorney Name
[6] O'Melveny & Myers File Number
[7] Mortgagor's State of Organization
[8] Mortgagor Entity Type (corporation, individual, etc.)
(If Mortgagor's entity type is a corporation, then [a])
(If Mortgagor's entity type is either a partnership or a
limited partnership, then ask:)
Is its general partner a corporation?
(If yes, then [b])
(If no, then [c])
(If Mortgagor's entity type is a limited liability
company, then ask:)
Is its Managing member a corporation?
(If yes, then [d])
(If no, then [e])
(If Mortgagor is an individual, then [f])
[9] Mortgagor's Address
[10] Mortgagee's State of Organization
[11] Mortgagee's Entity Type (national association, corporation,
etc.)
[12] Mortgagee's Address
[13] Title of Credit Agreement
[14] Are there parties to the Credit Agreement other than Agent,
Lenders, Mortgagor and Mortgagee?
If no, skip. (Insert "between Mortgagor, Mortgagee and the
Lenders") If yes, is there more than one party?
If no, provide the full name of the other party.
(Insert into "among Mortgagor, Mortgagee, the Lenders
and _______________")
If yes, provide the full names of all other parties.
(Insert into "among Mortgagor, Mortgagee, the Lenders,
__________ and __________")(Add additional ________,"
as necessary before "and".)
[15] State in which Mortgagor's Chief Executive Office is located
<PAGE>
[16] Section of Credit Agreement on Notices
[17] Full Name of General Partner
[18] General Partner's State of Organization
[19] General Partner's Entity Type
[20] Full Name of Managing Member
[21] Managing Member's State of Organization
[22] Managing Member's Entity Type
[23] Full Address of Property
[A1] Full name of Agent
[A2] Agent's State of Organization
[A3] Agent's Entity Type (corporation, individual, etc.)
[A4] Agent's Address
<PAGE>
[a] Corporation (without a seal)
[b] Partnership or Limited Partnership with Corporate General
Partner
[c] Partnership or Limited Partnership with Individual General
Partner
[d] Limited Liability Company with Corporate Managing Member
[e] Limited Liability Company with Individual Managing Member
[f] Individual
<PAGE>
EXHIBIT XXVII
[FORM OF SOLVENCY CERTIFICATE]
SOLVENCY CERTIFICATE
This FINANCIAL CONDITION CERTIFICATE (this
"Certificate") is delivered in connection with the Credit
Agreement dated as of April 21, 1998 among Diamond Brands
Operating Corp., a Delaware corporation ("Company"), the
financial institutions listed therein 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 (the "Credit Agreement"). Capitalized terms
used herein without definition have the same meanings as in the
Credit Agreement.
A. I am, and at all pertinent times mentioned herein
have been, the duly qualified and chief financial officer of
Company. In such capacity I have participated actively in the
management of its financial affairs and am familiar with its
financial statements and those of its Subsidiaries. I have,
together with other officers of Company, acted on behalf of
Company in connection with the negotiation of the Credit
Agreement and I am familiar with the terms and conditions
thereof.
B. I have carefully reviewed the contents of this
Certificate, and I have conferred with counsel for Company for
the purpose of discussing the meaning of its contents.
C. In connection with preparing for the consummation
of the transactions and financings contemplated by the Credit
Agreement (the "Proposed Transactions"), I have participated in
the preparation of, and I have reviewed, pro forma projections of
net income and cash flows for Company and its Subsidiaries for
the Fiscal Years of Company ending December 31, 1998 through
December 31, 2002 inclusive (the "Projected Financial
Statements"). The Projected Financial Statements, attached hereto
as Exhibit A, give effect to the consummation of the Proposed
Transactions and assume that the debt obligations of Company will
be paid from the cash flow generated by the operations of Company
and its Subsidiaries, the proceeds of certain debt financings to
be entered into by Company and its Subsidiaries and other cash
resources. The Projected Financial Statements were prepared on
the basis of information available at March 27, 1998. I know of
no facts that have occurred since such date that would lead me to
believe that the Projected Financial Statements are inaccurate in
any material respect. The Projected Financial Statements do not
reflect (i) any potential changes in interest rates from those
assumed in the Projected Financial Statements, (ii) any potential
material, adverse changes in general business conditions, or
(iii) any potential changes in income tax laws.
D. I have also participated in the preparation of, and
I have reviewed, a pro forma summary balance sheet of Company and
its Subsidiaries (the "Fair Value Summary Balance Sheet") as of
April 21, 1998, giving effect to the Proposed Transactions. The
Fair Value Summary Balance Sheet is attached hereto as Exhibit B
and has been prepared as described in paragraph F and G below and
not in accordance with GAAP.
<PAGE>
E. In connection with the preparation of the Projected
Financial Statements, I have made such investigations and
inquiries as I have deemed necessary and prudent therefor and,
specifically, have relied on historical information with respect
to revenues, expenses and other relevant items supplied by the
supervisory personnel of Company and its Subsidiaries directly
responsible for the various operations involved. The assumptions
upon which the Projected Financial Statements are based are
stated therein. Although any assumption and any projections by
necessity involve uncertainties and approximations, I believe,
based on my discussions with other members of management, that
the assumptions on which the Project Financial Statements are
based are reasonable. Based thereon, I believe that the
projections for Company and its Subsidiaries, taken as a whole,
reflected in the Projected Financial Statements provide
reasonable estimations of future performance, subject, as stated
above, to the uncertainties and approximations inherent in any
projections.
F. The Fair Value Summary Balance Sheet has been
prepared in a manner which I believe reflects a conservative
estimate of the fair value of the assets of Company and its
Subsidiaries on a consolidated basis and the probable liability
on all of their debts, contingent or otherwise. For purposes of
this Certificate, I understand "fair value" of any assets to mean
the amount which may be realized within a reasonable time, either
through collection of such assets or through sale of such assets
at the regular market value thereof, conceiving of the latter as
the amount which could be obtained for the property in question
within such period by a capable and diligent businessman from an
interested buyer who is willing to purchase under ordinary
selling conditions. The specific methodology used by management
for valuing Company and its Subsidiaries is set forth in
paragraph G below.
G. For purposes of constructing the Fair Value Summary
Balance Sheet, I have utilized the following procedures:
I have separately estimated the fair value of the
stock of each of Company's Subsidiaries by calculating the
difference between the fair value of the assets of such
Subsidiary and the probable liability on all of its debts,
contingent or otherwise.
With respect to the asset values reflected in the Fair
Value Summary Balance Sheet (including the asset values used to
calculate the fair value of the stock of each of Company's
Subsidiaries), I have included the net working capital of Company
and each of its Subsidiaries, calculated as the difference
between the current assets and current liabilities reported in
their April 21, 1998 financial statements, and I have relied on
the capitalization of earnings methodology -- whereby earnings
before interest, taxes, depreciation and amortization (EBITDA)
are capitalized at a specified EBITDA multiple -- to arrive at
the estimated fair value of the long-term assets of Company and
each of its Subsidiaries. For these purposes I have utilized an
EBITDA multiplier of 8.7, which reflects a conservative estimate
of the EBITDA multiplier reflected in acquisition prices paid for
total ownership positions in companies whose lines of business
are similar to those of Company and its Subsidiaries.
With respect to liabilities reflected in the Fair
Value Summary Balance Sheet (including liabilities used to
calculate the fair value of the stock of each of Company's
Subsidiaries), I have included long-term liabilities reported by
Company and each of its Subsidiaries in their April 21, 1998
financial statements and debts to be incurred or assumed by
Company and each of its Subsidiaries under the Credit Agreement
and the Proposed Transactions. In addition, with respect to
contingent liabilities (such as litigation, guaranties and
<PAGE>
pension plan liabilities), I have consulted with legal, financial
and other personnel of Company and each of its Subsidiaries and
have reflected as liabilities our best judgment as to the maximum
exposure that can reasonably be expected to result therefrom in
light of all the facts and circumstances existing at this time,
recognizing that any such estimation is inherently subject to
uncertainties.
Based on the foregoing, I have reached the following
conclusions:
1. Company is not now, nor will the incurrence of the
Obligations under the Credit Agreement and the incurrence
of the other obligations contemplated by the Proposed
Transactions render Company "insolvent" as defined in this
paragraph 1. The recipients of this Certificate and I have
agreed that, in this context, "insolvent" means that the
present fair value of assets is less than the amount that
will be required to pay the probable liability on existing
debts as they become absolute and matured. We have also
agreed that the term "debts" includes any legal liability,
whether matured or unmatured, liquidated or unliquidated,
absolute, fixed or contingent. My conclusion expressed
above is supported by a valuation of Company on a basis
which reflects the net value of Company as $30,005,000
representing the difference between the fair value of
$276,000,000 and liabilities of $245,995,000.
2. By the incurrence of the Obligations under the
Credit Agreement and the incurrence of the other
obligations contemplated by the Proposed Transactions,
Company will not incur debts beyond its ability to pay as
such debts mature. I have based my conclusion in part on
the Projected Financial Statements, which demonstrate that
Company will have positive cash flow after paying all of
its scheduled anticipated indebtedness (including scheduled
payments under the Credit Agreement, the other obligations
contemplated by the Proposed Transactions and other
permitted indebtedness). I have concluded that the
realization of current assets in the ordinary course of
business will be sufficient to pay recurring current debt
and short-term and long-term debt service as such debts
mature, and that the cash flow (including earnings plus
non-cash charges to earnings and the disposition of surplus
fixed assets held for sale) will be sufficient to provide
cash necessary to repay the Loans and other Obligations
under the Credit Agreement, the other obligations
contemplated by the Proposed Transactions and other
long-term indebtedness as such debt matures.
3. The incurrence of the Obligations under the Credit
Agreement and the incurrence of the other obligations
contemplated by the Proposed Transactions will not leave
Company with property remaining in its hands constituting
"unreasonably small capital." In reaching this conclusion,
I understand that "unreasonably small capital" depends upon
the nature of the particular business or businesses
conducted or to be conducted, and I have reached my
conclusion based on the needs and anticipated needs for
capital of the businesses conducted or anticipated to be
conducted by Company and its Subsidiaries in light of the
Projected Financial Statements and available credit
capacity.
4. To the best of my knowledge, Company has not
executed the Credit Agreement or any documents mentioned
therein, or made any transfer or incurred any obligations
thereunder, with actual intent to hinder, delay or defraud
either present or future creditors.
<PAGE>
I understand that Agents and Lenders are relying on
the truth and accuracy of the foregoing in connection with the
extension of credit to Company pursuant to the Credit Agreement.
(Remainder of page intentionally left blank)
<PAGE>
I represent the foregoing information to be, to the
best of my knowledge and belief, true and correct and execute
this Certificate this 21st day of April 1998.
DIAMOND BRANDS OPERATING CORP.
By: __________________________
Name: __________________________
Title: __________________________
<PAGE>
EXHIBIT XXVIII
[FORM OF OPINIONS OF LOCAL COUNSEL]
<PAGE>
EXHIBIT XXIX
[FORM OF COLLATERAL ACCOUNT AGREEMENT]
COLLATERAL ACCOUNT AGREEMENT
This COLLATERAL ACCOUNT AGREEMENT (this "Agreement")
is dated as of April 21, 1998 and entered into by and between
DIAMOND BRANDS OPERATING CORP., a Delaware 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.
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 Pledgor, DLJ
Capital Funding, Inc., as Syndication Agent, and Morgan Stanley
Senior Funding, Inc., as Documentation Agent 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 Pledgor.
B. 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 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. Definitions. The following terms used in
this Agreement shall have the following meanings:
"Collateral" means (i) the Collateral Account and all
amounts from time to time on deposit therein, (ii) all interest,
cash, instruments and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange
for any or all of the Collateral, and (iii) to the extent not
covered by clauses (i) through (iv) above, all proceeds of any or
all of the foregoing Collateral.
"Collateral Account" means the deposit account
established and maintained by Pledgor with Secured Party pursuant
to Section 2.
<PAGE>
"Secured Obligations" means all obligations and
liabilities of every nature of Pledgor now or hereafter existing
under or arising out of or in connection with the Credit
Agreement and the other Loan Documents 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 Pledgor, 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, and all
obligations of every nature of Pledgor now or hereafter existing
under this Agreement.
SECTION 2. Collateral Account; Cash
Collateralization of Letters of Credit.
a. Pledgor hereby authorizes and directs Secured Party
to establish and maintain at its office, as a blocked account in
the name of Pledgor but under the sole dominion and control of
Secured Party, a deposit account designated as "Diamond Brands
Operating Corp. Collateral Account." The Collateral Account shall
be established by Secured Party upon the occurrence of an Event
of Default and be operated in accordance with the terms of this
Agreement. Notwithstanding anything to the contrary stated herein
or in the Credit Agreement, Pledgor shall have no right to
withdraw, transfer or, except as expressly set forth herein,
otherwise received any funds deposited into the Collateral
Account. Secured Party shall be fully protected and shall suffer
no liability in acting in accordance with any written
instructions reasonably believed by it to have been given by a
duly authorized officer of Pledgor with respect to any aspect of
the operation of the Collateral Account.
b. If an Event of Default has occurred and is
continuing and, in accordance with Section 8 of the Credit
Agreement, Pledgor is required to pay to Secured Party an amount
(the "Aggregate Available Amount") equal to the maximum amount
that may at any time be drawn under all Letters of Credit then
outstanding under the Credit Agreement, Pledgor shall deliver
funds in such an amount for deposit in the Collateral Account by
wire transfer (or, if applicable, by intra-bank transfer from
another account of Pledgor) of immediately available funds,
addressed as directed by Secured Party. If for any reason the
aggregate amount delivered by Pledgor to Secured Party for
deposit in the Collateral Account as aforesaid is less than the
Aggregate Available Amount, the aggregate amount so delivered by
Pledgor to Secured Party shall be apportioned among all
outstanding Letters of Credit for purposes of this Section 2(b)
in accordance with the ratio of the maximum amount available for
drawing under each such Letter of Credit (as to such Letter of
Credit, the "Maximum Available Amount") to the Aggregate
Available Amount. Upon any drawing under any outstanding Letter
of Credit in respect of which Pledgor has deposited in the
Collateral Account any amounts described above, Secured Party
shall apply such amounts to reimburse the respective Issuing
Lender for the amount of such drawing. In the event of
cancellation or expiration of any Letter of Credit in respect of
which Pledgor has deposited in the Collateral Account any amounts
described above, or in the event of any reduction in the
<PAGE>
Maximum Available Amount under such Letter of Credit, Secured
Party shall apply the amount then on deposit in the Collateral
Account in respect of such Letter of Credit (less in the case of
such a reduction, the Maximum Available Amount under such Letter
of Credit immediately after such reduction) first, to the payment
of any amounts payable to Secured Party pursuant to Section 13,
second, to the extent of any excess, to the cash
collateralization pursuant to the terms of this Agreement of any
outstanding Letters of Credit in respect of which Pledgor has
failed to pay all or a portion of the amounts described above
(such cash collateralization to be apportioned among all such
Letters of Credit in the manner described above), third, to the
extent of any further excess, to the payment of any other
outstanding Secured Obligations, and fourth, to the extent of any
further excess, to the payment to whomsoever shall be lawfully
entitled to receive such funds.
SECTION 3. Pledge of Security for Secured Obligations.
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 Collateral as 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. ss.362(a)), of all Secured Obligations.
SECTION 4. No Investment of Amounts in the
Collateral Account; Interest on Amounts in the Collateral
Account.
a. Cash held by Secured Party in the Collateral
Account shall not be invested by Secured Party but instead shall
be maintained as a cash deposit in the Collateral Account pending
application thereof as elsewhere provided in this Agreement.
b. To the extent permitted under Regulation Q of the
Board of Directors of the Federal Reserve System, any cash held
in the Collateral Account shall bear interest at the standard
rate paid by Secured Party to its customers for deposits of like
amounts and terms.
c. Subject to Secured Party's rights under Section 11,
any interest earned on deposit of cash in the Collateral Account
in accordance with Section 4(b) shall be deposited directly in,
and held in the Collateral Account.
d. The Collateral Account shall be subject to such
applicable laws, and such applicable regulations of the Board of
Governors of the Federal Reserve System and of any other
appropriate banking or governmental authority, as may now or
hereafter be in effect.
SECTION 5. Representations and Warranties. Pledgor
represents and warrants as follows:
a. Ownership of Collateral. Pledgor is (or at the time
of transfer to Secured Party thereof will be) the legal and
beneficial owner of the Collateral from time to time transferred
by Pledgor to Secured Party, free and clear of any Lien except
for the security interest created by this Agreement.
<PAGE>
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 grant by Pledgor of the security interest granted hereby
or for the execution, delivery or performance of this Agreement
by Pledgor or (ii) 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 Pledgor).
c. Perfection. The pledge and assignment of the
Collateral pursuant to this Agreement creates a valid and
perfected first priority security interest in the Collateral,
securing the payment of the Secured Obligations.
d. Other Information. All information heretofore,
herein or hereafter supplied to Secured Party by or on behalf of
Pledgor with respect to the Collateral is accurate and complete
in all respects.
SECTION 6. Further Assurances. 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 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 any 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 request,
in order to perfect and preserve the security interests granted
or purported to be granted hereby and (ii) at Secured Party's
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 Collateral.
SECTION 7. Transfers and other Liens. Pledgor agrees
that it will not (a) sell, assign (by operation of law or
otherwise) or otherwise dispose of any of the Collateral or (b)
create or suffer to exist any Lien upon or with respect to any of
the Collateral, except for the security interest under this
Agreement.
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 in Secured Party's discretion while an Event of
Default exists 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 to
file one or more financing or continuation statements, or
amendments thereto, relative to all or any part of the Collateral
without the signature of Pledgor.
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.
<PAGE>
SECTION 10. 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, it being understood that
Secured Party shall have no responsibility for (a) taking any
necessary steps (other than steps taken in accordance with the
standard of care set forth above to maintain possession of the
Collateral) to preserve rights against any parties with respect
to any Collateral or (b) taking any necessary steps to collect or
realize upon the Secured Obligations or any guarantee therefor,
or any part thereof, or any of the 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 consisting of
negotiable securities.
SECTION 11. 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). Without limiting the generality of the foregoing, if
any Event of Default shall have occurred and be continuing,
subject to the provisions of Section 2(b), Secured Party may (i)
transfer any or all of the Collateral to an account established
in Secured Party's name (whether at Secured Party or otherwise)
or (ii) otherwise register title to any Collateral in the name of
Secured Party or one of its nominees or agents, without reference
to any interest of Pledgor. If the proceeds of any sale or other
disposition of the 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. Anything contained herein to the
contrary notwithstanding, any of the Collateral consisting of
cash held by Secured Party in the Collateral Account shall be
subject to Secured Party's rights of set-off under subsection
10.4 of the Credit Agreement.
SECTION 12. Application of Proceeds. Subject to the
provisions of Section 2(b), if any Event of Default shall have
occurred and be continuing, all cash held by Secured Party as
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 accordance with 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.
<PAGE>
b. Pledgor will 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
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 Collateral and shall (a) remain in full force and 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 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 indefeasible 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
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 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. 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, without limitation,
the release or substitution of Collateral), solely in accordance
with this Agreement and the Credit Agreement.
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
<PAGE>
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 or waiver of
any provision of this Agreement, or consent to any departure by
Pledgor herefrom, shall in any event be effective unless the same
shall be in writing and signed by Secured Party, and then 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 in writing and
may be personally served, telecopied, telexed or sent by 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 telecopy or telex, or four Business Days after
depositing it in the United States mail, registered or certified,
with postage prepaid and properly addressed. 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.
<PAGE>
SECTION 21. 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 22. Consent to Jurisdiction and Service of
Process. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST PLEDGOR 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 PLEDGOR
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. Pledgor
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 Pledgor at its address provided in
Section 18, such service being hereby acknowledged by Pledgor to
be sufficient for personal jurisdiction in any action against
Pledgor 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 Pledgor in the courts of any other jurisdiction.
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 without limitation 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, AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS,
<PAGE>
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.
<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 OPERATING CORP.,
as Pledgor
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
Notice Address:
Diamond Brands Operating Corp.
1800 Cloquet Avenue
Cloquet, Minnesota 55720
Attention: Tom Knuesel
WELLS FARGO BANK, N.A.,
as Secured Party
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
Notice Address:
Attention:
[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
<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.
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 FORSTER, INC., a Maine
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
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indebtedness (the "PLEDGED DEBT") described in Part B of said Schedule I and
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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.
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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
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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,
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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
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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,
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however, that Pledgor shall not be required to pledge more than 66.6% of any
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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
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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
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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
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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
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warrants as follows:
(a) Due Authorization, etc. of Pledged Collateral. All of the Pledged
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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
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(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
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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
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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
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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
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Agreement creates a valid and perfected first priority security interest in the
Pledged Collateral, securing the payment of the Secured Obligations; provided
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that Secured Party retains physical possession of such Pledged Collateral.
(f) Margin Regulations. The pledge of the Pledged Collateral pursuant
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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
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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;
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ETC. Pledgor shall:
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(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
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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
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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
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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
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Pledgor; provided that Pledgor shall not be required to pledge more than 66.6%
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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.
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(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
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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;
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provided that the failure of Pledgor to execute a Pledge Amendment with respect
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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.
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(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
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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
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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
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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
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(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
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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
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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
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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,
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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.
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(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
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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,
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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
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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.
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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
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(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
- ----------- ----------------------
[Form of Subsidiary Copyright Security Agreement]
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
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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
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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.
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(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
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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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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
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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
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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.
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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,
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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;
16
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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 Empire Candle, Inc., a Kansas 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
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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)
[Form of Subsidiary Trademark Security Agreement]
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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<PAGE>
(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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<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 "_____________" 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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<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 ___________________________________. 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
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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 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:
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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
<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.
9
<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.
-------------------------------------
14
<PAGE>
(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.
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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
<PAGE>
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
<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 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
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.
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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
<PAGE>
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
10
<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
11
<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
12
<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.
13
<PAGE>
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
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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)
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[Form of Subsidiary Patent Security Agreement]
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
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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,
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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
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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
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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
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hereto.
SECTION 3. SECURITY FOR OBLIGATIONS. This Agreement secures, and the
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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
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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
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warrants as follows:
(a) Description of Collateral. A true and complete list of all Patents
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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
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annexed hereto.
(b) Validity and Enforceability of Collateral. Each Patent that is
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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
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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
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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
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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
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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
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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.
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(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
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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,
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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:
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(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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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
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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
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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,
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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
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the preceding sentence,
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(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.
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(a) Assignor shall have the duty diligently to prosecute any patent
application relating to any of the Patents specifically identified in Schedule A
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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
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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
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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,
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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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(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
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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
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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
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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.
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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
12
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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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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.
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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.
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.
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 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.
4
<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)
TAX SHARING AGREEMENT
---------------------
Tax Sharing Agreement ("Agreement") dated this
twenty-first day of April, 1998, by and among Diamond Brands
Incorporated ("Holdings") and Diamond Brands Operating Corp.
(the "Borrower").
RECITALS
--------
1. Holdings, Borrower, and the Borrower subsidiaries
listed on Schedule I hereto (each a "Subsidiary") are members of
an affiliated group (the "Affiliated Group"), as defined in
Section 1504(a) of the Internal Revenue Code of 1986 (the
"Code"), for the taxable year beginning April 22, 1998. For
purposes of applying the provisions of this Agreement, Borrower
shall cause to be prepared hypothetical estimated and final
United States federal income tax returns showing the estimated
and final United States federal income tax liability of the
Borrower and its Subsidiaries (the "Borrower Sub-Group")
calculated as if the Borrower Sub-Group filed a separate
consolidated return. All references in this Agreement to
provisions of the Code or the Treasury Regulations promulgated
thereunder shall include any corresponding successor provisions.
2. It is the intent and desire of the parties hereto
that a method be established for allocating the federal and state
consolidated tax liability of the Affiliated Group among Holdings
on the one hand and the Borrower Sub-Group on the other, for
reimbursing Holdings for payment of such tax liability, and to
provide for the allocation and payment of any refund arising from
a carry-back of losses or tax credits from subsequent taxable
years.
<PAGE>
AGREEMENT
---------
Now, therefore, in consideration of the mutual
covenants and promises contained herein, the parties hereto agree
as follows:
1. Filing of Returns. A U.S. consolidated income tax
return and estimated tax returns shall be filed by Holdings for
the taxable year ended December 31, 1998, and shall be filed for
each subsequent taxable period in respect of which the Affiliated
Group is required or permitted to file a consolidated tax return.
Borrower shall and shall cause the other members of the Borrower
Sub-Group to execute and file such consents, elections, and other
documents as Holdings determines are required or appropriate for
the proper filing of such returns and shall furnish to Holdings
any and all information reasonably requested by Holdings in order
to carry out the provisions of this Agreement.
2. Allocation of Tax Liability. Holdings and Borrower
agree that the consolidated tax liability for each year beginning
with 1998, determined in accordance with Treasury Regulations
Section 1.1502-2, shall be apportioned among Holdings and the
Borrower Sub-Group (each of them a "Member") in accordance with
the provisions of Treasury Regulations Sections 1.1552-1(a)(2)
and 1.1502-33(d)(2). Accordingly, the tax liability shall be
allocated to each of the two Members on the basis of the
percentage of the total tax that the tax of such Member if
computed on a separate return would bear to the total amount of
taxes for both Members so computed pursuant to Section 1552(a)(2)
of the Code and Treasury Regulations Section 1.1552-1(a)(2). If a
Member (the "Tax Attribute Member") is unable to absorb a tax
attribute on a separate return basis in one year but is able to
absorb that attribute on a separate return basis in a subsequent
year a portion of the consolidated tax liability which otherwise
would have been allocated to the Tax Attribute Member in the
subsequent year under Treasury
<PAGE>
Regulation Section 1.1552-1(a)(2) will instead be reallocated to
the other Member of the Affiliated Group using the principles of
Treasury Regulations Section 1.1502-33(d)(2). For purposes of
this Agreement, the consolidated tax liability shall include any
liability for alternative minimum tax.
3. Payment of Tax. Borrower shall pay to Holdings no
later than ten business days before the date on which the
Affiliated Group's consolidated income tax return is required to
be filed (taking account of any extensions thereof) an amount
equal to the Borrower Sub-Group's allocated consolidated federal
income tax liability as determined under paragraph 2 hereof, plus
its ratable share of any interest or penalties shown due on the
return (determined by multiplying such interest or penalties by a
fraction, the numerator of which equals the portion of the
Affiliated Group's tax liability allocated to the Borrower
Sub-Group (before interest or penalties) and the denominator of
which equals the Affiliated Group's tax liability (before
interest or penalties)) less (where the Borrower Sub-Group is
also a Tax Attribute Member) the amount of the consolidated tax
liability which otherwise would have been allocated to the Tax
Attribute Member pursuant to Treasury Regulation Section
1.1552-1(a)(2) but which was reallocated from the Tax Attribute
Member pursuant to Treasury Regulation Section 1.1502- 33(d)(2)
in a prior taxable year.
4. Carryforward/Carryback of Losses and Credits. If
part or all of an unused loss or tax credit is allocated to a
Member pursuant to Treasury Regulations Sections 1.1502-21T or
1.1502-79, and it is carried back or forward to a year in which
such Member filed a separate return or a consolidated return with
another affiliated group, any refund or reduction in tax
liability arising from the carryback or carryover shall be
retained by such Member. Notwithstanding the foregoing, Holdings
shall determine whether an election shall be made (i)
<PAGE>
not to carry back any portion of any such loss arising in a
consolidated return year (including any portion allocated to a
Member under Treasury Regulations Section 1.1502-21T) in
accordance with Code Section 172(b)(3), and (ii) to reattribute
to itself any portion of any loss attributable to the disposition
of the stock of the Borrower or any Subsidiary, to the extent
permitted by Treasury Regulations Section 1.1502-20(g). The
Borrower agrees to join with Holdings in filing any necessary
elections under Treasury Regulations Section 1.1502-20(g).
5. Estimated Tax Payments. If the Affiliated Group is
required to make estimated federal income tax payments (including
payment due at the time any extension of time is sought for the
filing of the Affiliated Group's federal income tax return), the
Borrower shall, if requested by Holdings, pay to Holdings, no
later than ten business days before the date each estimated tax
payment is to be made by Holdings, that percentage of the
estimated tax payment that equals the percentage which the
estimated separate return tax liability of the Borrower Sub-
Group bears to the aggregate of the Borrower Sub-Groups'
estimated separate return tax liabilities for the taxable year
(computed as provided in Treasury Regulations Section 1.1552-
1(a)(2)(ii)). Such estimates shall be determined by Holdings. Any
estimated tax payments made by the Borrower under this paragraph
5 with respect to any taxable year shall be applied to reduce the
amount, if any, owed by the Borrower under paragraph 3 hereof
with respect to such year. Any excess of such estimated payments
by the Borrower over the amount described in paragraph 3 for such
year shall be repaid by Holdings to the Borrower no later than
twenty business days after the date of filing of the consolidated
return for such taxable year or, to the extent such excess
represents all or a part of a tax refund to be received by the
Affiliated Group, no later than twenty business days after the
receipt of the refund.
<PAGE>
6. Adjustments to Tax Liability. If the consolidated
tax liability is adjusted for any taxable period, whether
pursuant to an amended return, a claim for refund, a tax audit by
the Internal Revenue Service or some other reason, the liability
of each Member shall be recomputed to give effect to such
adjustments, and in the case of a refund, Holdings shall make
payment to the Borrower for the Borrower Sub-Group's share of the
refund, determined in the same manner as in paragraph 2 above,
within twenty business days after the refund is received by
Holdings, and in the case of an increase in tax liability, the
Borrower shall pay to Holdings the Borrower Sub-Group's allocable
share of such increased tax liability (including interest and
penalties) within ten business days after receiving notice of
such liability from Holdings. The parties recognize that a
recomputation of the consolidated tax liability for any taxable
year under this paragraph 6 is not necessarily the final
liability for such year, and such liability may be recomputed
more than once.
7. New Members of Affiliated Group. If during a
consolidated return period Holdings or the Borrower Sub-Group
acquires or organizes another corporation that is required to be
included in the Affiliated Group's consolidated return, then such
corporation shall join in and be bound by this Agreement.
8. Termination of Agreement. This Agreement shall
apply to all taxable periods as to which a consolidated return is
filed by Holdings and the Borrower Sub-Group unless Holdings and
the Borrower agree in writing to terminate the Agreement, except
that this Agreement shall be terminated with respect to any
Subsidiary that ceases to be included in the Affiliated Group but
continues to be a corporation subject to federal income tax
("Former Member"). Notwithstanding any such termination, this
Agreement shall continue in effect with
<PAGE>
respect to all taxable periods prior to termination, including
any payments or refunds relating to such periods.
9. Post-Consolidated Return Period. Notwithstanding
the termination of this Agreement with respect to one or more
Subsidiaries, Holdings and any Former Member shall furnish each
other with all information and assistance as shall reasonably be
requested (including, without limitation, returns, supporting
schedules, work papers, correspondence and other documents)
relating to the tax liability of the Affiliated Group or such
Former Member for any taxable year in which the Former Member was
included in the Affiliated Group. Moreover, Holdings and the
Former Member shall furnish each other with information and
assistance required, and shall take all steps necessary, to apply
for and obtain the benefit of any carryback of a net operating or
capital loss or any investment, foreign tax or other credit of
the Former Member to a taxable year in which the former Member
was included in the Affiliated Group and a consolidated federal
income tax return was filed.
10. Audits and Refund Claims. Holdings and a Former
Member shall also consult and furnish each other with information
concerning the status of any tax audit or tax refund claim
relating to a taxable year in which the Former Member was
included in the Affiliated Group and a consolidated federal
income tax was filed. Holdings shall have the right to make the
final determination as to the response of the Affiliated Group to
any audit and shall have the sole right to control, at its own
expense, any contest of any change proposed and any proposed
disallowance of a refund claim by the Internal Revenue Service
through the Appeals Office of the Internal Revenue Service and
the courts in connection with any taxable year for which this
Agreement is in effect.
<PAGE>
11. Settlement of Disputes. A dispute or difference
between Holdings and a Former Member with respect to the
operation or interpretation of this Agreement shall be decided by
three arbitrators. Holdings and the Former Member shall each
select one arbitrator and the arbitrators selected by the parties
shall select a third arbitrator. The decision of such arbitrators
shall be final. The fees of such arbitrators shall be borne
equally by Holdings and the Former Member.
12. Elections. Holdings shall have the sole authority
to make any or all elections available under the Code, Treasury
Regulations and any applicable state or local income tax code,
law or statute.
13. State and Local Income Taxes. The principles
underlying the rights and obligations hereunder of the Members in
respect of federal income taxes shall be applied in respect of
any state or local tax (however denominated) based on or measured
by all or any part of the net income or loss of the Affiliated
Group or several of its Members (a "Combined Tax"). All of the
procedural and timing requirements of this Agreement applicable
to federal income taxes shall be equally applicable to any
Combined Tax, with appropriate adjustments thereto to reflect the
differences, if any, in corresponding provisions of the
applicable income tax code, law or statute governing any such
Combined Tax and any administrative provisions relating thereto.
14. Entire Agreement. This Agreement contains the
entire understanding of the parties hereto with respect to the
subject matter contained herein. No alteration, amendment or
modification of any of the terms of this Agreement shall be valid
unless made by an instrument signed in writing by an authorized
officer of each party and in accordance with the provisions set
forth in Section 7.15 of the Credit Agreement, dated as of April
21, 1998 (as amended, supplement or otherwise modified from time
to time) among the Borrower, the lenders
<PAGE>
from time to time 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.
15. Binding Agreement. This Agreement shall be binding
upon and inure to the benefit of each party hereto and its
respective successors and assigns.
16. Governing Law. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of New
York.
17. Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused
their names to be subscribed and executed by their respective
authorized officers on the date first appearing above.
DIAMOND BRANDS INCORPORATED
By:________________________
Name:
Title:
DIAMOND BRANDS OPERATING CORP.
By:__________________________
Name:
Title:
<PAGE>
SCHEDULE I
----------
Subsidiaries
------------
Forster, Inc.
Empire Candle, Inc.
TAX SHARING AGREEMENT
---------------------
Tax Sharing Agreement ("Agreement") dated this
twenty-first day of April, 1998, by and among Diamond Brands
Operating Corp. (the "Borrower") and each of the subsidiaries
listed on Schedule I hereto (each a "Subsidiary").
RECITALS
--------
1. For purposes of applying the provisions of this
Agreement, Borrower and the Subsidiaries shall be treated as the
only members ("Members") of an affiliated group (the "Affiliated
Group"), as defined in Section 1504(a) of the Internal Revenue
Code of 1986 (the "Code"), for the taxable year beginning April
22, 1998, of which Borrower is the parent. All references in this
Agreement to provisions of the Code or the Treasury Regulations
promulgated thereunder shall include any corresponding successor
provisions.
2. It is the intent and desire of the parties hereto
that a method be established for allocating the federal and state
consolidated tax liability of the Affiliated Group among its
Members, for reimbursing Borrower for payment of such tax
liability, and to provide for the allocation and payment of any
refund arising from a carry-back of losses or tax credits from
subsequent taxable years.
AGREEMENT
---------
Now, therefore, in consideration of the mutual
covenants and promises contained herein, the parties hereto agree
as follows:
1. Allocation of Tax Liability. Borrower and
Subsidiaries agree that the consolidated tax liability for each
year beginning with 1998, determined in accordance with Treasury
Regulations Section 1.1502-2, shall be apportioned among them in
accordance with the
<PAGE>
provisions of Treasury Regulations Sections 1.1552-1(a)(2) and
1.1502-33(d)(2). Accordingly, the tax liability shall be
allocated to the several Members on the basis of the percentage
of the total tax that the tax of such Member if computed on a
separate return would bear to the total amount of taxes for all
Members so computed pursuant to Section 1552(a)(2) of the Code
and Treasury Regulations Section 1.1552-1(a)(2). If a Member (the
"Tax Attribute Member") is unable to absorb a tax attribute on a
separate return basis in one year but is able to absorb that
attribute on a separate return basis in a subsequent year a
portion of the consolidated tax liability which otherwise would
have been allocated to the Tax Attribute Member in the subsequent
year under Treasury Regulation Section 1.1552-1(a)(2) will
instead be reallocated among the other Members of the Affiliated
Group, using the principles of Treasury Regulations Section
1.1502- 33(d)(2). For purposes of this Agreement, the
consolidated tax liability shall include any liability for
alternative minimum tax.
3. Payment of Tax. Each Subsidiary shall pay to
Borrower no later than ten business days before the date on which
the Affiliated Group's consolidated income tax return is required
to be filed (taking account of any extensions thereof) an amount
equal to the Subsidiary's allocated consolidated federal income
tax liability as determined under paragraph 2 hereof, plus its
ratable share of any interest or penalties shown due on the
return (determined by multiplying such interest or penalties by a
fraction, the numerator of which equals the portion of the
Affiliated Group's tax liability allocated to such Member (before
interest or penalties) and the denominator of which equals the
Affiliated Group's tax liability (before interest or penalties))
less (in the case of a Tax Attribute Member) the amount of the
consolidated tax liability which otherwise would have been
allocated to the Tax Attribute Member pursuant to Treasury
<PAGE>
Regulation Section 1.1552-1(a)(2) but which was reallocated from
the Tax Attribute Member pursuant to Treasury Regulation Section
1.1502-33(d)(2) in a prior taxable year.
4. Carryforward/Carryback of Losses and Credits. If
part or all of an unused loss or tax credit is allocated to a
Member pursuant to Treasury Regulations Sections 1.1502-21T or
1.1502-79, and it is carried back or forward to a year in which
such Member filed a separate return or a consolidated return with
another affiliated group, any refund or reduction in tax
liability arising from the carryback or carryover shall be
retained by such Member. Notwithstanding the foregoing, Borrower
shall determine whether an election shall be made (i) not to
carry back any portion of any such loss arising in a consolidated
return year (including any portion allocated to a Member under
Treasury Regulations Section 1.1502-21T) in accordance with Code
Section 172(b)(3), and (ii) to reattribute to itself any portion
of any loss attributable to the disposition of the stock of a
Subsidiary, to the extent permitted by Treasury Regulations
Section 1.1502-20(g). Each Subsidiary agrees to join with
Borrower in filing any necessary elections under Treasury
Regulations Section 1.1502-20(g).
5. Estimated Tax Payments. If the Affiliated Group is
required to make estimated federal income tax payments (including
(i) payment due at the time any extension of time is sought for
the filing of the Affiliated Group's federal income tax return
and (ii) any estimated tax payments pursuant to any other tax
sharing agreement), each Subsidiary shall, if requested by
Borrower, pay to Borrower, no later than ten business days before
the date each estimated tax payment is to be made by Borrower,
that percentage of the estimated tax payment that equals the
percentage which the estimated separate return tax liability of
such Subsidiary bears to the aggregate of the Members' estimated
separate return tax liabilities for the taxable year (computed as
provided in Treasury Regulations Section 1.1552-1(a)(2)(ii)).
Such estimates
<PAGE>
shall be determined by Borrower. Any estimated tax payments made
by a Subsidiary under this paragraph 5 with respect to any
taxable year shall be applied to reduce the amount, if any, owed
by the Subsidiary under paragraph 3 hereof with respect to such
year. Any excess of such estimated payments by a Subsidiary over
the amount described in paragraph 3 for such year shall be repaid
by Borrower to the Subsidiary no later than twenty business days
after the date of filing of the consolidated return for such
taxable year or, to the extent such excess represents all or a
part of a tax refund to be received by the Affiliated Group, no
later than twenty business days after the receipt of the refund.
6. Adjustments to Tax Liability. If the consolidated
tax liability is adjusted for any taxable period, whether
pursuant to an amended return, a claim for refund, a tax audit by
the Internal Revenue Service or some other reason, the liability
of each Member shall be recomputed to give effect to such
adjustments, and in the case of a refund, Borrower shall make
payment to each Member for its share of the refund, determined in
the same manner as in paragraph 2 above, within twenty business
days after the refund is received by Borrower, and in the case of
an increase in tax liability, each Member shall pay to Borrower
its allocable share of such increased tax liability (including
interest and penalties) within ten business days after receiving
notice of such liability from Borrower. The parties recognize
that a recomputation of the consolidated tax liability for any
taxable year under this paragraph 6 is not necessarily the final
liability for such year, and such liability may be recomputed
more than once.
7. New Members of Affiliated Group. If during a
consolidated return period Borrower or any Subsidiary acquires or
organizes another corporation that is required to be included in
the Affiliated Group's consolidated return, then such corporation
shall join in and be bound by this Agreement.
<PAGE>
8. Termination of Agreement. This Agreement shall
apply to all taxable periods as to which a consolidated return is
filed by Borrower and any Subsidiary unless Borrower and the
Subsidiaries agree in writing to terminate the Agreement, except
that this Agreement shall be terminated with respect to any
Subsidiary that ceases to be included in the Affiliated Group but
continues to be a corporation subject to federal income tax
("Former Member"). Notwithstanding any such termination, this
Agreement shall continue in effect with respect to all taxable
periods prior to termination, including any payments or refunds
relating to such periods.
9. Post-Consolidated Return Period. Notwithstanding
the termination of this Agreement with respect to one or more
Subsidiaries, Borrower and any Former Member shall furnish each
other with all information and assistance as shall reasonably be
requested (including, without limitation, returns, supporting
schedules, work papers, correspondence and other documents)
relating to the tax liability of the Affiliated Group or such
Former Member for any taxable year in which the Former Member was
included in the Affiliated Group. Moreover, Borrower and the
Former Member shall furnish each other with information and
assistance required, and shall take all steps necessary, to apply
for and obtain the benefit of any carryback of a net operating or
capital loss or any investment, foreign tax or other credit of
the Former Member to a taxable year in which the former Member
was included in the Affiliated Group and a consolidated federal
income tax return was filed with respect to the income of the
Affiliated Group.
10. Audits and Refund Claims. Borrower and a Former
Member shall also consult and furnish each other with information
concerning the status of any tax audit or tax refund claim
relating to a taxable year in which the Former Member was
included in the
<PAGE>
Affiliated Group and a consolidated federal income tax was filed
with respect to the income of the Affiliated Group. Borrower
shall have the right to make the final determination as to the
response of the Affiliated Group to any audit and shall have the
sole right to control, at its own expense, any contest of any
change proposed and any proposed disallowance of a refund claim
by the Internal Revenue Service through the Appeals Office of the
Internal Revenue Service and the courts in connection with any
taxable year for which this Agreement is in effect.
11. Settlement of Disputes. A dispute or difference
between Borrower and a Former Member with respect to the
operation or interpretation of this Agreement shall be decided by
three arbitrators. Borrower and the Former Member shall each
select one arbitrator and the arbitrators selected by the parties
shall select a third arbitrator. The decision of such arbitrators
shall be final. The fees of such arbitrators shall be borne
equally by Borrower and the Former Member.
12. Elections. Borrower shall have the sole authority
to make any or all elections available under the Code, Treasury
Regulations and any applicable state or local income tax code,
law or statute.
13. State and Local Income Taxes. The principles
underlying the rights and obligations hereunder of the Members in
respect of federal income taxes shall be applied in respect of
any state or local tax (however denominated) based on or measured
by all or any part of the net income or loss of the Affiliated
Group or several of its Members (a "Combined Tax"). All of the
procedural and timing requirements of this Agreement applicable
to federal income taxes shall be equally applicable to any
Combined Tax, with appropriate adjustments thereto to reflect the
differences, if any, in corresponding provisions of the
applicable income tax code, law or statute governing any such
Combined Tax and any administrative provisions relating thereto.
<PAGE>
14. Entire Agreement. This Agreement contains the
entire understanding of the parties hereto with respect to the
subject matter contained herein. No alteration, amendment or
modification of any of the terms of this Agreement shall be valid
unless made by an instrument signed in writing by an authorized
officer of each party and in accordance with the provisions set
forth in Section 7.15 of the Credit Agreement, dated as of April
21, 1998 (as amended, supplement or otherwise modified from time
to time) among the Borrower, the lenders from time to time 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.
15. Binding Agreement. This Agreement shall be binding
upon and inure to the benefit of each party hereto and its
respective successors and assigns.
16. Governing Law. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of New
York.
17. Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused
their names to be subscribed and executed by their respective
authorized officers on the date first appearing above.
DIAMOND BRANDS OPERATING CORP.
By:___________________________
Name:
Title:
<PAGE>
EACH OF THE SUBSIDIARIES
LISTED ON SCHEDULE I HERETO
By:_________________________
Name:
Title:
<PAGE>
SCHEDULE I
----------
Subsidiaries
------------
Forster, Inc.
Empire Candle, Inc.
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/ Naresh K. Nakra
------------------------------
Its: President
-----------------------------
/s/ Thomas Knuesel
---------------------------------
Thomas Knuesel
2
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/ Naresh K. Nakra
-----------------------------
Its: President
----------------------------
/s/ John Young
--------------------------------
John Young
2
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/ Naresh K. Nakra
-----------------------------
Its President
----------------------------
ACCEPTED:
/s/ Thomas W. Knuesel
- ------------------------
OPTIONEE
-4-
MANAGEMENT ADVISORY AGREEMENT
THIS MANAGEMENT AGREEMENT (this "Agreement"), dated as of
April 21, 1998, is entered into by and between DIAMOND BRANDS
INCORPORATED, a Minnesota corporation ("DBI"), and SEAVER KENT &
COMPANY, LLC ("SKC").
In consideration of the mutual covenants and agreement set
forth below, the parties hereto agree as follows:
1. SKC Management Duties. SKC shall provide general
management services to DBI, as reasonably requested by DBI, which
shall include, without limitation, the following services (the
"SKC Services"):
(a) Assist with the development and implementation of
a long-term strategic business plan for the
expansion and maintenance of DBI's business and
operations (the "Business");
(b) Assist with the development of short-term and
long-term financial and operational budgets for
the Business;
(c) Assist with the coordination of DBI's credit
arrangements; and
(d) Assist with the identification of operational
opportunities.
2. Performance of Services. SKC shall exercise due diligence
and due care in the performance of the services hereunder.
3. Compensation for Services.
(a) For so long as this Agreement shall remain in
effect, SKC shall receive from DBI (unless waived
in writing by SKC) a management fee, which, on an
annual basis shall be equal to the greater of (i)
0.05% of the budgeted consolidated net sales of
DBI, as reflected in DBI's budget approved by its
Board of Directors and (ii) $200,000. Such fee
will be paid in advance within the first ten days
of each calendar month in an amount to the greater
of (x) the amount described in (i) above for such
month or (y) $16,660:
(b) In addition to the foregoing, DBI shall reimburse
SKC for all out-of-pocket expenses (including
travel and lodging expenses) SKC may reasonably
incur in connection with the performance of the
SKC Services.
4. Independent Contractors. Employees and principals of SKC
shall not be deemed to be at any time during the term of this
Agreement employees of DBI. The status and relationship with DBI
of SKC shall be that of an independent contractor, and
accordingly SKC shall not state
<PAGE>
or imply, directly or indirectly, that it is empowered or
authorized to commit or bind DBI or to incur any expenses on
behalf of DBI or to enter into any oral of written agreement in
the name of or on behalf of DBI (provided, however, that the
foregoing shall in no way restrict the ability of any employee or
officer of DBI to take any action in such capacity on behalf of
DBI, nor shall it restrict the ability of any representative to
take any action on behalf of DBI that may be authorized by DBI).
Nothing herein shall create, expressly or by implication, a
partnership, joint venture or other association between the
parties.
5. Term of Agreement. This Agreement shall remain in effect
until the tenth anniversary of the date of this Agreement;
provided, however, that SKC may elect to terminate this Agreement
at any time hereafter and for any reason upon 30 days' written
notice to DBI.
6. Indemnification. DBI shall indemnify SKC and its
respective partners, principals, members, employees, directors,
officers, representatives and consultants (collectively,
"Agents") against, and shall defend against, save and hold each
of them harmless from, all claims, actions, proceedings, demands,
liabilities, damages, judgments, assessments, losses and costs,
including fees and expenses (including all legal costs and
expenses relating thereto) arising out of or in connection with
this Agreement or any act performed or omitted to be performed by
SKC or any Agent under or pursuant to this Agreement. When acting
within the scope of this Agreement, SKC and each Agent shall be
deemed an agent of DBI solely for purposes of indemnification
under the Certificate of Incorporation and Bylaws of Cascade.
7. Assignment. No party may assign its rights or obligations
under this Agreement without the prior written consent of the
other.
8. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California
without giving effect to the principles of conflicts of laws
thereunder.
9. Amendment. This Agreement can be modified or amended only
by a writing signed by the parties hereto.
- 2 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed as of the date first above written.
DIAMOND BRANDS INCORPORATED
By: /s/ Naresh K. Nakra
--------------------------
Name: Naresh K. Nakra
Title: President
SEAVER KENT & COMPANY, LLC
By: /s/ Bradley R. Kent
--------------------------
Name: Bradley R. Kent
Title: Managing Member
- 3 -
TRANSACTION ADVISORY AGREEMENT
THIS TRANSACTION ADVISORY AGREEMENT (this "Agreement"),
dated as of April 21, 1998, is entered into by and between
DIAMOND BRANDS INCORPORATED, a Minnesota corporation ("DBI") and
SEAVER KENT & COMPANY LLC ("SKC").
DBI and SKC agrees as follows:
1. Recapitalization Fee. In consideration for the advisory
services rendered by SKC to DBI in connection with the
Recapitalization Agreement, dated March 3, 1998, among Seaver
Kent-TPG Partners L.P. and Seaver Kent I Parallel, L.P., DBI and
the shareholders of DBI listed on Exhibit A thereto (the
"Recapitalization Agreement"), DBI shall pay to SKC or its
designees, upon the consummation of the transactions contemplated
by the Recapitalization Agreement, a fee of $2,750,000 in cash.
2. Future Transactions. DBI shall request that SKC render
to it financial advisory services in connection with any
acquisition of the assets or capital stock or other ownership
interests of or in any other entity or person or any merger or
combination therewith (a "Transaction"). SKC shall have the
option of accepting an engagement by DBI to render advisory
services in connection with any Transaction. If SKC accepts such
engagement, DBI shall pay to SKC, as compensation for such
services, advisory fees, payable in cash upon consummation of the
Transaction, in an amount equal to 1.5% of the "transaction
value" of the Transaction. For these purposes the "transaction
value" shall be equal to the aggregate amount of consideration
paid in the Transaction, including, without limitation, the
aggregate amount of funds needed to complete the Transaction,
whether to be paid in the form of consideration, to refinance
debt, debt, preferred stock, options or similar items assumed or
to pay costs or expenses (excluding any fees payable pursuant to
this Agreement and any fees, if any, paid to any other person or
entity for financial advisory investment banking, brokerage or
similar services in connection with the Transaction).
SKC may, in its sole discretion, waive all or any portion
of the fees related to any Transaction or agree to a fee in a
different amount or on a different basis.
DBI shall make available to SKC all financial and other
information concerning its business and operations that SKC
reasonably requests as well as any other information relating to
any Transaction prepared by DBI or any of its other advisors. In
performing its services hereunder SKC shall be entitled to rely
without investigation upon all information that is available from
public sources as well as all other information supplied to it by
or on behalf of DBI or its advisors or an acquisition target or
potential acquisition target or its advisors and shall not in any
respect be responsible for the accuracy or completeness of, or
have any obligation to verify, the same.
<PAGE>
3. Term of Agreement. This Agreement shall remain in
effect until the tenth anniversary of the date of this Agreement;
provided, however, that SKC may elect to terminate this Agreement
at any time hereafter and for any reason upon 30 days' written
notice to DBI.
4. Indemnification. DBI shall indemnify SKC and its
respective partners, principals, members, employees, directors,
officers, representatives and consultants (collectively,
"Agents") against, and shall defend against, save and hold each
of them harmless from, all claims, actions, proceedings, demands,
liabilities, damages, judgments, assessments, losses and costs,
including fees and expenses (including all legal costs and
expenses relating thereto) arising out of or in connection with,
this Agreement or any act performed or omitted to be performed by
SKC or any Agent under or pursuant to this Agreement. When acting
within the scope of this Agreement, SKC and each Agent shall be
deemed an agent of DBI solely for purposes of indemnification
under the Certificate of Incorporation and Bylaws of Cascade.
5. Assignment. No party may assign its rights or
obligations under this Agreement without the prior written
consent of the other.
6. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California
without giving effect to the principles of conflicts of laws
thereunder.
7. Amendment. This Agreement can be modified or amended
only by a writing signed by the parties hereto.
2
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed as of the date first above written.
DIAMOND BRANDS INCORPORATED
By: /s/ Naresh K. Nakra
--------------------------
Name: Naresh K. Nakra
Title: President
SEAVER KENT & COMPANY, LLC
By: /s/ Bradley R. Kent
--------------------------
Name: Bradley R. Kent
Title: Managing Member
3
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use
in this registration statement of our report dated February 6,
1998, except as to Note 8, which is as of April 21, 1998,
included herein and to all references to our Firm included in
this registration statement.
/s/ Arthur Andersen LLP
Minneapolis, Minnesota
August 25, 1998
